An all-but unknown U.S. energy consulting firm has been hired to perform a feasibility study that will make critical recommendations regarding use of the Odessa-Brody pipeline.
A recently created and all-but unknown U.S. energy consulting firm has been hired to perform a feasibility study that will help Ukraine make one of its most important decisions since independence.
Kyiv’s Energy Solutions, founded by American ex-pat David Sears, has been appointed by an Energy Ministry tender commission to provide an economic analysis that will help the government to decide whether the idle Odessa-Brody pipeline should diversify energy supplies in the region by pumping Caspian crude to Europe or be filled with Russian oil for transportation south to Odessa, improving export capacity for oil giants in the north.
Pumping Caspian crude through the pipeline from Odessa northwest to Brody and onward to European markets as originally planned could tighten Ukraine’s ties with Europe. Reversing the pipeline’s flow, as Russian oil firms want, could strengthen Russia’s grip on Ukraine’s energy market.
The tender commission considered four applicants for the work. In addition to Energy Solutions, Explorer Energy Services, a Canadian firm, U.S.-based RP and Britain’s Purvin & Gertz submitted proposals.
The Energy Ministry, which organized and coordinated the tender, would not say why Energy Solutions was chosen. A spokesperson for Energy Minister Serhy Yermilov declined to reveal additional information about the tender, to reveal the value of the contract, or to identify the members of the tender commission other than Deputy Energy Minister Bohdan Kluk, who chaired the group. Kluk did not respond to inquiries by the Post.
An Oct. 20 Energy Ministry statement announcing the award of the contract described Energy Solutions as a U.S. registered company with a Kyiv office that specializes in providing consulting services. The statement said that Energy Solutions would manage the project and seek out experts in partnership with other firms, including Energy Markets, a British consulting firm that focuses on the gas market, and U.S. power company Edison International.
Neither the Energy Ministry nor Energy Solutions would reveal the value of the contract, but Sears admitted the 12-week study was worth “hundreds of thousands of dollars.” He said that Energy Ministry officials had approached his firm weeks before the tender deadline and asked it to bid for the contract.
Sears said his company would act as a coordinator, while Energy Markets would manage the project and provide technical expertise. Murray Jennex, a business consultant who has worked on projects in nuclear generation, electrical utilities, communications, health services and government agencies, will advise on the business and economic feasibility of the pipeline project, Sears said.
Neither Energy Solutions, Energy Markets nor Jennex have significant experience or qualifications as consultants on petroleum markets or oil pipelines, and Sears said that Edison International, originally seen as a partner in the project, is unlikely to participate.
Sears was employed by a subsidiary of Edison International for more than 20 years.
Sears said the three companies would operate as a consortium, seeking out qualified petroleum market and oil pipeline experts within and outside Ukraine.
Sears said that while the study is intended to examine the feasibility of reversing the direction of the pipeline, his project team would compile and present data on both options.
“You can’t know one without the other,” he said. “We will examine the existing data for each direction. We will not make recommendations, just provide a economic assessment.”
Sears arrived in Ukraine in the late 1990s as a U.S.-funded consultant to assess Y2K risks in Ukraine’s energy sector. Jennex also consulted on the Y2K project.
Sears found few problems, largely due to the fact that the country’s energy sector is not heavily reliant upon computers. After completing the study, Sears remained in Ukraine, intending to continue consulting on energy issues and established Energy Solutions in 2001.
Neither Energy Solutions nor company founder Sears has consulted on energy issues since.
Without energy consulting work, Sears opened a below-the-line advertising firm as an Energy Solutions subsidiary last year. That firm, International Business Solutions, became a supplier of advertising specialties such as T-shirts, pens and uniforms to companies including PricewaterhouseCoopers, Eldorado Gaming and KP Publications, which publishes the Kyiv Post.
Energy Solutions did bid in an Odessa-Brody related tender last year that was organized by Ukrtransnafta, the state pipeline company. PricewaterhouseCoopers was awarded the contract.
Energy Markets has provided consulting services in the past for Naftogaz Ukrainy, the state-owned oil and gas company. Naftogaz Chairman Yury Boyko strongly favors the Russian proposal to move oil through the pipeline toward Odessa.
That a nearly unknown firm was awarded the contract didn’t come as a surprise to at least one government official.
Mykhailo Honchar, deputy head of a government agency that promotes the use of the pipeline as a major route for Caspian crude to Europe, said that well-known energy consulting firms simply didn’t turn up for the tender.
Honchar said that big players like PricewaterhouseCoopers and Ernst & Young failed to bid because the future of the pipeline had become highly politicized and because “reversal of the pipeline looks economically absurd.”
Honchar said that Energy Solutions and the other firms that bid on the tender were small fish compared to the ones that bid in the tender organized earlier this year by Ukrtransnafta.
“They are not in the upper league of consulting firms,” he said.
Honchar doubted, however, that the pipeline would be reversed.
“The government has the right to study reversal of the pipeline and see how it would work. This study will be important in helping Ukraine make its decision, but it is important to note that Ukraine’s general strategy for the pipeline has not been changed,” he said.
The Odessa-Brody pipeline project is one of several projects intended to increase the supply of Caspian crude oil to Europe. The United States, the EU and Kazakhstan support the pipeline.
The pipeline involves shipping oil in barges across the Black Sea to Odessa, from where it can be pumped westward through existing and planned pipelines. The 674-kilometer pipeline has an annual capacity of nine million to 14 million tons of oil.
Completed in 2001, the pipeline remains empty and the chances that it would pump Caspian crude began to fade as Russian oil firms launched an aggressive lobbying effort to reverse the originally intended direction of flow, sending Russian oil to Odessa, where it would be loaded onto tankers.
The government plans on announcing its final decision on how to use the pipeline after the study to be completed by Energy Solutions is completed.
