Surrendering Egypt to Russia

James J. Coyle: Surrendering Egypt to Russia

By JAMES J. COYLE / For the Register

Published: Nov. 22, 2013 Updated: Dec. 2, 2013 9:28 a.m.

JEFF KOTERBA / KING FEATURES

NEW ALLIES?

Russia is negotiating its biggest arms deal with Egypt since the Cold War after the U.S. cut aid to Egypt.

Source: Bloomberg News

As the United States reduces its footprint in the Middle East, Russia is taking advantage of the power vacuum America's retreat is creating. Egypt, whose defection to the West in 1972 was essential to creating the 1979 Egyptian-Israeli peace treaty, may be transferring its loyalties to the Kremlin.

On July 3, Egyptian military leaders removed Muslim Brotherhood cadres from government positions. This included the removal of President Mohamed Morsi. Confusing liberal democracy with Alexis de Tocqueville's “tyranny of the majority,” the United States decided to punish the generals and canceled a joint military exercise with the Egyptian army. Russian President Vladimir Putin, according to an Egyptian newspaper, immediately offered to discuss Russian joint military exercises.

Egypt warned that they would not take American chastisement lightly, that they had other choices they could make. Not recognizing the warning signs, in October, the U.S. canceled $260 million in cash aid (out of a $1.5 billion annual total) and held up the delivery of military equipment, including F-16 fighter planes. Saudi Arabia, the UAE and Kuwait promptly pledged at least $12 billion to make up for the shortfall in American aid, and Russia offered a major arms deal to the Egyptians.

Russian Defense Minister Sergei Shoigu arrived in Cairo on Nov. 14 – the first Russian defense minister to visit the country since 1971. Shoigu offered to sell MIG-29 fighter jets, attack helicopters, anti-tank missiles and low-range air-defense missiles. The package is worth $2 billion; supposedly, Egypt is looking for loans from Saudi Arabia and Russia to pay for the purchase. Egyptian Foreign Minister Nabil Fahmy proclaimed, “We want to give a new impetus to our relations and return them to the same high level that used to exist with the Soviet Union.”

The new Russian defense relationship might never materialize. Egypt may not be able to afford the weapons package, Russian weaponry would not integrate smoothly with Egypt's American supplied forces and U.S. aid might always be resumed.

But the Russians are pulling out all the stops: the defense minister's arrival was preceded by a port call in Alexandria by the Russian warship Varyag. This could presage the offering of port facilities to the Russian navy as a part of any rapprochement. Israel National News is reporting that Putin himself is expected in Egypt later this month to announce a $15 billion arms deal.

While we no longer face the zero-sum game of the Cold War, it is bad policy to encourage an American ally of forty years into the arms of a country that opposes U.S. policies in the world and is a major ally of Syria's Bashar al-Assad. There is an old saying in the Middle East: you cannot make war without Egypt and you cannot make peace without Syria. Current American policy is allowing Russia to gain control over both countries – and the ability to make war or peace.

James J. Coyle is the director of Global Education at Chapman University and chair of the Eurasian committee of the Pacific Council on International Policy.

U.S. Losing Saudi Arabia as an ally

James J. Coyle: U.S. losing Saudi Arabia as an ally

 By JAMES J. COYLE / For the Register

Published: Nov. 18, 2013 Updated: Dec. 2, 2013 9:28 a.m.

GETTY IMAGES FILE PHOTO

CONCERN

"Saudi Arabia cannot afford to be encircled by Iran, from Iraq and Syria. That is out of the question," said Khalid al-Dakhil, a political sociology professor at King Saud University, who has called for Saudi Arabia to become less dependent on the United States, told the New York Times in October.

In 1988, I asked a member of the Reagan administration what was being done to regain America's position in Iran. “Nothing,” was the reply. “We don't need them as long as we have Saudi Arabia.” How things have changed.

As world powers prepared to move closer to Iran, the head of Saudi intelligence (and former ambassador to the United States), Prince Bandar bin Sultan, told European diplomats that he planned to scale back Saudi cooperation with the United States in Syria. He said this move was in protest over America's policies in the Middle East. The prince promised a “major shift” in relations with the U.S., taking official Washington by surprise. It shouldn't have.

The Saudis were shocked when the United States advised its longtime ally, Egypt's President Hosni Mubarak, to step down during the Arab uprisings. And when the military pushed aside the Muslim Brotherhood-supported President Mohamed Morsi, the American suspension of military aid was met in Riyadh with profound disbelief. The Kingdom immediately promised to make up any aid to Egypt that the Americans cut.

Saudi Arabia answered the call of Bahraini King Hamad bin Isa al Khalifa in 2011 to put down Shia protesters. Military action was in direct defiance of American advice. In Iraq, America's troop withdrawal in December 2011 left a Shia-dominated government in Baghdad, and Saudi Arabia's Sunni allies out in the cold. Meetings with Iran in Geneva involving the U.S., Russia, China, the United Kingdom, France and Germany have sent a shiver of fear through the kingdom – a fear of abandonment as America seeks rapprochement with its Persian nemesis.

The final step was President Barack Obama abandoning his own red-line in Syria. Former head of Saudi intelligence (and former ambassador to the United States and Great Britain) Prince Turki bin Faisal, called the American policy “lamentable.” According to Reuters, the Prince believed the deal between the United States and Russia to be a ruse. “The current charade of international control over Bashar's chemical arsenal would be funny if it were not so blatantly perfidious. And designed not only to give Mr. Obama an opportunity to back down (from military strikes), but also to help Assad to butcher his own people.”

The king was furious at America's actions. The Saudi foreign minister canceled his address to the United Nations General Assembly, and then refused to take a coveted seat on the UN Security Council. “This was a message for the U.S., not the UN,” said Prince Bandar.

The Obama administration is downplaying the crisis. Secretary of State Kerry emerged from a meeting with his Saudi counterpart to say the foreign minister had not raised Prince Bandar's concerns. A senior American defense official said the U.S. remains “fully committed to security cooperation” with the kingdom. A senior administration official said the U.S. and Saudi Arabia have a longstanding partnership. White House spokesman Jay Carney said any disagreements would be worked out in a “candid and forthright way as we maintain the basic foundation of a very important relationship.”

Indications are, however, that the breach is a serious one. Apparently, Saudi Arabia did not warn its American ally before it took the drastic step of rejecting the Security Council seat. Prince Bandar said the Saudis would begin to work in Syria with allies such as Jordan and France, rather than the United States. Military and commercial ties are in danger. According to a Reuters' source close to Saudi policy, “The shift away from the U.S. is a major one. Saudi doesn't want to find itself any longer in a situation where it is dependent.” The source promised an impact; echoing a phrase one usually associates with American decision makers, he said “All options are on the table now.”

James J. Coyle is the director of Global Education at Chapman University and the chair of the Eurasian committee of the Pacific Council for International Policy.

EU Reliance on Russian Gas Increasing

The European Union's dependency on Russian energy continues to increase.  Demand for natural gas has grown from 325 bcm (billion cubic meters) per year in 1990 to an estimated 550 bcm in 2015, according to the International Energy Agency.  Consumption is projected to increase to 669 bcm by 2035.    Some European countries, such as Belarus, Latvia, Lithuania and Slovakia depend on Russia for 100% of their natural gas, according to the US Senate's Committee on Foreign Relations.  Several others, such as Austria, Bulgaria, the Czech Republic, Estonia, Finland, Moldova and Turkey rely on Russia for over 60% of their gas needs.

European consumption of Russian gas had been expected to decrease in face of competition from coal, LNG, and shale fuels.  Alternative fuel sources, combined with the slowdown in European economies, was supposed to reduce the demand for Russian gas, which is priced at a premium to the market.

Faced with these forces, Gazprom has initiated a series of price cuts for its European customers.  In 2012 they reduced prices 7-10% on average, even returning money via "retroactive payments" to customers with long-term supply contracts.  These rebates totaled $3.22 billion.  In June 2013, Gazprom export chief Alexander Medvedev announced that prices would be further reduced, but "The price correction will be even less than in the previous round of talks."  Medvedev estimated the new reductions would total less than $800-$900 million.  Medvedev also said that the company would cut prices in new contracts in which the price of gas is tied to the price of oil.  As a result, the average gas price for Europe would decline to approximately $375 per 1,000 cubic meters, from the 2012 price of $402.  (Of course, not all European countries benefit from this action:  Ukraine is stuck with a long term contract with a price of $440 per tcm.)

As a result of these actions, in the first eight months of 2013 Gazprom shipments to Europe and Turkey increased 14%, to the highest level since 2010, according to Gazprom Export.  The reasons are price (the premium over the spot price dropped 66% over the previous 12 months) and the failure of LNG supplies to materialize.  "The European gas market is shifting again, to a certain extent, from a buyer's market to a seller's market because of a sharp decline in LNG supply," said Sberbank analyst Valery Nesterov.

The increase in demand is providing Gazprom a rationale to limit further price concessions.  Gazprom, and its owners (the Russian government) rely heavily on the European market for its revenues--and the Russian budget relies on the income.  50% of the Russian government's budget comes from energy export revenues; with the decline in price for Gazprom's product, the funds are coming more from Rosneft's sale of oil.  80% of energy export revenues today are due to oil, not natural gas. according to the Atlantic Council's senior fellow Dr. Frank Umbach.  This has led to a shakeup in the Kremlin's hierarchy, with Rosneft's Igor Sechin increasing in influence at the cost of Gazprom's Alexey Miller.

  

China--The New Balancer

In 1991, Zbigniew Brzezinski described Central Asia and the Caucasus as "The Grand Chessboard."  He concentrated on the competition between Russia and the West for control of Mackinder's World Island.  Brzezinski wrote in the belief the United States was the world's sole superpower.

Since then, America has been bloodied in the wars of Iraq and Afghanistan.  A country that Brzezinski considered to be on the periphery, China, is assuming a larger role on the world stage.  The chess match continues, but the Russian Federation has a new opponent:  the People's Republic of China.  "China is likely to overtake the United States (as an oil importer), and Russia has to stake its claim in China," said Raiffeisenbank analyst Andrey Polishchuck.  The head of Russian studies at the China Institute of Contemporary International Relations, Feng Yujun, concurred:  "It has become very important for Russia to expedite entering the Asia-Pacific, especially the Chinese market.  It risks losing more opportunities if it keeps dragging its feet."

The record is pretty clear that it is China, and not Russia, that is in the driver's seat on energy deals.  Rosneft is scrambling to fulfill crude oil contracts with China, while reducing forecasts for production from the Vankor field in East Siberia.  As a result, Russia might have to reduce it's delivery of crude to Europe. The company emailed Reuters that "Rosneft's production plans will without doubt ensure that oil supply commitments are met...In the event of possible deviations, existing agreements and the most profitable supply routes will be prioritized."

Rosneft is also granting the China National Petroleum Corporation (CNPC) an equity stake over one of its oil fields.  Rosneft would maintain control of the project (51% ownership) but China will receive 49% in return for its willingness to help develop the field.  The deposit, the Srednebotuobinsk field, is close to the Eastern Siberia-Pacific Ocean (ESPO) pipeline which delivers crude oil to Daqing, China.  Rosneft has a similar deal with the Chinese company Sinopec, to produce oil in the Republic of Udmurtia.

At the same time, Russia has been trying to negotiate for two years a contract to sell natural gas to China, and deliver it via pipeline.  These efforts have been in vain, despite numerous statements from the highest authorities that a deal was imminent.  Despite the Chinese need for energy to fuel its economic machine, it refuses to accept the Russian price for the gas.  According to the Brookings Institute's Erica Downs, "The Russians probably need this more desperately than the Chinese." Fyodor Lukyanov, head of the Moscow think tank, the Council on Foreign and Defense Policy, believes that a gas deal would be a "major breakthrough" for Russia, but the economics of the proposal would scuttle it.  "China...won't agree to major concessions just to improve its strategic partnership with Russia."

This follows on the heals of Chinese president's Xi Jinping's recent visit to Central Asia. Xi signed an agreement in Turkmenistan to double gas exports to China, cut the ribbon on the Galkynysh gas field (the world's second largest), and pledged $8 billion to build a pipeline from the field to China.  In Kazakhstan, Xi signed $30 billion in deals that included the CNPC purchase of 8% of the Kashagan oil fields, agreed to double the size of the pipeline from Kazakhstan to China, and agreed to build a new refinery.  In Uzbekistan he signed $15 billion in purchases of oil, gas and gold; and in Kyrgyzstan he agreed to a $3 billion deal to construct another pipeline.  In Tajikistan, he signed another $3 billion pipeline deal, which resulted in Gazprom cancelling its own pipeline project to that country.

Alexander Rahr, the research director of the German-Russian Forum, believes that Russian President Vladimir Putin is allowing China to increase its Central Asian presence, so that Russia can concentrate on its Western flank.  ""I think this was a firm choice, a difficult choice, but it was made.  He cannot afford to have geopolitical battles with NATO and the West on the one hand and, parallel to that, battles with China for influence in Central Asia."  Rahr believes Russia is using energy to keep Belarus, Ukraine and Modova aligned with Moscow instead of Brussels.

As China moves deeper into Central Asia, it is forcing Russia out--as the Tajikistan pipeline incident demonstrates.  It is locking up energy supplies that Russia was previously selling to Europe, is obtaining equity interest in Russian energy fields, and forcing Russia to divert supplies from European buyers.  China is telling Russia what to do, and not the other way around.

Transneft-Rosneft Kiss and Make Up

The summer battle between two energy barons in Vladimir Putin's inner circle has been resolved.  On October 11, 2013 Rosneft chairman Igor Sechin and Transneft chairman Nikolay Tokarev reached agreement on financing the further expansion to China of the Eastern Siberia-Pacific Ocean (ESPO) oil pipeline.

The spat began in anticipation of the June 2013 signing of a contract between Rosneft and the China National Petroleum Corporation (CNPC).  That contract obliges Rosneft to deliver an additional 365 million tons of oil over the next 25 years.  This is an increase over the previous contract Rosneft signed to supply 15 million tons annually for the next 20 years.

With negotiations underway for this landmark agreement, Rosneft's Sechin began lobbying for the expansion of the ESPO pipeline spur to China.  Transneft's Tokarev would have none of it.  In a rare public display of disagreement within Putin's siloviki, the Transneft chair identified the source of the conflict:  money.  "Who will pay to expand the pipeline spur to China?" he asked in May 2013.  "Transneft isn't just a service company for Rosneft."

Despite Tokarev's objections, the contract was signed at the International Economic Forum in Saint Petersburg.  With the question of pipeline financing unresolved, Transneft upped the ante by announcing they would stop pumping Rosneft oil on July 28 because at that point Transneft would have fulfilled its previous contract with the state-owned oil company.  Sechin was unperturbed.  "We are in contact and interact with Transneft's CEO Nikolai Tokarev.  There was no conflict.  Obviously, during commercial work the companies may have different positions.  But this is not a conflict but a regular negotiations process."

Sechin's position was that Rosneft would pay an "economically justified tariff", but he did not believe he should finance the expansion of Transneft's network.  Igor Demin, spokesman for Transneft, disagreed.  He said that the pipeline project would be solely for the benefit of one oil company, Rosneft.  If Transneft had to find financing for the project, the entire Russian oil industry would have to pay for it.

The Russian government remained neutral.  Deputy Energy Minister Kirill Molodtsov basically said he didn't care who paid for the pipeline, as long as it remained profitable.  "Profitability is the top priority.  That applies both to Rosneft and Transneft.  This is what we are looking at when we consider the investment projects proposed by Transneft and Rosneft."

In August, the two oligarchs tried to use their ultimate trump card, their connections with President Putin.  Sechin began by writing an eight page letter accusing Transneft of charging too much to transport oil.  "The current system of Transneft's transport tariff system is not transparent and does not suggest reduced tariffs for oil companies, which invest in this region and supply the Far East region with oil products."  Tokarev responded with an analysis that Transneft tariff's had not contributed to a rise in gasoline prices.

Transneft then accused Rosneft of signing delivery contracts it could not fulfill.  Speaking to a ministerial meeting in September 2013, Transneft vice president Alexei Sapsai warned that Rosneft was in danger of being short at least 3.9 tons for its eastern routes.  If a planned Rosneft petrochemical complex (VNHK) comes on line, the shortage would stand at 15.9 million tons.  Transneft even decided to withdraw their role in the refinery because of the disagreement on tariffs.

Despite the fireworks, the two sides reached an agreement on October 11, 2013.  According to a statement on Rosneft's website, "Rosneft President and Chairman of the Management Board Igor Sechin and Transneft President Nikolai Tokarev have signed a number of agreements in fulfillment of the strategic plans on mutually beneficial terms and based on principles of co-financing to increase oil supplies volumes to China and to the Rosneft's Tuapse refinery in the Krasnodar region.  The package of agreements on oil supplies increase to China envisages commitments by the Parties to finance and implement the activities aimed at the capacity expansion of the Skovorodino-Mohe oil pipeline, as well as to increase respectively the volumes of crude shipment in this direction.  The pipeline capacity is expected to reach 20 million tons of crude per year beginning on 1 January 2015 and 30 million tons per year beginning 1 January 2018.  It means that 15 million tons per year will be supplied to China from 2018 to 2037 in addition to existing volumes."

According to Vedomosti, Transneft will finance the expansion of the pipeline, while Rosneft will pay back the investment through a special long-term tariff to be determined by the Federal Tariff Service.  This is a clear victory for Igor Sechin, who had made the same proposal in July.  In addition, it appears that Rosneft will only have to pay for a small portion of the ESPO expansion.  The Russian Ministry of Energy estimates that the total cost for the development of ESPO will be $1.46 billion (Transneft puts the figure around $2.29 billion), but Rosneft is only financing the Skovorodino-Mohe section, whose cost is an estimated $300 million.

The world's largest oil company has trumped Transneft, a company that is led by Putin's former KGB boss.

Putin leaves Azerbaijan With Limited Improvements

Russian President Vladimir Putin traveled to Azerbaijan in August 2013 to enhance Russian interests in the near abroad.  He was accompanied by six key ministers, including the Russian Minister of Defense, Sergei Shoigu and Minister of Foreign Affairs Sergey Lavrov.

The visit was surrounded by rumors.  Leonid Gusev, senior research fellow of the Institute of International Studies, Moscow State Institute of International Relations, focused on the inclusion of the defense minister.  "Why take Shoigu with you?  Because recently there was information that Azerbaijan and Turkey will create a unified army, and Georgia may join as well.  I think that the leadership of Russia wants to find out what it is, because you understand that Turkey is a NATO country."  Gusev's sources were remarks from Azerbaijani parliamentarian Zakhid Orudzh and Georgian Defense Minister Irakli Alasania.

Gusev's imaginings were quickly dismissed by Azerbaijani parliamentarian and political scientist Rasim Musabekov.  "There are issues in the military area that should be discussed," he said.  "It is not just military cooperation.  It is very important to consider issues that may affect Azerbaijan, such as the situation on the Caspian Sea where military activity has been gaining momentum; there is also the Iranian context, Middle East events and, most importantly, the settlement of the Nagorno-Karabakh conflict.  It is difficult to imagine the settlement of this conflict without Russia."

The Armenians also reacted negatively, convinced that the meeting would result in closer ties between Russia and Azerbaijan.  "Naturally, any bilateral relationship between our enemy and partner states cannot fail to worry us," said the chairman of the Armenian parliamentary committee on foreign relations.  "Azerbaijan is ready to exploit its relationship with any state for painting a distorted picture of its actions in the region."  Similarly, Armenian opposition leaders sounded the alarm.  Armenian National Congress spokesman Vladimir Karapetian said, "These are very worrisome developments for Armenia.  We must be prepared for further developments, especially in the Nagorno-Karabakh peace process."  Gior Manoyan of the Dashnaks criticized the Russian president, stating the visit was "not an ally's behavior."

The Armenians need not have worried.  Azerbaijani president Ilham Aliyev tried to enlist Putin's cooperation on the issue.  "Azerbaijan would like to see Russia as a referee," he said.  "The occupation of Azerbaijani land has continued for more than two decades.  What could be demolished has been demolished.  Twenty percent of our territory is occupied; the U.N. resolutions remain on paper."  In reply, Putin responded with a bland statement that any solution would have to be political.  "I want to stress that Russia is actively facilitating the search for the fastest conflict resolution, which is only attainable by peaceful means," he said.

Relations between the two countries have been strained over the past year.  Against Russia's wishes, Baku cancelled its use of the Baku-Novorossysk pipeline because it was uneconomical, and Russia cancelled its lease of the Gabala radar station rather than pay the rent Azerbaijan was demanding.  Despite these setbacks, Russian Foreign Minister Lavrov insisted the relationship had been neither affected nor deteriorated. 

Emphasizing the good relations between the two countries, President Aliyev highlighted the growing defense cooperation between them.  He said that Azerbaijan was among the top buyers of Russian arms and other military equipment, and the defense relationship was already worth $4 billion dollars.  This defense cooperation was highlighted by a visit of the Russian warship the Dagestan.

Missing from the summit’s summary were any agreements for Azerbaijan to join in Russian initiatives such as the Commonwealth of Independent States Free Trade Area (CISFTA), Eurasian Economic community (EurAsEC), or the Collective Security Treaty Organization (CSTAO-Azerbaijan allowed its membership to lapse in 1999)

The two presidents discussed the legal status of the Caspian Sea, a long-running dispute with ramifications for the underwater deposits of oil and gas there.    Putin described the discussion to reporters:  “During the talks we paid a lot of attention to the issues of the Caspian region,” reported Radio Liberty.  “There really are a very great number of unresolved problems, including security, border delimitation, preservation of biological diversity of the Caspian Sea, etc.  We have a vested interest in seeing all of these issues solved.”  In the past, Russia has used these issues to demand a veto over Azerbaijani proposals to build a Trans Caspian Pipeline.  No progress appears to have been made on these issues.

There were some positive results from the meeting.  The Russkiy Mir Foundation reported that a document on cooperation between emergency ministries was signed, as well as intergovernmental agreements on cooperation in air search and rescue, on the construction of a road bridge over the river that marks the border between the two countries, and a humanitarian cooperation program.

More importantly, Rosneft chief Igor Sechin signed an agreement with State Oil Company of the Azerbaijan Republic (SOCAR) cheif Rovnag Abdullaev.  The two CEOs pledged to cooperate on unspecified joint projects.  Sechin told reporters these would include "reciprocal deliveries, swap operations and opportunities for the use of joint infrastructure."  Rosneft subsequently released a statement that, "The companies agreed to cooperate in marketing and trading operations for hydrocarbons and petroleum products as well as jointly operate certain infrastructure facilities, such as pipelines and terminals."

In the end, both Azerbaijan and Russia emphasized the agreements that were signed, and labeled the visit a success.  On balance, however, when one balances what was achieved with the issues that were left unresolved, one can only conclude that Putin left empty-handed.  The summit meeting, Putin's first visit to Baku in seven years, was a lost opportunity.

Possible New Plans for Baku Novorossiysk Pipeline

Following Azerbaijan's cancellation of the northern flow of Azeri light because of decreasing profits, the Russian firm Rosneft is considering sending Urals crude south through the Baku-Novorossiysk pipeline.  The oil would then either be processed in Azerbaijan or be added to the Baku-Tblisi-Ceyhan (BTC) flow for onward shipment to the world market.  The BTC pipeline currently has spare capacity, as flows from Azerbaijan's offshore flows gradually decline.

Urals crude is a mix of various grades of Russian oil that trades at  approximately $4 per barrel less than Azeri light.  It was the mixing of Urals crude with Azeri light in Novorossiysk that reduced the value of the northern flow of oil, causing the cancellation of the use of the pipeline.  After Azerbaijan announced its suspension of the northern deliveries, Russian Prime Minister Dmitry Medvedev revoked the intergovernmental agreement that had authorized the northern use of Baku-Novorossiysk.

 The discussions on the possible reversal of flow in the pipeline was originally announced by the head of the State Oil Company of the Azerbaijan Republic (SOCAR) Rovnag Abdullayev.  The talks should be completed by the end of the year.  The announcement may have been premature, however:  the pipeline is controlled by the Russian pipeline company, Transneft, who had not been advised of the developments.  According to Mikhail Barkov, Vice President of Transneft, no one had coordinated anything with the company.  Barkov expressed concern that the plans might adversely affect Lukoil, which uses a portion of the pipeline to pump crude from Makhachkala to Novorossiysk.

Rosneft President Igor Sechin, possibly the most powerful oligarch in Russia today, hinted that the Abdullayev report might be correct.  Speaking to reporters, Sechin noted the pipeline was originally constructed with a southern flow in mind.  "Use of all possibilities is simply the effective work in the market," he said.

Transneft President Nilolay Tokarev noted that Rosneft has a refinery on the island of Sardinia, which would probably be the destination of the oil to be shipped from Ceyhan.  Speaking on the Russian television channel Russia 24, he pointed out that the Transneft system through Russia would cost Rosneft $45 less than use of the BTC.  (He possibly was referring to a metric ton, but it is unclear from the text).

The future of Baku-Novorossiysk thus requires two sets of negotiations:  SOCAR/Rosneft, and Rosneft/Transneft.  The latter may be adversely affected by difficulties between the two Russian companies arising from investment requirements for the expansion of the Eastern Siberia/Pacific Ocean pipeline.  Flows to the Mediterranean and flows to the Pacific have become interrelated.