Balkan Oil Pipelines

EU Market - Special Edition - Energy

PAN EUROPEAN OIL PIPELINE – PEOP

Recent situation development on the crude oil market points to long term increase of demand in relation to production and prices on the higher level. In these circumstances, ensuring sources and logistics of supply becomes strategically important for European countries.

The Caspian region abounds in new oil deposits that belong to light oils, suitable for European and American market – which show tendency for rise in demand of “white” derivatives. Estimates show significant growth of crude oil production in this region in the near future but also of future logistical problems. Oil from this region is transported via land in all directions – but geographically, the closest market is Europe.

The Caspian and Russian oil comes to Europe via Black Sea and narrow Turkish straits – Bosphorus and Dardanelle and tankers sometimes wait to pass from more than 20 days.

It was proven that there should be alternative export routes in order to ensure supplies of crude oils from the Caspian region and bridge ecologically and navigatory sensible Bosphorus straits.

Competitive routes and PEOP advantages

At this moment, there are several competitive projects:

• Burgas – Alexandroupoulis
• Burgas – Vlora
• Pipeline parallel to the Turkish straits

These directions have its advantages but all these options have the problem of the depth of the final harbour and the fact that they transport oil far from the final market destination. 

Proposed Pan European pipeline is designed as economical system for the transport of crude oil from the existing oil terminals in Black Sea harbour Constanza (Romania), via refinery in Serbia and Croatia to Trieste, which is the entering point of Trans-Alpine pipeline (TAL) that supplies refineries of central Europe – with the possibility of extension to Venice and connecting with Italian pipeline network.

Advantages of PEOP route in comparison with other routes are:

• Location, because the Caspian and Russian oil are transported to North Adriatic, with direct connection to Trans Alpine pipeline
• Environmental aspect, because building the pipeline reduces number of oil tankers in north Adriatic and the oil shipped to Trieste harbour would be transported via land
• Pan European pipeline would be used for transport of different types of crude oil – both Russian and Caspian
• Transport expenses would be competitive to other existing means of transport.

Institutional Development

Development of PEOP pipeline begun in September 2002 when Romania, Croatia and Serbia and Montenegro signed Protocol signifying inter-state agreement on oil and gas transportation, financed by EU.

Study of the Hill Consortium proved feasibility of the project, its significance for European oil supply and analyzed three possibilities for pipeline capacity: 40, 60 and 90 million tons per year. Preliminary estimates show the most realistic option is the one of 60 million tons capacity in which case the investment for construction of the pipeline would be 2,2 billion US dollars.

Significance of PEOP for participating countries

• Savings in transport costs of crude oil are estimated on 40% of current transport costs

• PEOP pipeline would create market with new quotation for Russian and Caspian oil in the north Adriatic, creating conditions for development of trade and other services as well as possibility for price reductions

• Increase of crude oil quantity in the region in relation to local demands would decrease price of crude oil

• Advantages of direct foreign investments: It would bring contracts to local producers (e.g. BTC pipeline ensured contracts for local producers of 230 million US dollars total) , increases employment and income (multiple effect), increases budget income

• Favourable political signal: Concrete example of succesfull regional cooperation (pre-requisite for further integration), true sign of confidence of international community in general stability of the country

Next steps in development of PEOP pipeline

Next main task in development of PEOP project is making decision on establishment of a company that would work on further development of the project. The company should provide all necessary studies, passes, permits and interstate agreements in order to offer the project to possible investors (oil companies and international financial institutions).

It is planned to establish the new company based on the principle of Public-Private Partnership (there are already interested private capital in Italy ready to invest in this phase of the project) with a share from states or their national companies.