Royal Dutch Shell Plc  .com Rotating Header Image

BP puts Georgia operations on hold

Times Online
The Times
August 13, 2008

BP puts Georgia operations on hold

BP, the oil producer, shut down two pipelines crossing Georgia yesterday amid fears that they could be damaged by the conflict with Russia. The action will cut global oil supplies by more than a million barrels a day, or 1.4 per cent of production.

The company estimates that its daily output will be cut by between 60,000 and 100,000 barrels from its customary four million. Its share price rose 10p to £5.35 yesterday.

The decision to stop pumping was made after the conflict between Georgia and Russia spread from South Ossetia into areas surrounding the pipelines. The Georgian Government said yesterday that Russian bombs had hit one of the pipes but failed to detonate, although both BP and the Russians denied this.

However, the situation in the Caucasus was unstable enough to force BP to act. It has shut down the Baku-to-Supsa pipeline as well as the South Caucus gas pipeline and the larger Baku-Tbilisi-Ceyhan (BTC) pipeline remains closed after a fire last week.

BP said that the ceasefire announced by Russia yesterday was a positive step but it would wait to see whether it held before restarting pumping. The closure of the pipelines forced offshore Azeri fields to cut output from 800,000 barrels per day to 250,000, trade sources said.

Georgia acts as a bridge between the land-locked Caspian Sea and the Black Sea and Mediterranean, and this has been promoted as a route for transporting oil from the Caspian without passing through Russian territory.

Countries such as Azerbaijan and Kazakhstan are concerned about routing pipelines through Russia because that would effectively give its neighbour, and former Soviet master, control over oil and gas revenues.

Gerry Donnelly, a Fox-Davies Capital analyst, said: “This recent conflict in Georgia has highlighted the heavy dependence that international oil and gas operators place on the countries that lie along the pipeline transport corridor.”

The BTC pipeline, at 1,100 miles (1,760 kilometres) long, is the largest in the region and can pump up to a million barrels a day from Baku, through Georgia to the Turkish port of Ceyhan.

It was shut down last week after a fire in the Turkish sector, which has been blamed on Kurdish separatists.

The Baku-to-Supsa pipeline is much smaller and transports about 90,000 barrels a day to a Georgian port on the Black Sea. The South Caucus gas pipeline follows a similar route.

Kazakhstan has also said that it will halt shipments of oil that are taken across Georgia to the Black Sea by rail.

Kevin Norrish, a Barclays Capital analyst, said that the Georgia-Russia crisis illustrated the high level of political risk attached to the vital energy supply routes. “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,” he said.

Despite the disruption to global oil supplies, the price of sweet light crude dropped yesterday by 75 cents to $113.70 a barrel.

Julian Lee, senior energy analyst with the Centre for Global Energy Studies, said: “It is quite remarkable that the world has lost one million barrels but the market has not really been bothered. It shows a fundamental shift in market perceptions.”

IEA forecasts

— The sustained high price of oil will lead to a fall in demand from developed countries this year, the International Energy Authority (IEA) said yesterday

— The agency lowered its forecast by 16,000 barrels a day to 48.6 million barrels a day, a fall of 1.3 per cent from last year

— The IEA added that continued high prices next year would force OECD demand down a further 1.1 per cent, but this will more than be offset by growth in demand from emerging economies

— The IEA estimates that overall consumption next year will rise to 87.8 million barrels a day, 70,000 more than previously estimated

— Oil supply is also rising, particularly from non-Opec countries. The IEA expects non-Opec supply to reach 50.8 million barrels a day in 2009, up from 50.1 million this year

This website and sisters,,,, and, are owned by John Donovan. There is also a Wikipedia segment.

Leave a Reply

Your email address will not be published. Required fields are marked *

This site uses Akismet to reduce spam. Learn how your comment data is processed.

Comment Rules

  • Please show respect to the opinions of others no matter how seemingly far-fetched.
  • Abusive, foul language, and/or divisive comments may be deleted without notice.
  • Each blog member is allowed limited comments, as displayed above the comment box.
  • Comments must be limited to the number of words displayed above the comment box.
  • Please limit one comment after any comment posted per post.