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I N T E R N A T I O N A L E N E R G Y A G E N C Y
BLACK SEA
ENERGY SURVEY
I N C O - O P E R A T I O N W I T H
T H E E N E R G Y C H A R T E R S E C R E T A R I A T
2027en.fm Page 1 Wednesday, June 21, 2000 10:30 AM
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I N T E R N A T I O N A L E N E R G Y A G E N C Y
BLACK SEA
ENERGY SURVEY
I N C O - O P E R A T I O N W I T H
THE ENERGY CHARTER SECRETARIAT
INTERNATIONAL ORGANISATION FOR
ENERGY AGENCY ECONOMIC CO-OPERATION
9, rue de la Fédération, AND DEVELOPMENT
75739 Paris, cedex 15, France
The International Energy Agency (IEA) is an Pursuant to Article 1 of the Convention signed in
autonomous body which was established in Paris on 14th December 1960, and which came into
November 1974 within the framework of the force on 30th September 1961, the Organisation for
Organisation for Economic Co-operation and Economic Co-operation and Development (OECD)
Development (OECD) to implement an international shall promote policies designed:
energy programme.
• To achieve the highest sustainable economic
It carries out a comprehensive programme of growth and employment and a rising standard of
energy co-operation among twenty-four* of the living in Member countries, while maintaining
OECD’s twenty-nine Member countries. The basic financial stability, and thus to contribute to the
aims of the IEA are: development of the world economy;
• To contribute to sound economic expansion in
• To maintain and improve systems for coping with Member as well as non-member countries in the
oil supply disruptions; process of economic development; and
• To promote rational energy policies in a global • To contribute to the expansion of world trade on
context through co-operative relations with non- a multilateral, non-discriminatory basis in
member countries, industry and international accordance with international obligations.
organisations;
• To operate a permanent information system on The original Member countries of the OECD are
the international oil market; Austria, Belgium, Canada, Denmark, France,
• To improve the world’s energy supply and Germany, Greece, Iceland, Ireland, Italy,
demand structure by developing alternative Luxembourg, the Netherlands, Norway, Portugal,
energy sources and increasing the efficiency of Spain, Sweden, Switzerland, Turkey, the United
energy use; Kingdom and the United States. The following
•To assist in the integration of environmental and countries became Members subsequently through
energy policies. accession at the datesindicated hereafter: Japan
(28th April 1964), Finland (28th January 1969),
Australia (7th June 1971), New Zealand
(29th May 1973), Mexico (18th May 1994),
the Czech Republic (21st December 1995),
Hungary (7th May 1996), Poland
(22nd November 1996) and the Republic of Korea
*IEA Member countries: Australia, Austria, Belgium,
(12th December 1996). The Commission of the
Canada, Denmark, Finland, France, Germany, Greece,
European Communities takes part in the work of
Hungary, Ireland, Italy, Japan, Luxembourg, the
the OECD (Article 13 of the OECD Convention).
Netherlands, New Zealand, Norway, Portugal, Spain,
Sweden, Switzerland, Turkey, the United Kingdom,
the United States. The European Commission also takes
part in the work of the IEA.
© OECD/IEA, 2000
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FOREWORD - 3
FOREWORD
In 1998, the International Energy Agency published Caspian Oil and Gas, highlighting the
Caspian Sea’s potential as a main energy source for both Europe and Asia. We follow that
study now with this Black Sea Energy Study, for the key to moving Caspian oil and gas to
market in Europe is the politics and economics of the complex Black Sea region.
World oil demand is expected to continue to grow, with prosperity and the relentless spread
of motor and air transport. The Caspian Sea region is one of the great potential reserves of
petroleum – not nearly so vast as the Middle East’s pool, but comparable to North Sea reserves.
How the riparian states resolve the problem of energy through and along the coast of the
Black Sea will be of high importance to Europe and the world over the next two decades.
This study describes the extreme variety of conditions in the states involved – from rapidly-
growing and gas-hungry Turkey to oil-rich Azerbaijan. Bulgaria and Romania, together with
three republics of the Former Soviet Union, are still undergoing the difficult transition from
Communism to a market economy. All need foreign investment to support the expensive
energy projects before them. Several have yet to create the stable and predictable investment
climate needed to attract such investment.
In the current volume, the IEA seeks to render a service to the countries of the region as well
as to future investors and clients. Facing up to the political, economic and geographic problems
of the region, we offer some proposals on how they may be met. Among the key issues dealt
with is, of course, that of alternative transit routes that will safely deliver oil and gas while
avoiding congestion in the Turkish Straits.
Robert Priddle
Executive Director
ACKNOWLEDGEMENTS - 5
ACKNOWLEDGEMENTS
The IEA wishes to acknowledge the very helpful co-operation of the Energy Charter Secretariat,
the OECD Nuclear Energy Agency, and Hagler-Bailly Services Inc.
Thanks are due to the following experts for their valuable comments: Emmanuel Bergasse
of the Tacis Energy Efficiency Centre in Tbilisi; Slavtcho Neykov at the Bulgarian State
Commission for Energy Regulation; Doina Caloianu and Lulin Radulov of the Black Sea
Regional Energy Centre.
Special thanks is given to the following IEA staff: Pierre-Marie Cussaguet and John
Paffenbarger, country desk officers respectively for Turkey and Greece, Yukimi Shimura and
Sohbet Karbuz for preparing the statistical data, Bertrand Sadin for the preparation of the
maps, and Benjamin Parameswaran for the preparatory work.
INTRODUCTION - 7
INTRODUCTION
The IEA, in co-operation with the Energy Charter Secretariat, conducted a study of the energy
sectors and policies of Armenia, Azerbaijan, Bulgaria, Georgia and Romania in late 1998
and early 1999. The resulting publication, Black Sea Energy Survey, is an independent review
of the major issues facing energy developments in these countries and energy transport in
the Black Sea. To round off the regional picture, brief overviews of the IEA Members Greece
and Turkey have been added, drawing on the IEA’s Energy Policy reviews of these countries.
Ukraine and Russia, which have been studied in detail in previous IEA surveys, are not covered
by specific chapters in this study.
In preparing this report, missions were undertaken in late 1998 to Armenia, Bulgaria, Georgia
and Romania to meet with key energy figures in government and industry, both local and
foreign, as well as representatives of multilateral institutions active in the region.
The study team was composed of experts from the IEA Secretariat and from the Energy Charter
Secretariat.
Hans Kausch(team leader)
IEA, Head of Non-Member Countries Division for Europe, Middle East and Africa
Erich Unterwurzacher
IEA, Administrator, Non-Member Countries Division
Jean-Christophe Fueg
IEA, Administrator, Non-Member Countries Division
Nina Kouznetsoff
Energy Statistician, IEA
Ian Brown
Phare energy advisor at the Romanian Ministry of Industry and Trade
John Fahy
ERAS Ltd
Sydney Fremantle
Energy Charter Secretariat
Gianni Frescura
OECD Nuclear Energy Agency
Jeff Pierson
Altec
Jacques Royen
OECD Nuclear Energy Agency
Lise Weis
Energy Charter Secretariat
TABLE OF CONTENTS - 9
TABLE OF CONTENTS
FOREWORD 3
ACKNOWLEDGEMENTS 5
INTRODUCTION 7
I. OVERVIEW 17
Economic Performance and Outlook 19
The Energy Landscape: Some Common Threads 20
State Ownership and Privatisation 20
Structural Reform 21
Regulatory and Legal Reform 22
Integration of Electricity Markets 22
Investment Climate 23
II. REGIONAL ENERGY TRADE AND TRANSIT 25
Oil Trade and Transport 25
Current Oil Transport 25
Medium-Term Oil Transport (2003-2005) 26
Southeast Europe 30
Longer-Term Oil Transport (2005-2010) 31
Summing Up 33
Natural Gas Trade and Transport 35
Current Gas Trade 36
The Turkish Market 36
Southeast European Markets 38
Ukraine 40
Summing Up 40
III. AZERBAIJAN 41
Economic and Political Overview 42
Recent Economic Developments 42
Privatisation and Foreign Investment 43
10- TABLE OF CONTENTS
The Energy Sector 44
Energy Overview 44
Energy Sector Structure 46
The Status of the Caspian Sea 46
Energy Prices and Tariffs 47
Energy Legislation 47
The Oil Sector 48
Oil Reserves 48
Oil Production 48
Oil Production Projections 49
Recent Drilling Results 50
Oil Prices 51
Oil Refining 51
Foreign Investment 52
Oil Distribution and Consumption 55
Oil Transportation and Trade 56
Natural Gas Sector 58
Gas Reserves and Production 58
Gas Transmission and Distribution 60
LPG 62
Gas Consumption 62
Gas Pricing 63
Gas Trade and Transit 63
Electricity 64
Electricity Industry Overview 64
Electricity Generation 64
Electricity Production and Consumption 65
Electricity Transmission 65
Future Developments 66
IV. ARMENIA 67
Political and Economic Overview 67
Recent Economic Developments 67
Privatisation and Restructuring 69
The Energy Sector 70
Energy Overview 70
Energy Policy and Legislation 72
The Oil Sector 75
Exploration 75
Oil Distribution 75
Oil Consumption 76
Oil Trade and Transit 76
TABLE OF CONTENTS - 11
The Gas Sector 77
Gas Industry Structure 77
Legal Framework and Pricing 77
Gas Distribution and Consumption 78
Future Gas Demand 79
The Gas Network 79
Gas Trade and Transit 80
Coal 81
Electricity 81
Structure of the Electricity Industry 81
Privatisation 83
Electricity Generation 84
Electricity Production and Consumption, Outlook 87
Electricity Network and Interconnections, Trade and Transit 88
Electricity Prices 89
Nuclear Power 90
Structure of Nuclear Utility 90
Operation of Medzamor NPP 91
Nuclear Safety Aspects 91
V. GEORGIA 93
Political and Economic Overview 93
Recent Economic Developments 93
Privatisation and Restructuring 95
The Energy Sector 95
Energy Overview 95
Energy Policy and Legislation 98
Energy Projections 101
Investment Framework 102
The Oil Sector 103
Oil and Gas Policy 103
Oil and Gas Exploration and Production 104
Refining 105
Oil Transit Infrastructure 105
Oil Consumption 106
Oil Pricing 107
Natural Gas 107
Natural Gas Policy 107
Gas Industry Restructuring 107
Gas Infrastructure and Transit 109
Gas Pricing 109
Gas Consumption 109
