Ukraine: Old Questions For New Odesa-Brody Extension Proposal

The southern terminal of the Odesa-Brody pipeline (ITAR-TASS) October 16, 2007 (RFE/RL) -- Ukraine's Odesa-Brody oil pipeline has been seen as a solution to Eastern Europe's dependence on Russian crude ever since the project was completed in 2001.

But with all the necessary infrastructure in place, including the 674-kilometer pipeline and a new oil terminal located south of Odesa at the Black Sea port of Pivdenny, the dream remains unfulfilled.

The original idea called for Kazakh and Azerbaijani oil to make its way to the Black Sea coast, from where it could be shipped to the Pivdenny port. Once in Ukraine, it would be pumped north through the new pipeline and made available for distribution to European destinations.

But Azerbaijan and Kazakhstan never committed to providing the oil needed to fill the pipeline, and cash-strapped Ukraine was unsuccessful in convincing European states to build an extension that would pump the oil from Brody to refineries in European markets.

White Elephant For Rent

As Stratfor Commentary wrote in September 2003, "The end result was that Kyiv found itself saddled with a white elephant rusting picturesquely in the Ukrainian countryside."

To remedy the situation, the flow of the pipeline was reversed in 2004 to send Russian oil south from Brody to Odesa, and on to global markets by ship via the Bosporus.

Thus, the project envisioned as a way to circumvent Russia in the end became another means to transport Russian oil.

Now, the original plan has returned to the fore with the signing of a deal this month to explore the possibility of using the Odesa-Brody pipeline to pump Caspian oil to European destinations.

At the Vilnius energy summit on October 10, Poland, Ukraine, Lithuania, Georgia, and Azerbaijan inked a deal under which a $700 million, 500-kilometer pipeline extension would be built to send Caspian oil from Brody to the central Polish city of Plock.

The first phase of the proposal is for a feasibility study to be conducted, and if all goes well the Brody-Plock extension could theoretically be built by 2012.

But despite the excitement over the new deal, many of the same questions that originally hampered Odesa-Brody remain.

The most glaring of these is, once again, who will provide the oil to fill the pipeline?

Azerbaijan and Kazakhstan are viewed as the potential suppliers, but doubt has already been cast on their participation.

Azerbaijan's excess oil has already been earmarked for export via the Baku-Tbilisi-Ceyhan (BTC) pipeline, and the country currently has no means of increasing production.

The BTC, which in 2005 started pumping oil from Azerbaijan via Georgia to Turkey, sends Caspian crude to the Mediterranean while bypassing the overburdened Bosporus. The BP-led consortium that built the pipeline is unlikely to allow Azerbaijan to divert supplies to a second pipeline, considering that the BTC itself has spare capacity.

Azerbaijan's industry and energy minister, Natiq Aliyev, has previously said that the country's "end target is to maximize the capacity of BTC" and that "we will attract all the oil in the region in order to export it via BTC."

Meanwhile, Azerbaijan's state oil company, Socar, announced on October 15 that it has not yet decided whether it will participate in the new project, saying any decision to do so would not be made until 2008.

Kazakhstan, for its part, made clear from the start that it has no intention of supplying oil for the new Odesa-Brody-Plock route. While the country's energy and natural resources minister, Sauat Mynbayev, attended the October 10-11 summit in Vilnius, he did not sign the new agreement and stressed Kazakhstan's commitments to export its oil via Russia.

Much of the country's oil presently flows through the Caspian Pipeline Consortium network to the Russian Black Sea port of Novorossiisk, from which it is shipped to outside markets.

More Hurdles Under The Surface

Even in the event Kazakh that and/or Azerbaijani oil is found to supply Odesa-Brody-Plock, the proposal faces the formidable hurdle of transporting that oil across Georgia and on to Odesa.

One possibility considered at the Vilnius meeting was to ship the oil by tanker from the Georgian ports of Batumi and Supsa to Odesa, but the costs of doing so would make the project commercially unfeasible.

An alternative Georgian proposal is to build a pipeline under the Black Sea from Georgia to Odesa. But this too presents problems because, aside from the extreme expense involved (most likely to be incurred by the five states that signed onto the project), such a pipeline would have to cross over or under Russia's Blue Stream gas pipeline.

And ultimately, while some in Ukraine might view the pipeline as an excellent way to show its worth to the EU as it vies for admission to the bloc, the millions Russia pays Kyiv every year for use of the Odesa-Brody pipeline may prove insurmountable.