BP shuts oil pipeline in Georgia, supplies still get through

by Roland Jackson 29 minutes ago

LONDON (AFP) - Energy giant BP announced Tuesday it had closed an oil pipeline because of fighting in Georgia but said oil and gas supplies continued to flow from the Caspian Sea to the West by other routes.

A BP spokesman confirmed the company had shut the Baku-Supsa oil pipeline in Georgia as a precaution, but said oil was still being transported to the Georgian Black Sea port of Batumi by train and through an Azeri-operated pipeline.

In terms of gas, BP corrected its earlier statement that supplies had been completely suspended through the South Caucasus pipeline, a major link which snakes from Baku in Azerbaijan into Georgia and to the Turkish border.

In fact, the spokesman told AFP, although gas was no longer being pumped into the pipeline, the high pressure inside meant supplies were still flowing through to Turkey.

"There is still some oil production from the Caspian and it is being exported through two other routes. One is a rail link from Baku to Batumi," the spokesman said.

"And the other link one is another pipeline known as the Northern Route and that is operated by the Azerbaijan national company Socar from Baku to Novorossisk." Novorossisk is the main Russian port on the Black Sea.

Regarding the South Caucasus gas pipeline, which is also known as the Baku-Tbilisi-Erzurum (BTE) link, the spokesman said: "What has been suspended as a precaution because of the problems in Georgia is the production of gas into the pipeline at Baku.

"But a gas pipeline is high pressure so you can still supply gas out the other end into Turkey even though you are not pumping gas into (it at) Baku and there is probably several days of supply still in Turkey."

Georgia is not an oil producer but its conflict with Russia has raised concerns in the oil market because the country is a key transit point for crude oil and gas exports from Azerbaijan to energy-hungry Western markets.

However, analysts played down the market impact of the news and argued that operations would likely resume quickly following Moscow's order to halt its military offensive in Georgia.

Supply from the region is already being affected by the closure of the world's second-longest pipeline, the key Baku-Tbilisi-Ceyhan (BTC) oil link, which BP also operates.

It was shut last week after a blast in a pump at a section in eastern Turkey. The fire was extinguished on Monday.

"Although BP has halted oil shipments along smaller pipelines through Georgia as a precaution, the quantities of crude oil involved are relatively small and in any case may soon resume if Moscow's announcement this morning of a halt to military operations proves to be a step towards de-escalation," said Barclays Capital analyst Kevin Norrish.

"That is not to say that there are no important ramifications for the oil market from recent events in the Caucasus."

The Paris-based International Energy Agency warned earlier Tuesday that the conflict in Georgia threatened the strategic energy hub.

Norrish also warned that the Georgia-Russia crisis illustrated the high level of political risk attached to vital energy supply routes.

He said: "In the context of falling non-OPEC crude oil output from other parts of the world, this extra oil is vital.

"What has been highlighted over the past few days is that despite the careful routing of pipelines to avoid both Russia and the Middle East, it still comes with a very significant degree of political risk."