Wednesday, August 08, 2007

Uncertainty over Odessa-Brody pipeline

These excerpts from today's Russian 'Nezavisimaya Gazeta':

'Ukraine has decided hit Russia with Iraq oil' - The Yanukovych government intends to breath new life in the Odessa-Brody pipeline

Ukrainian authorities do not intend to give up ambitious plans to transform the country into a powerful transit corridor which will break Russian domination in the Eastern European power market.

Interfax yesterday informed that Viktor Yanukovych's government has charged the Ministry of Fuel and Energy and the Ministry of Foreign Affairs of the country to carry out negotiations with Iraq and Turkey for creation of a petro-transport corridor through which Iraqi oil could be used to fill the Odessa-Brody oil pipeline.

The route of the project, whose parameters have not yet been revealed, should pass from Kirkuk (Iraq) through Trabzon (Turkey) to the Pivdennyi sea oil terminal (Ukraine), from where the Odessa-Brody pipeline starts [or terminates]. Because of absence of sources of oil, it is currently being used in the reverse direction. Russian companies now transport petroleum via its southern portion for loading to tankers in the Pivdennyi port.

Meanwhile, last Monday the director of the department of economic co-operation at the Ministry of Foreign Affairs of Ukraine, Sergey Korsunsky, declared the necessity of development of the project Odessa-Brody which could be extended not only to Plock or Gdansk in Poland, but also up to Mazheykyaisky refinery in Lithuania. A year ago Russia blocked deliveries to this refinery via the 'Druzhba' pipeline, supposedly because of technical deterioration of the pipeline. In Vilnius the termination of deliveries was regarded as revenge for decision to re-sell shares of the refinery, Mazeikiu Nafta, to the Polish 'PKN Orlen', instead of to a Russian company. Experts understand the aspirations of Ukrainians to be a serious oil transit country, but many difficulties are envisaged.

What is notable about the commencement of negotiations with Iraq and Turkey on realization of plans which could be contrary to Russia plans is that they are being initiated not only by the administration of president Viktor Yushchenko, but also by the supposedly pro-Russian Yanukovych government; but this could just be electioneering and an attempt to appeal to voters in western Ukraine.

Other Russian experts do not consider the project on transportation of the Iraq oil to have any perspectives."

c.f. with the following from 'UKRAINE BRIEFING', Oxford Business Group, London, from 18th July 2007:

" one in Ukraine has ever shown the determination and will to sit down and work out a contract with the Kazakhs, the potentially largest supplier of Caspian oil to Europe and the world."

The problems with striking a deal with the Kazakhs are many, but in general they come down to the strength of the pro-Russian orientation of many of those in the Ukrainian government oil sector and further to the preoccupation of top officials with upcoming parliamentary elections.

No one wants to take the lead in negotiations when it is unclear who will be in the energy power positions after the elections now scheduled for September 30... "The window was open but will soon close because of other developments. Ukraine is on the verge of missing one of the best energy trains ever to leave the station."

Unless Ukraine soon takes strong steps to assure completion of pipeline development in the westward direction, the possibility of increasing demand from China and other far eastern buyers willing to pay a higher premium for Caspian crude could turn Odessa-Brody into a virtually irrelevant footnote in Eastern European energy history."[Thanks Pete..]

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