Ukrainian President Viktor Yushchenko insists on the extension of the Odessa-Brody pipeline towards Poland’s Plock, and its launching in the originally-planned direction. But the decision to use the pipeline in the designed direction is more political than realistic. In October 2007, representatives from Poland, Lithuania, Ukraine, Georgia and Azerbaijan agreed on the formation of a consortium to take the necessary steps to implement the project.
But, almost one year later, the plan has made no practical headway because there is significant disagreement on the sharing of the costs, including expanding capacity in Georgia and building the extension into Poland. And, more importantly, there is a considerable amount of doubt as to whether Azerbaijan would have enough oil to justify the project. “Actually the proposal at the time didn’t go anywhere, it stalled because there was no agreement on costs or oil and I really don’t see that anything has changed,” Chris Weafer, chief strategist at Moscow’s UralSib Bank, told New Europe, adding that Azerbaijan has committed all its oil to the Baku-Ceyhan pipeline.
Russian geologists are constantly saying that Russia had a long history of exploiting that region during the Soviet times and the assumptions for oil and gas reserves in the northern Caspian are substantially exaggerated by Azerbaijan and by the companies involved. For its part, Baku insists there is plenty of oil.
Viacheslav Kniazhnytskyi, counsellor on energy issues of the Ukrainian Mission to the EU, told New Europe that making a decision on the pipeline means to make it operational, “and the contract has not be signed yet and that is the problem.” Ron Smith, chief strategist at Moscow’s Alfa Bank, said the project is feasible but “it depends on the volumes coming out of the Caspian and it depends what’s going on in Georgia.”
Weafer agreed that with the Georgia conflict, there is obviously a very big question mark over who is going to commit to expanding the pipeline and building the infrastructure in Georgia. “I think it’s a non-starter at this point and will remain a non-starter for several more years,”Weafer said. Kniazhnytskyi said it won’t be expedient to push this project, in terms of signing the contract, until the end of the year because there should be more security in Georgia.
Ukrainian Prime Minister Yulia Tymoshenko’s standoff with Yushchenko and the current deep political crisis in Ukraine does not act as a stimulus on the project. “The government now is officially being dissolved. There is no Ukraine to talk about in terms of the government which is kind of a status quo. Given their political problems, I wouldn’t expect decisive action from Ukraine in any front like that for a while,” Smith said.
After Odessa-Brody remained idle for several years, Ukraine allowed Russia in 2004 to operate the pipeline in a reverse mode to carry up to nine million tonnes of Russian crude to Brody. In the absence of realistic alternatives, the reverse operation is the only option, bringing in some cash for Ukraine, a Russian official in Moscow told New Europe.
Moscow-based TNK-BP spokeswoman Marina Dracheva confirmed that “Odessa-Brody is still working in the reverse order.” She explained that TNK-BP has a very flexible sales model allowing it to supply oil through Brody-Odessa or use other outlets. “We sell volumes domestically and for exports in the most profitable direction,” Dracheva told New Europe.
Following the Georgian crisis, Yushchenko seized the opportunity to call for energy diversification and reducing EU’s reliance on Russia. “The reaction of Yushchenko was more a political reaction to the events in Georgia, but in the cold light of day there is no agreement, there is no assurance where the oil comes, the likelihood is that it will still be TNK oil through that pipeline for several more years, that’s the reality of it,”Weafer said. “Political gestures is one thing but when it comes to something like cold hard cash and getting agreement on the oil, we’re long way from it.