UkrTransNafta set to pump Russian crude oil through Odesa-Brody pipeline (11/21/04)

UkrTransNafta set to pump Russian crude oil through Odesa-Brody pipeline

by Natalya Slobodyan

KYIV - UkrTransNafta will pump from 7 million to 9 million tons of Russian crude oil through the Odesa-Brody pipeline in 2005, dispelling rumors that, even with contracts with most of Russia's leading oil producers, the Ukrainian oil transport tube would remain underutilized.

After months of political and economical debates within and outside of Ukraine, the controversial Odesa-Brody pipeline finally started transporting oil in the reverse direction, from Brody to Odesa, where it will be loaded onto oil tankers for transport to Europe via the Dardanelles and the Mediterranean.

The first 80,000 tons of Russian oil reached the Pivdennyi Oil Terminal near Odesa on September 28, according to UkrTransNafta, and the first tankers began to load the next day.

It is expected that 1.2 million tons of Russian crude will already have flowed through the pipeline by the New Year, said UkrTransNafta Vice-President Serhii Hryhoriev, according to Interfax-Ukraine. He said that among the Russian oil suppliers who will transport their crude stocks through Ukraine would be Lukoil, TNK-BP, Yukos, Surgutneftgaz, Sibneft, Tatneft, Didanko, Rosneft, Bashneft, Russneft and Gazprom.

President Leonid Kuchma announced the long-term use of the pipeline for Russian oil on August 18 during a summit with his Russian counterpart, Vladimir Putin in Sochi, Russia. Ukraine took this step in exchange for Russia's cancellation of 18 percent VAT on the export of gas and oil to Ukraine.

UkrTransNafta signed a long-term contract with Russian-British TNK-BP, according to which more that 27 million tons of oil will be transported through the pipeline in the next three years from Brody to Pivdennyi.

After the construction of the pipeline was finished in 2001, the question about the direction of the pipeline's usage became a political and economic issue. Originally, the pipeline was built to transport the Caspian oil to the countries of Europe through Ukraine in order to decrease the flow of oil tankers and hence the risks of tanker accidents and environmental pollution in the congested Strait of Dardanelles.

A group of Russian oil companies headed by TNK-BP proposed the reverse use of the pipeline at the beginning of 2003. In January the energy-consulting firm Energy Solutions stated that of all possible options for using the pipeline, moving oil from the Caspian basin to Europe would be the best.

At the time the Ukrainian government said that, realizing the long-term benefits of transporting oil from the Caspian Sea to Europe, Ukraine wouldn't consider the idea of the reverse flow even if it was temporary, said Fuel and Energy Minister Serhii Yermilov in February.

But the government of Viktor Yanukovych approved the reverse use of the pipeline in July, which caused a harsh reaction in Europe and the United States. Government officials in the Polish capital of Warsaw elicited surprise over the decision inasmuch as Poland last year had signed an agreement with Ukraine regarding the transport of the Caspian oil to Europe and the completion of the Odesa-Brody pipeline to Plotsk, a town on the Baltic Sea coast.

Some political forces in Ukraine, as well as the United States and European Union, believe that by agreeing to reverse the pipeline Ukraine is losing a chance to decrease its dependency on Russian energy sources, the Financial Times wrote after the reverse was approved.

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