Publication: Monitor Volume: 4 Issue: 101

Ukraine has become the third country–after Russia and Turkey–to officially enter the competition for transiting Caspian oil to international markets. The Ukrainian ambassador to Azerbaijan, Boris Alekseyenko, announced this at a news conference in Baku, following the talks held there by a delegation of Ukraine’s Oil and Gas State Committee with Azerbaijan’s State Oil Company (SOCAR) and the international consortium of oil companies (AIOC).

The idea envisages piping the oil from Baku to Georgia’s terminal Supsa on the Black Sea; tanking it to Ukraine’s terminal Ilichivsk near Odessa; refining part of the oil in Ukraine for the country’s own consumption; and transiting another part to Central and Northern Europe through the Odessa-Brody pipeline, which branches into the old Druzhba pipeline through Poland toward Germany. Polish and Lithuanian ports on the Baltic can then be used for transiting some of the oil to North European markets–an option discussed at the meeting just held by the Ukrainian, Polish and Lithuanian presidents. (Ukrainian and Russian agencies, May 25 and 26; and the Monitor, May 26).

Ukraine makes the case that this route constitutes the shortest possible one to the most promising, fastest-growing markets for the future Caspian oil: Poland, the Czech Republic, the Baltic states and Germany. Ukraine’s own refining capacities can fully meet national needs of oil products and leave a surplus for export. Caspian oil is critical to breaking Ukraine’s dangerously high dependence on Russian oil. Mainly for this reason, the Ukrainian government recently defined the import and transit of Caspian oil as a “national priority” (see the Monitor, May 12 and 15).

The Ukrainian proposal represents for the moment a set of ideas, rather than a plan of action. The project would involve doubling the diameter of the existing Baku-Supsa pipeline; creating a fleet of 120,000-ton tankers, which Ukraine’s Mikolayiv shipyard is prepared to undertake; completing and expanding the Ilichivsk terminal to at least its projected annual capacity of 40,000 tons, from the current operational capacity of 11,000 to 12,000 tons; and completing the overhaul of the Odessa-Brody pipeline–an operation that has been executed on 35 percent of that pipeline’s length. The financial and technical aspects of these undertakings have yet to be addressed in detail.

The proposed Baku-Ukraine route can become either a competitor to the planned Turkish route (Baku-Ceyhan), or a useful complement to it as part of a “multiple-pipeline” strategy. This will mainly depend on how Western investors and governments approach the issue. Current reservations about Baku-Ceyhan, stemming from short-term financial considerations, are also, in principle, applicable to Ukraine’s proposals. This approach could endlessly delay the start of construction and condemn a number of countries to long-term dependence on Russia for oil transit and oil supplies.