Despite recent improvements on oil markets, Europe is worried over a hazy future spelling uncertain fuel supplies. The old world is no longer prepared to put up with its dependence for oil on OPEC, trying to partially replace oil with natural gas and simultaneously making an effort to diversify its fuel supplies.
According to the Expert journal, the energy issue is looming so large for Europe that the stability of the EU highly depends on the possibility to secure a reliable supply of fuel at acceptable prices. This opens up certain prospects both for Russia, with its huge oil and gas reserves, and Ukraine, with its extensive network of transit pipelines.
Exporting oil and gas outside the CIS is a highly paying line of business for Russia’s companies. However, Russia’s export potential is curtailed by its present inadequate extracting and pumping capacity. On the other hand, Europe (and not without reason) believes that, due to its partnership with the EU, Russia could reinstate its hegemony among the CIS countries as well as recover its lost positions in Eastern Europe.
With half of its fuel imported, Europe’s economic interests clearly take priority over political ones, including for such industrial giants as Germany, France, and Italy. Russia, obviously, cannot step up its oil exports due to the low transit capacity of the existing routes via oil terminals in the Black and Baltic Seas and the Druzhba Oil Pipelines Company. Tankers from Black Sea ports have to pass through the congested Bosporus. Any sharp increase in the oil tanker traffic due to the activities of the Caspian Pipeline Consortium might end in transit quotas for the Russian oil coming from the Black Sea to the Mediterranean. According to the Russians, this problem could be partially solved by the Baltic Pipeline System (BPS), which terminates at the Gulf of Finland. The first line of the BPS having a quarter of Druzhba Oil Pipelines’ capacity is to be completed by late 2001. The use of the BPS will not force Russia’s oil companies to give up pumping oil via the Baltic states and Ukraine, Russian sources repeat, as oil exporters want to utilize new export routes. Most interestingly, the Russians are convinced that they can cut a larger slice of Europe’s energy market on condition they make a deal with the transit countries, Ukraine in the first place. It is quite probable that this underlies Russia’s recent concessions to Ukraine over the latter’s gas debt.
A joint visit by the presidents of Ukraine and Poland to the construction site of an oil terminal in Pivdenny near Odesa could well be additional proof of such a deal. A key facility of the Eurasian oil transport corridor, the Odesa terminal, could become Ukraine’s ace in attracting oil to this transit route. Oil corridor construction, however, is carried out unevenly, with the Odesa-Brody pipeline 85% complete, while the oil terminal itself is only 20% ready. According to one construction expert, there will be a yearlong delay between the oil terminal and pipeline completion terms. “The pipe will be there and rusting, with no terminal and, therefore, no corridor ready,” the expert told The Day. Moreover, there are projects to extend the Odesa-Brody pipeline to the border of Ukraine and further on to Gdansk (Poland) and Europe, which will take another year, the expert believes. Here, the most acute problem is where to find the $160 million needed to fill the line with oil. In any case, the oil terminal in Port Pivdenny after completion will be able to operate in the same way as the Odesa oil port, loading Bosporus-bound tankers with Russian oil.
Following a session of the Council for National Security and Defense which considered the oil transit, President Kuchma issued an appropriate decree (incidentally, marked as “For Restricted Use,” which seems to indicate its strategic importance) which outlines major decisions to be taken in this area. Owing to the wavering Ukrainian government, some of the decisions specified in the decree have not been implemented. This actually forced Kuchma to carry the basket for the government during his talks with Polish President Aleksander Kwasniewski in Odesa. In particular, Ukraine’s government has not been able until now to merge two state-run entities, the Druzhba Oil Pipelines and the Prydniprovski Arterial Oil Pipelines, thus causing confusion and chaos for the oil transport corridor construction. Nor has the government appointed a state representative who would coordinate the work of Ukrainian government agencies involved in this strategic project. Judging by the rumors, Serhiy Osyka, former minister for economic relations and trade is considered a hot prospect for the job.
The government has also failed to start talks with extractors and owners of the Caspian oil to create an international consortium to build the Polish stretch of the oil transport corridor and to find investors for this project. Although Poland says it is ready to participate in laying a pipeline on its territory, it is unlikely to be willing to foot the bill itself.
