Ukrainian Way of Caspian Oil

By Arthur Dunn

Oil Pipeline Odessa-Brody Have Waited Caspian Oil Transit to Europe for Ten Years.

On January 28th during the Economic Forum in Davos the President of Ukraine Viktor Yanukovych promised to assure Europe with first millions of transit Caspian oil. After a long-term expectation the oil pipeline Odessa-Brody will start performing its initially entrusted role– it will become an alternative way of oil delivery to Ukraine and develop transit potential of the country.

It’s planned that by this spring Azerbaijani oil will be supplied not only to Mozyr Petroleum Processing Plant, but also to two West Ukrainian factories – “Neftekhimik Prikarpatja” and “Halychyna”. We are talking about not only Azerbaijani oil flow through the Odessa-Brody pipeline. Kiev and Baku are also in the process of talks on the prospects of liquefied gas supplies. Ukrainian Government actively works under the project of the establishment of special terminal for gas reception that would allow reducing the scope of purchase from Russia in several years.

The decision on the beginning of construction of sea oil terminal “Pivdenny” close to Odessa was adopted already in 1993 after the intention claimed by Russia to limit oil supply. Kiev planned to integrate its new oil transporting system also with other oil pipelines: «Druzhba - Adria», “Baku - Supsa”,  and “Tengiz - Novorissiysk”. The oil pipeline construction was finalized in 2001.
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However in course of three years this oil transporting system practically idled. As a result they started using it in the return direction, the so-called reverse regime, transporting Russian oil from Ural Basin to Black Sea tankers.

Implementation of oil pipeline in reverse regime meant for the European Union the loss of direct access to Caspian oil. This didn’t correspond to the interests of European governments, as well as the suppliers of Caspian region. Caspian states need alternative to Russian ways due to the same reasons, because of which Ukraine needs energy sources of non-Russian origin: in order to reduce dependence from Russia.

Nevertheless the support of West of the project was insufficient.

During long time the USA focused almost only on the project Baku-Ceyhan, assuring the prior attention of investors towards it. Negative factors also included dissatisfactory investments climate in Ukraine and insufficient reforms of energy sector.

Only in 2009 new feasibility studies appeared, which were grounded on the system of Odessa-Brody. The strategy of the corridor development ั†ัƒะบัƒ finally adopted by the international enterprise “Sarmatia”, including the number of companies from Ukraine, Poland, Lithuania, Azerbaijan and Georgia.

A number of political and logistic problems have impeded Caspian oil transportation. The easiest way from the region to Europe lies through Iran. However, at the moment Teheran has troubles with international sanctions. Moscow votes for the extension of already existing transporting ways through Russia and Black Sea.

Cooperating with Moscow on the issue of promotion of the undersea oil pipeline plan, counteracts Russian oil way, outlining the ecologic load from increased scope of transportations through the Bosporus Strait. Turkey supports the way Baku-Ceyhan, going through Azerbaijan, Georgia and its territory. The given way promises political benefits, but also there are some problems. Crossing Iran and Armenia, going round Iran and Armenia, it lies through the regions of Turkey and Georgia.

The reverse destiny of the oil pipeline ‘Odessa-Brody was predicted by the Russian factor. Using its control over the oil-transporting infrastructure of Ukraine, Moscow blocked the attempts to launch the pipeline in the initially planned direction.

By the Presidency of Yushchenko the accomplishment of supply project and Caspian oil transit was significantly impeded by political counteraction of the Head of the state together with the Prime-Minister Yulia Tymoshenko. The last one was granted extended authority within economic sphere and was expressly against the breakage of the contract with Russian operators of the way.

Thus, during a decade Ukraine was deprived of hydrocarbon resources of Caspian region and was isolated from potential consumers of oil in Europe. But since recently the priorities of the European Union in energy sphere have favorably influenced the long-term wish of Ukraine to become transit center of Caspian oil.

The involvement of the EU and Ukraine in diversification of sources, ways and delivery of hydrocarbons for its auxiliaries is mutual. By the achievement of final agreements with Caspian suppliers Ukraine will gain for the European Union a significant role of energy transiting state from the region of Caspian Sea.

The EU is for the construction of new energy infrastructure and joint European approach within the sphere of energy policy. Within the frameworks of foreign dimension of the EU energy policy the Head of the European Commission Jose Manuel Barosso on January 13th – 15th visited Azerbaijan and Turkmenistan accompanied by the European Commissioner on energy issues Günter Oettinger, and on January 24th welcomed in Brussels the Head of Uzbekistan. Earlier the President of Kazakhstan visited the EU capital.

Viktor Yanukovych also held various negotiations on energy issues. More than five times a year he met the Heads of Kazakhstan and Azerbaijan, and Ukrainian industrial delegations held dozens of preparatory talks.

Transportation of oil through Odessa-Brody from economic point of view is pretty beneficial for Ukraine. Firstly, this way it enhances its energy security at the cost of energy suppliers diversification. Secondly, state budget will be enriched at the cost of transit.

The given project is urgent for Ukraine, as at the moment, Ukrainian oil transiting system is only one fourth loaded. This index will reduce more with the commissioning of Baltic pipeline system-2, which will connect the oil pipeline “Druzhba” with Russian sea ports in Baltic Sea.

In its turn for the European Union the oil transporting system Odessa-Brody is an important potential alternative way of oil transportation, which corresponds to the energy strategy of the EU.