Kyiv's consultants now recommend original use of Odesa-Brody pipeline (02/01/04)

Kyiv's consultants now recommend original use of Odesa-Brody pipeline

by Roman Woronowycz
Kyiv Press Bureau

KYIV - The direction in which oil will flow through the Odesa-Brody pipeline became clearer on January 28 when Ukraine's fuel and energy minister told journalists that the consulting firm charged with looking into the most profitable way of running the oil through the transport corridor had done a turnabout and now recommended that the crude should flow westward as was planned before Russian oil companies began to push their own interests.

Fuel and Energy Minister Serhii Yermilov said representatives of the the energy consulting firm Energy Solutions had told him during a January 28 meeting that the best option for Ukraine - of nine that the firm had developed - would be to move oil from the Caspian Basin to Europe.

"This is the most effective and attractive variant," Mr. Yermilov said.

The energy minister said that an option to reverse the oil flow, as requested by Russian oil giant TNK-BP, also had received consideration, but "it does not rank first," reported Interfax-Ukraine.

The statement contradicted a preliminary announcement made via a press release on January 15 by Energy Solutions, a little-known firm registered in Ukraine that claims to be U.S.-based. At that time the firm stated that its initial recommendation would be to support a reverse flow of oil from Brody to Odesa. The decision would allow TNK-BP to move some 9 million tons of Ural heavy crude through the Odesa oil terminal into the Black Sea and on toward southern Europe.

When the initial Energy Solutions press release was issued on January 15, Mr. Yermilov denied that he had received a copy as some news media had indicated.

The press release issued by Energy Solutions stated that a copy of the report had already been given to Mr. Yermilov, however, he immediately denied that he had received anything from the firm.

Energy Solutions had also asked for an extension of its deadline to allow for further analyses. The extension, which was given, now has resulted in what looks on the surface to be a 180-degree change in its position.

The matter of reversing the direction of oil flowing through the Odesa-Brody tube had become a viable option for some Ukrainian leaders because a year after its completion no major oil company working in the Caspian Basin had signed on to utilize it. Many politicians believed that the TNK-BP proposal to temporarily use Odesa-Brody in reverse for a three-year period while the Caspian Basin oil producers were brought aboard was a good idea.

Those opposing the idea said that by allowing TNK-BP use of the line for three years, Ukraine would take itself out of consideration during a time when the transportation routes of Caspian oil would be decided.

Mr. Yermilov said the new Energy Solutions recommendations included both short-term and long-term variants, and that the optimum plan for the quickest utilization ofthe Odesa-Brody pipeline called for transporting high-quality Caspian light sweet crude to Brody at the Polish border, where it would be loaded onto rail until the Brody-Plock-Gdansk pipeline recently agreed upon between Kyiv and Warsaw was completed in several years.

He said that the Energy Solution report stated that it would be cheaper for TNK-BP if the Russian company utilized the recently modernized Prydniprovia pipeline to move its Ural crude.

Oksana Baliun, press secretary to UkrTransNafta President Oleksander Todiichuk, explained that the Energy Solutions decision was the only reasonable alternative, inasmuch as what most press reports had failed to mention until recently was that TNK had never intended to increase the amount of oil it was sending via Ukraine, but merely to transfer about 9 million tons of what it moved through Ukrainian rail to the Brody-Odesa route.

For TNK-BP the point was a cost savings for it of some $55 million annually, money which it pays Ukraine. By utilizing the Prydniprovia pipeline and foregoing transportation of its oil by rail, TNK-BP would see a substantial savings.

Energy experts and many Ukrainian politicians had long held that reversing the Odesa-Brody route would bring Ukraine no economic benefit. Some had gone as far as to suggest that the attempt at a reverse was a political strategy by Russian and Ukrainian energy oligarchs to keep access to the lucrative Odesa-Brody pipeline away from U.S. petroleum corporations, who today dominate the extraction of crude from the Caspian Basin, while they developed their own strategies for obtaining economic benefit from it.

Mr. Yermilov said that Energy Solutions suggested in its analysis that in the long-term Odesa-Brody should generate $1.5 billion in revenue during its first 10 years. The Ministry of Fuel and Energy is to study the document for two days before presenting its recommendation on the future of the Odesa-Brody pipeline to Ukraine's Cabinet of Ministers.

President Leonid Kuchma had said last year he would make a final decision by February 1.

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