By Kamil Tchorek, Warsaw Business Journal
Warsaw, Poland, Tuesday, April 13, 2004
WARSAW - A long-anticipated project to build a pipeline extension across
this country to transport oil from the Caspian region to world markets now
has a chance of attracting major commitment from Chevron Texaco.
The American energy giant is in Poland this month to discuss the formation
of a joint venture company to construct and operate the project later this
The project is expected to cost zl.1.4 billion (?300 million) and will take
until the end of the decade to complete.
This foreign direct investment (FDI) opportunity was only made possible
thanks to an essential bilateral agreement signed between Ukraine and Poland
in February. Before the agreement, energy experts pointed to a very real
threat that the project would be stalled by Russian lobbyists, who have
seemingly lost influence to their American counterparts.
The existing 674-km, one meter diameter pipeline, running from the Ukrainian
port of Odessa on the Black Sea to Brody near the Polish border in western
Ukraine, was completed, together with a terminal at Yuzhny, in May 2002. It
currently has the capacity to transport up to 14.5 million tons of oil per
This is now set to be extended as far as Plock in Poland and from there to
Gdansk. Once the massive infrastructure project is completed, oil will be
shipped from the Georgian coast to Odessa, piped to Gdansk and then shipped
on to Western Europe and the rest of the world.
However, a Russian plan envisages a 'reverse supply' solution, whereby the
extension to Poland would never be built, and Russian oil from Siberia would
instead be piped south to Odessa, and then shipped on from there to world
In the words of Ilan Berman, vice-president for policy at the American
Foreign Policy Council in Washington, DC, "Since the Odessa-Brody issue
has less to do with output than with controlling Ukraine's economic and
political independence, Russia has continued to press for reversal."
Indeed, the Russian 'reverse supply' solution has seemingly irrational
aspects to it, such as the chronic congestion of the Bosphorus Straits that
would barely be able to host a surge in tanker traffic caused by the supply
of Siberian crude from Odessa.
Russia currently enjoys a relatively monopolistic position in Eurasian
energy, controlling the pipelines from major new oil finds in Kazakhstan and
Azerbaijan to the rest of the world. A pipeline route that omitted Russia
would work in favour of the world's big oil consumers in America and Western
Europe, offering price competition and a degree of choice.
"Multiple pipelines are more competitive than single pipelines. The interest
of the USA and the EU and in Central and Eastern Europe is to have multiple
sources of supply," says Joseph Stanislaw, vice-president of Cambridge
Energy Research Associates. "Multiple routes enable the consumer competitive
opportunities that enable economic growth in the resource-using areas. If
you are the producer, you'd rather have total control."
One major influence group is the Caspian Pipeline Consortium (CPC) which is
constantly looking for cheaper ways to get Caspian oil to major world
markets. "The Russian mindset is very different," argues Stanislaw. "They
can charge a lot for their transportation, except that Russia does not own
the resources they are trying to move across. Russia has an economic
interest in who owns the pipeline."
It is precisely to preserve the project by placating as many interested
parties as possible that Polish pipeline operator PERN has invited some as
yet unnamed Russian energy companies into the joint venture with Chevron
Texaco. "A climate is being created," PERN President Stanislaw Jakubowski
told the press. "We have been talking to Chevron... we have also invited
some Russian companies to join the project."
The momentum for securing the direction of oil flow north from Odessa rather
than south to Odessa is also being maintained by a number of local
downstream developments. Although the existing pipeline ends in Brody,
within two months oil will be piped there, siphoned into tankers and
transported to refineries in southern Poland. A demonstrable demand and
supply chain is said to be vital in securing finance for the massive
"In May or June, the transport of light crude oil should begin," Oleksadnr
Todiychuk, president of Ukrtransnafta, the Odessa-Brody operator, told the
Cezary Filipowicz of Uktransnafta's Poland division added that in recent
days his company has secured an arrangement where Caspian crude transported
via Odessa will be refined in Kralupy in the Czech Republic. "This is a very
good signal to investors," Filipowicz says. "It shows that the Odessa-Brody
pipeline makes sense."
At a recent conference in Warsaw, Nursultan Nazarbayev, president of
Kazakhstan, the biggest supplier country of the Caspian region, discussed
the progress of the Polish side of the project with the national oil
companies of Poland, the Czech Republic, Slovakia, and Ukraine, as well as
multinationals such as ConocoPhillips, Shell, Channoil and Chevron.
Ilan Berman maintains that the extension of the Odessa-Brody pipeline to
Plock and eventually Gdansk could still be disrupted. "With Ukrainian
President Leonid Kuchma again under fire politically - this time as a result
of a series of controversial constitutional amendments aimed at manipulating
the electoral process," argues Berman, "the current administration in Kiev
may find it tempting to turn once again to the Kremlin to broker its
Berman also points out that America's increased military involvement with
Poland, which is likely to see U.S. military bases relocating from Germany,
coincides with Poland's increasingly strategic location in energy
geopolitics. In an article in Insight magazine Berman writes, "The
Odessa-Brody extension deal has positioned Poland to be a major energy hub
for new, non-OPEC and non-Russian crude from Central Asia."
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