NEWS : War threatens BP pipeline project

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The Independent Online
THE RUSSIAN invasion of Chechnya has thrown a barricade in the path of a $10bn (£6.7bn) oil project planned by British Petroleum and 10 partners in the Caucasus.

The Chechen capital, Grozny, devastated by heavy fighting over the past three weeks, is the focal point of the region's oil and gas supply network.

A BP spokesman said the company was watching events in the republic closely. The shortest of three potential pipeline routes from Azerbaijan to world markets passes through Chechnya.

The consortium signed a $7bn deal with Azerbaijan in September to develop the Azeri, Chirag and Guneshli fields under the Caspian Sea, which are believed to contain reserves of 55 billion tonnes, equivalent to a major North Sea field. It is looking at three possible routes for a $3bn export pipeline. Two of them - to the Mediterranean or the Gulf - run through Iran, and are not popular with the consortium's American members, which include Amoco, Pennzoil and Unocal. Those routes would also be vulnerableto attacks from Armenians or Kurds.

The remaining route, through Chechnya to Novorossiysk, Russia's main Black Sea oil terminal, is the shortest and crosses the easiest terrain. But prolonged conflict in the republic could endanger the project. The Russian air force has bombed the city's refinery, despite interior ministry assurances that "energy enterprises" in Chechnya would not be targeted.

Although the pipeline will not be needed for at least five years, a decision on the route is likely to be taken much earlier. Russia, which has a 10 per cent interest in the project through Lukoil, favours the route through Grozny to Novorossiysk.

The republic is one of Russia's oldest oil provinces. Some fields have been operating for almost a century. As its fields have dried up, production has declined from 20 million tonnes in 1970 to 800,000 tonnes in 1993, according to Jonathan Stern, vice-president of Gas Strategies, an industrial consultancy.

But it remains a major transit point. Grozny is a hub for two major oil pipelines, linking the producing and refining areas of Astrakhan and Baku with Novorossiysk, and a host of natural gas routes.

The Grozny oil refinery, which has a capacity of 18 million tonnes a year, is said to be in poor repair but has become more significant to Russia since the collapse of the Soviet Union. It lost much of its refining capacity when other republics became independent, said Stuart Christie, editor of CIS Oil and Gas Report.

Rumours in Moscow at the start of the war suggested the real motivation for the invasion was a decision by the Chechen government to privatise some of its oil and gas infrastructure. Western analysts place little credence in this theory, however.