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Monday, December 04, 2006

Azerbaijan Pumps Oil from Russia

12–04–2006 Kommersantby Dmitry Butrin; Rafael Mustafaev, Baku
// Ilkham Aliev is ready to stop the transit to Novorossiysk
Azerbaijan might decline Transneft’s services
On the eve of Russian Premier Mikhail Fradkov’s visit to Baku, Azerbaijani authorities made it clear they are ready for a long-term conflict with Moscow. Azerbaijan’s President Ilkham Aliev ordered to his Cabinet to estimate the possibility of declining oil transit through Russia’s territory in response to the growth in prices of Gazprom’s gas supplies to Azerbaijan. The attempt to include Baku into the anti-Georgian bloc might be considered as failed. Russia’s energy policy in Transcaucasia is gradually going beyond discussing gas supply prices. On the eve of the visit of Russian Prime Minister Mikhail Fradkov to Baku which begins today, Azerbaijani President Ilkham Aliev ordered to his Cabinet to consider reducing or cease of pumping oil through the Baku-Novorossiysk pipeline. He made this decision after the conference of December 1 which discussed preparing Azerbaijan’s economy for the upcoming winter. The country’s main energy problems are the growth of price on natural gas supplied by Gazprom to Azerbaijan (up to $230 for 1,000 cubic meters since January), the planned reduction of gas supplies to the country, and the possible cut in electricity supply from Russia. A week before Aliev’s visit to Moscow, and then to Brussels, scheduled for November 10, the Kremlin saw its chief ally in Azerbaijani president for the upcoming “natural gas special operation” against Georgia. Gazprom supplies gas to Transcaucasia, including Armenia and Azerbaijan (around 4.5 billion cubic meters), via Georgian territory. Gazprom insists that Georgia and Azerbaijan should pay $230 for 1,000 cubic meters beginning from January 2007. Now the countries buy gas for about $110 for 1,000 cubic meters. Tbilisi takes it as the consequence of Russia’s intention to destabilize Georgia’s economy. The question about how to compensate to Azerbaijan the price growth of gas pumped via Georgian territory was to be discussed in Moscow on November 10. However, Ilkham Aliev preferred to visit Brussels first, where he held talks with EU and NATO top officials, and only then to go to Moscow – to make Vladimir Putin face the fact that Azerbaijan intends to lead a Kremlin-independent foreign policy. Yet, it turned out yesterday that Baku is ready for a long-term, and not just tactic, cooldown in relations with Moscow – concerning the Baku-Novorossiysk pipeline. Baku wants to cease pumping oil through it, but almost all Azerbaijan’s transit of oil on Russia’s territory is going via that pipeline. According to Azerbaijan’s State Oil Company, the country transported over 4.1 million of metric tons of oil through Russia in 2005. Nearly 3.6 million of metric tons of oil was pumped through the Baku-Novorossiysk pipeline in January-September 2006. The main competitor of the Transneft-controlled pipeline is the Baku-Tbilisi-Ceyhan Pipeline (BTC). Ilkham Aliev directly linked the possible reduction in oil pumping via the Baku-Novorossiysk pipeline (which will deprive Transneft of about $25 million of transit revenues a year) to the situation around gas supplies. He explained that Gazprom’s gas price growth and the expected cut in gas supplies to Azerbaijan require extra supplies of oil products for generating electricity. Baku admits it will follow the same strategy in winter 2006-07 as last winter: together with Iran, it will carry out exchange operations for supplying gas and electricity to Georgia in case of lack in its energy system, and import electricity from Georgia during peak periods in Baku. Last winter, this arrangement secured stable work for Georgia’s energy system during the breakdowns on export electric lines and gas pipelines on Russia-Georgia border, which Tbilisi thinks Russia organized. Back in summer 2006, Azerbaijani government was inclined to support Russia. Thus, head of the Center for Oil Research of Azerbaijan Ilkham Shaban said that the country’s government then asked BP to postpone the beginning of gas extraction from Shah-Deniz deposit from September 2007 to later time. Now, the opening of Shah-Deniz might occur earlier. Although Aliev said the final decision on the Baku-Novorossiysk pipeline will be made in “a week or two”, the issue must have already been decided upon. Azerbaijan’s refusal to pump oil via Russia has sense only if it is a strategic decision for the several upcoming years, which will deprive Transneft of growth in oil pumping, for the sake of the BTC. So, Fradkov’s visit to Azerbaijan cannot be easy in this situation. It will rather mark the beginning of the long-term chilldown in Baku-Moscow relations, regardless of whether the anti-Georgian “natural gas special operation” takes place.
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