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Caspian energy pipelines: Towards a self-organizing network?

One of the properties of increasingly networked relationships is that they seem to begin to take on a life of their own. The word "self-organization" is used for describing this. In the evolution of networks, events can occur that seem insignificant at the time but which, in retrospect, stand out as crucial markers of qualitative development. (The technical name for this phenomenon is a "bifurcation point.") In this column, I will explore—without using the technical jargon—the question of whether we are approaching such a bifurcation point in the self-organization of the emerging network of Caspian energy pipelines.

One of the properties of relationships among multiple agents in the post-Cold War world is that these relationships are much less hierarchical and much more networked than before. Anyone who is trying or has tried to manage a modern corporation knows this and has undoubtedly encountered the notion of "complexity theory" or "complexity science" in trying to find ways to understand what is going on in the organization.

The last building block for the Baku-Ceyhan main export pipeline (MEP) was set into place with the signature, by Turkey, of the transit agreement establishing the ground rules for Azerbaijani oil crossing its territory. Then the first meeting of potential MEP investors took place in Washington. Earlier this year, surveying teams from Germany and the United Kingdom visited Georgia in order to map out the pipeline's precise route through the country and thereby help to conclude the accord on transit rights and responsibilities: the last piece of the puzzle in the complex of negotiations and agreements earlier detailed in this space. Now the prospects for obtaining financing appear so favorable that BP-Amoco, earlier one of the most reticent possible partners, has reportedly agreed to participate in the execution of the preliminary engineering studies for the entire route, beginning as soon as this month.

Most interesting are two recent, almost simultaneous announcements. First, authorities in Abkhazia said that an oil deposit had been discovered in the region and that foreign investment (perhaps from Russia) is being sought for its development. Second, the Georgian side proposed the construction of a pipeline to Supsa from Novorossiisk, the Russian port which is now handling some Azerbaijani oil and which will also be the terminus of the Caspian Pipeline Consortium (CPC) line across southern Russia. (The latter is now under construction and will bring Kazakhstani oil from the Tengiz field to the Black Sea coast.) A pipeline from Novorossiisk to Supsa would necessarily cross Abkhazia. Such a pipeline would make economic sense.

The skepticism about the Caspian basin that was fashionable earlier is now going out of style, and it is increasingly clear that the problem in the region will not be one of finding enough oil and gas to justify investments but one of finding enough infrastructure and transportation to exploit and carry to market the quantities already found and yet to be discovered. (The Vostochny Kashagan oil strike off the Kazakhstani coast, for example, looks from preliminary reports to represent, by itself, at least two and perhaps four times the North Sea reserves.)

It has long been known that climatic problems leading to rough seas and tough loading conditions, especially in winter, vitiate the efficiency of the Novorossiisk port. This is one reason why new terminals are being constructed some distance to the south. At the same time, Turkey's objection to increased tanker traffic through the Straits, based on ecological and safety considerations, seems finally to have been taken seriously.

That is one reason why Kazakhstan and Ukraine declared their common interest in seeing at least some oil from Tengiz shipped to refineries in Ukraine, thence to be put into existing pipelines for transport and sale to East Central Europe. Poland has declared its readiness to receive such oil, on the condition that this does not damage relations with Russia. The Kazakhstani shipping agency Kaztransoil owns a majority stake in Ukraine's Kherson refinery, and the Islamic Development Bank (IDB) has just last month lent money for construction of two tankers to take oil from Novorossiisk across the Black Sea to Ukraine. (In theory, these could also transport Azerbaijani oil arriving at Novorossiisk through the modified "early northern" route now circumventing Chechnya through Dagestan.)

Yet in light not only of the Kazakhstani strike in the East Kashagan field but also LUKoil's strike earlier this year in Russia's own offshore Caspian field, Severny, it becomes unlikely that transhipment across the Black Sea will suffice to create enough exit routes for Caspian oil in the near and medium term. In the longer term, this would remain so: even if one added routes involving the port of Constanta in Romania and Burgas in Bulgaria to routes via Ukraine.

The head of LUKoil, Vagit Alekperov ceased to oppose the Baku-Ceyhan MEP in the late 1990s, even making a statement two years ago in the presence of Turkey's energy minister to the effect that it made "good sense." Indeed, for his company it does. In this light, the confluence of independent circumstances around a possible development of petroleum resources in Abkhazia, with a pipeline joining Novorossiisk and Supsa, is especially propitious. Baku has objected but has no legal ground for blocking such a development if it occurs. Moreover, Azerbaijan needs the MEP, as does Turkey, so it will in the end tolerate such incremental demands and autonomous initiatives by Georgia: because Tbilisi will propose nothing so radical and unacceptable as to threaten the ultimate feasibility of the MEP.

All these events are creating whirlpools of related but autonomous activity around pipeline issues. It is as if other actors and agents on the scene have been preparing other deals, just waiting for the go-ahead signified by the approval of transit accords by the parliaments of Azerbaijan, Georgia, and Turkey: approval that is certain. More of these sorts of ventures may be expected to pop up in the future, as Georgia successfully negotiated, as a condition for right-of-way, that Georgian subcontractors should be used for some of the work. This will promote not only the creation of small and medium enterprises in the country, but also the associated creation of business expertise that will later be transferable across economic sectors within the country.

Leading Georgian politicians have declared that for this reason, apart from revenues derived from transit fees alone, the MEP represents a propulsive force that will help to guarantee the country's economic growth into the future. This may not be a great exaggeration. Georgia is already recognized as the keystone of political security for the south Caucasus. It thus represents a keystone linking the emerging economic-security network, with its emphasis on pipelines, with the emerging political-security network taking shape through the informal yet intensive high-level discussions now ongoing over the shape of a Caucasus Stability Pact.

If all this is so, then we may well be near a "bifurcation point" in the evolution of the complex system that is the South Caucasus, including all its manifold links with its international and indeed its physical environment. And the main thing to understand about bifurcation points is that once you have passed through one, there is no going back.

Copyright © Robert M. Cutler unless otherwise noted.
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URL:  http://www.robertcutler.org/blog/2000/06/caspian_energy_pipelines_towar.html
First published in FSU Oil & Gas Monitor., No. 85 (7 June 2000): 2–3.

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This page contains a single entry from the blog posted on June 6, 2000 3:26 PM.

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