UKRAINE SEEKING PARTNERS FOR ODESSA-BRODY OIL PIPELINE EXTENSION

Meeting in Kyiv on March 21, Ukrainian President Viktor Yushchenko and the German and Polish Ministers of Foreign Affairs, Joschka Fischer and Adam Rotfeld, discussed using and extending the Odessa-Brody oil pipeline as originally intended for transporting Caspian oil to European countries. Following the meeting, Yushchenko told a news conference that Ukraine would seek to obtain deliveries of Kazakhstan oil from Russia’s Black Sea port Novorossiysk to Odessa.

Yushchenko said that he intends to initiate discussions with certain companies involved in the extraction and transit of Kazakhstan oil. These include: ChevronTexaco, majority owner and operator of the giant Tengiz field; the ExxonMobil-led Caspian Pipeline Consortium (CPC) which owns the pipeline that terminates at Novorossiysk; and Russia’s Transneft state pipeline monopoly. Ukraine will seek deliveries of 10 million tons of crude oil annually, with guarantees of uninterrupted supply. Those volumes could be used both for refining in Ukraine and for supplying European countries, once the Odessa-Brody pipeline is extended into Poland to Plock and the port of Gdansk.

Characterizing the pipeline’s northward use and extension as important to Ukraine’s energy security, Yushchenko nevertheless reassured Russian oil companies that they could continue “reverse-using” the pipeline southward to Odessa, for export to Mediterranean countries, pending conclusive decisions on restoring the originally intended northward use (Interfax-Ukraine, Ukrainian Channel One TV, March 21). In a similar vein, Ukrainian Prime Minister Yulia Tymoshenko had announced the preceding week that she would seek discussions with the governments of Kazakhstan and Russia regarding oil supplies for the Odessa-Brody pipeline to be extended to Gdansk (Interfax-Ukraine, March 19).

Also on March 21, however, the Russian-British joint company Tyumen Neft-British Petroleum (TNK-BP), the main reverse-user of that pipeline, indicated its opposition to the originally intended northward use. At a press briefing in Moscow, TNK-BP Executive Director German Khan contended that Caspian oil deliveries through Odessa-Brody to Plock and Gdansk would be economically unprofitable. TNK-BP contracted with UkrTransNafta in 2004 to transport 9 million tons of Russian oil annually through that pipeline to Odessa for a three-year period. The actual amounts, however, run at a considerably lower annual rate thus far (see EDM, March 17).

Khan’s briefing in Moscow — as well as a recent briefing by TNK-BP Ukraine chairman Oleksandr Horodetskiy in Kyiv — enumerated some conditions for raising the transit volume to 9 million tons annually. The conditions include: 1) deepening the navigation channel at the Pivdenny terminal near Odessa, so as make it accessible to 100,000-ton tankers (Pivdenny now takes 80,000-ton tankers; TNK-BP would defray the costs of deepening the channel); 2) cutting Ukrainian customs tariffs at the port by 50%; and 3) lowering the transit tariffs on the pipeline to Odessa (Interfax-Ukraine, March 19, 21).

In his Kyiv press conference, Yushchenko alluded to political motives behind the 2004 decision to reverse the Odessa-Brody pipeline’s direction. The newly appointed chairman of Naftohaz Ukrainy, Oleksiy Ivchenko, stated explicitly, “The only reason for reversing the direction was to thwart the originally intended use [for Caspian oil].” According to Ivchenko, TNK-BP did not actually need to use this pipeline to Odessa: it could have used the Dnipro regional pipeline system that runs in the same direction, is shorter, and currently operates at only 42% of its capacity (Zerkalo Nedeli, March 19).

At present, Kazakhstan delivers approximately 8 million tons of crude annually to Ukrainian refineries. Ukraine’s expectations to fill and extend the Odessa-Brody pipeline rely on Kazakhstan’s projected output growth, from some 60 million tons at present to as much as 100 million tons by 2010. Those expectations will begin to acquire a more definite shape when Ukraine and Poland initiate the formation of a consortium to extend the pipeline to Gdansk with European Union backing.