Ignoring protests from the West, state oil transit company Ukrtransnafta is inching closer to inking an agreement with Russian oil companies to reverse the disputed Odessa-Brody oil pipeline days after receiving permission from the government to do so.
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An insider close to Ukrtransnafta told the Post on July 14 that documents have not been signed yet, but a decision has been made at a high level in Ukraine’s government to accept an offer by the joint Russian-British TNK-BP.
“Signing the agreement is merely a formality and should happen within days,” the source said.
TNK-BP representatives said oil shipments could start by the fourth quarter of this year. They and other Russian oil companies have stated that they would fill the $500 million pipeline, which has stood idle since being completed in 2001.
Ukraine’s government on July 5 overturned a February decision that effectively mandated that the pipeline should pump largely non-Russian Caspian crude westward into Europe with the intention of diversifying energy supplies in the region. Today these supplies are primarily controlled by Russian firms.
The revised resolution that permitted reversal of the pipeline allows it to be filled with Russian crude from the Urals, which would flow from the western Ukrainian town of Brody, to Odessa, and then be shipped across the Black Sea by tanker through Turkey’s clogged Bosphorus Straits.
Insiders suggest the Kremlin has delayed signing a much-anticipated 15-year agreement for transiting oil through Ukraine until Kyiv agrees to reverse the pipeline.
The original resolution on Feb. 4 was adopted after a period of intense lobbying by the European Union and the United States on the one side and Russian interests on the other. Western oil concerns have publicly expressed their intentions to fill the pipeline this year with Caspian crude, but no acceptable or concrete proposals were made, according to the government.
U.S. Ambassador John Herbst has however publicly contradicted this, telling the Post on July 1 that serious contracts with oil firms operating in the Caspian region are on the horizon.
In a July 12 statement, the Ukrainian government explained that the pipeline was reversed because serious interest in pumping Caspian crude through it from Odessa to Brody and further west was limited by several factors. The pipeline, which currently connects with aging Soviet pipelines that currently ship Russian crude westward, has not yet been extended into Poland as originally planned. A lack of available crude from the Caspian region was another factor, the statement read.
Reversal of the pipeline is temporarily being employed to generate revenues until the pipeline is extended and interest in shipping Caspian crude increases, the government added.
The EU, US and oppositionist deputies, the later of which blame the government for failing to attract interest in the project, protested Ukraine’s decision to reverse the pipeline.
The pipeline, according to its original design, would ship Caspian oil in barges from Georgia across the Black Sea to Odessa and then pump it westward through existing Soviet-built pipelines and ones yet to be built.
The 674-kilometer pipeline has an annual capacity of 9 tons to 14 million tons. A planned extension into Poland would more than double its capacity.
Some experts had argued that reversal is the more profitable option for Ukraine over the next three years, until the pipeline can be extended into Poland and demand for Caspian crude increases.
Others, including the auditing firm PricewaterhouseCoopers, which developed a business plan for the Caspian option, have warned that Ukraine would lose its “window of opportunity” to become a major transit route for Caspian crude to Europe if it temporarily reverses the pipeline.
The pro-Russian option has been sharply criticized by some analysts, who fear oil shipped through the already crowded Bosporus, which connect the Black Sea with the Mediterranean, would clog it further.
