U.S. expresses strong support of Odesa-Brody oil pipeline (06/08/03)

U.S. expresses strong support of Odesa-Brody oil pipeline

by Roman Woronowycz
Kyiv Press Bureau

KYIV - The United States came out strongly in support of completing the Odesa-Brody-Plotsk oil pipeline during an energy conference in Kyiv on May 28, giving reason to believe that oil could indeed soon flow through Ukraine from the Caspian Sea to Western Europe.

U.S. Ambassador Carlos Pascual stated during a major presentation that moving oil from the Caspian Sea to markets in Europe is now economically viable for Ukraine and in Europe's interest.

"Despite concerns that Odesa-Brody could never be commercially viable, global market trends now favor development of this project," explained Mr. Pascual.

The U.S. ambassador, speaking during the sixth international conference "Energy Security of Europe in the 21st Century," noted that global economic circumstances had changed since President Leonid Kuchma had decided to pursue the completion of an oil terminal at Odesa and a pipeline to carry crude oil to the Polish border in defiance of heated criticism from Ukrainian politicians. The voices in opposition had stated that there was no demand for the pipeline and that its construction would serve no purpose except as a pork barrel project.

Ambassador Pascual gave several reasons for the new opportunity for Ukraine, one of which was a recent analysis by the auditing firm PricewaterhouseCoopers, which showed the project could be profitable.

He noted that, more so than earlier, Europe was looking for diversification of its energy resources and that the demand for Caspian light-sweet crude oil in Central and Western Europe had been established, with Germany already importing the energy source.

Secondly, he stated that today it had become cheaper to ship via land than via the Bosphorus Strait, and, thirdly, the strait was extremely over-used and "reaching its historic limits," which required the development of an alternative route.

Finally, Mr. Pascual said that Central Europe had the refining capacity to handle about 11 million tons of Caspian oil from the Odesa-Brody pipeline without the need for additional investment.

"Germany and the Czech Republic have expressed an interest in importing about 7 million tons of light-sweet Caspian crude now and Odesa-Brody could deliver it without additional investment. Odesa-Brody could deliver an additional 4 million tons of Caspian crude oil to German and Austrian refineries with minimal investment," explained the U.S. envoy.

Mr. Pascual, in seemingly urging the Central European countries towards use of the Odesa-Brody energy transportation line, also noted that the land-based route was environmentally safer and more secure.

"The tanker accident off the coast of Spain heightened the already acute awareness that growing tanker traffic increases the chances of environmental disasters on Europe's shores, explained Mr. Pascual. "European environmental standards have also increased demand for higher value light crude oil."

In an interview published in Business World Week several days later, Mr. Pascual continued on the topic and said that while Odesa-Brody could operate profitably today, the most efficient option for transporting Caspian oil would be for Poland to complete the pipeline from Brody through its territory northwest to the city of Plotsk and on to Gdansk, the country's main port city on the Baltic Sea. This would give easy access to transit by water to Germany and the rest of Western Europe.

Mr. Pascual stated that a recent European Union contribution of 2 million euros to the project would do much to spur it forward. He also noted that two U.S.-based companies, Conaco Philips, which owns an oil refinery in the Czech Republic and ChevronTexaco, which has oil-extracting rights in the Caspian Sea, favored transporting oil via the Odesa-Brody line.

The U.S. diplomat said that if talks were "effective and aggressive," oil could stream through the pipeline by the end of the year.

During the Kyiv energy conference, representatives from the EU and Poland met with Ukrtransnafta officials, the state-owned public corporation responsible for the Odesa-Brody pipeline, to announce that a tripartite group had been established to carry out a business plan that PricewaterhouseCoopers had approved. It included the transportation of oil to the Czech Republic, Germany and Austria from the Odesa-Brody pipeline through an already functioning transportation line, the Druzhba pipeline, until the Brody-Plotsk segment was constructed.

UkrTransNafta Chairman Oleksander Todiichuk said he expected to have 4.5-5.0 tons of Caspian crude oil running through the Odesa-Brody pipeline on an annual basis by the end of this year and the first part of 2004, according to Interfax-Ukraine. He noted that one Czech refinery had already agreed to take 2 million tons from the pipeline and confirmed that Chevron and British Petroleum fully supported the effort.

"We have never been so close to a positive result," noted Mr. Todiichuk.

As The Weekly was going to press, Interfax-Ukraine reported on a development that would make the Odesa-Brody pipeline an immediate success. It stated that on June 4 Russia's Deputy Prime Minister Viktor Khristenko, who chairs an energy committee in the Russian government, had announced approval of a draft proposal that would provide for 84 million tones of Russian crude oil to flow through the Odesa-Brody line in an agreement that would run through 2018. The agreement must still receive full government approval.

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