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Georgia's tumultuous oil fortunes

A sharp increase in oil prices should encourage oil producing countries, but in Georgia production has noticeably decreased. Analysts note that in the 2005 budget draft nothing is allotted for oil production Georgia. On the other hand, by next year the construction of the Baku-Tbilisi-Ceyhan pipeline is scheduled to finish and Caspian oil will be transmitted via Georgia to western markets.

Currently, there are 15 oil wells operating in Georgia. According to geographic studies, the country has a potential reserves of 2 billion tons of oil. The country's territory is divided into licensed blocks for exploration. In eastern Georgia, the British-American company Canargo is leading exploration and production, and in the Black Sea territorial waters, the British company Anadarko-Georgia is conducting research.

But according to the Georgian newspaper Bankebi da Pinansebi (Banks and Finances), oil production has markedly reduced in Georgia in the last 4 months. The paper notes that many oil rigs have halted operation. Canargo's well in Ninotsminda was closed as well because of a blowout that damaged nearby villages. "It is said that oil wells are deliberately closed," reports the newspaper, adding that it thinks that these are "intrigues planned by large banks."

Meanwhile, Georgia is waiting for the completion of the Baku-Tbilisi-Ceyhan pipeline set for the mid-2005. Although the pipeline is very close to being finished, protests against its route through the Borjomi region are still active. Protesters insist that the pipeline poses a threat to the surrounding nature and on November 8 the Academy of Science of Georgia and several NGOs presented a new demand that the pipe be rerouted to less sensitive areas.

A more serious threat to the project lies outside of Georgia in England, where The Sunday Times reported on November 7 that, "BP is on a collision course with a parliamentary inquiry that it has misled over the safety of a strategic international pipeline project backed with ?60m of public money."

According to the paper, "The oil giant is withholding evidence, including confidential laboratory results that cast serious doubt on the project's long-term safety and a secret plan to bury the 1,000-mile oil pipeline without fully testing it for leaks."

If MPs demand an independent audit, the pipeline could face major construction delays forcing the company to carry the financial burden that it hopes to transfer to other entities when the pipeline enters operation.

One positive indicator is a new oil terminal under construction in Qulevi near the port of Poti. The terminal consists of 16 reservoirs and Georgian analysts predict this will be a key transit point together with the Batumi Oil Terminal. Both of these terminals rely heavily on rail transit and the ability of the country to manage and maintain its rail system.

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