Reaching the Caspian Through Ukraine

Posted: 01 April 2008

by Alexandros Petersen

Calls for greater European coordination on energy issues have increased in the last few months. Since January, Russian energy companies have effectively taken control of Serbia’s energy sector, shored up their position in Bulgaria’s, and brought Austria, Greece and Hungary onside to support Russian energy projects over those backed by the EU. New energy routes from the Caspian region, devoid of Russian influence, are needed, and Ukraine represents a potential supply diversification route for Central Europe. EU leaders must work with Ukraine and other partners to help bring new pipelines through the country into being.

Much has been written lately about the death by a thousand cuts being inflicted on the EU’s Nabucco gas pipeline – the proposed route that would carry gas from Turkey to Central Europe. Two other alternative options, however, exist in the Black Sea region and are set to pass through Ukraine: Odessa-Brody for oil and White Stream for natural gas. As both would flow through Ukraine’s unique geopolitical, demographic and economic landscape, neither project negates the importance of Turkey-centered routes, such as Nabucco, which can also tap into energy from the Middle East. However, Europe’s growing appetite for energy and still distant plans for a carbon-less system mean that all such alternative routes – including those via Ukraine – have great potential.

Odessa-Brody was originally built by the Ukrainian government in 2001, with hopes that it could link Caspian reserves with Central European consumers. However, no provisions were made to secure commitments to fill the pipeline on the producer side, so it remained empty. Moscow stepped in with a proposal to reverse the pipeline’s direction, bringing Russian oil to Odessa’s Black Sea port, and this is how Brody-Odessa is used today.

At the moment, Poland receives oil from Azerbaijan’s Caspian deposits through tankers that make the circuitous trip from Turkey’s southern coast in the Mediterranean to the Baltic. A direct route through the Black Sea and Ukraine would be much more sensible. In 2007, a consortium consisting of energy companies from Azerbaijan, Georgia, Lithuania, Poland and Ukraine agreed to restore the pipeline’s original direction, and expand it to Plock and Gdansk. Two weeks ago, the Polish and Ukrainian presidents met and reaffirmed their commitments to seeing Odessa-Brody become a reality. The two are scheduled to meet again in Kyiv this May, along with representatives from the other partner countries to prepare a business plan for the pipeline moving forward.

The Odessa-Brody consortium has neatly partnered producers with consumers to move the project forward, but the consortium will need significant backing from Brussels and influential European capitals to prevent it from becoming another Nabucco. Construction of the extension to Poland is set to be completed by 2011, but it would be folly to assume that the Kremlin will twiddle its thumbs in the meantime. Already, Russia has held off on permitting Kazakhstan to boost exports to the Black Sea (by delaying the expansion of pipelines across the North Caucuses) until a “Russia-friendly” outlet was available. Transneft’s Burgas-Alexandoupolis pipeline through Bulgaria and Greece fills this role, and will likely compete with Odessa for the necessary oil supplies.

Proposals for White Stream also require political attention. Still dangling in the “lines on a map” phase, ideas for this technologically revolutionary line first surfaced in 2005. Now the London-based White Stream Pipeline Company is working feverishly to gain support, and Ukrainian Prime Minister Yuliya Tymoshenko – traditionally a political foe of Russia’s gas monopoly, Gazprom – has added her support. In a way, Ukraine’s two most prominent (and sometimes sparring) politicians have staked out their turfs on pipeline diplomacy: President Viktor Yushchenko takes the lead on oil, while Tymoshenko jumps on gas.

Initially, there were two possible routes for White Stream, one from Georgia to the Crimea and then to Romania, and another directly across the Black Sea to Constanta. Tymoshenko has proposed a slightly different route through Ukraine. Whichever is chosen, the important thing is that it be realized quickly and European decision-makers follow up by enticing Caspian producers to use it, alongside a revived Nabucco. 

While the world waits for Caspian producers to delineate their holdings and fully audit their reserves, the great unknown remains not whether there will be oil and gas available, but whether there is political will to put the pieces together to move it westward. Caspian producers Azerbaijan, Kazakhstan and now Turkmenistan under new leadership are doing all they can to get Europe’s attention, despite lucrative offers by Russia and China. But there is a disconnect between Europe and the Caspian, one facilitated to some extent by Moscow, but mainly due to a lack of commitment from all interested parties – including transit countries.

In this context, those in Europe who rebuff Ukraine (or Georgia, or Turkey) in its quest for membership in Euro-Atlantic institutions do not help shore up the Black Sea transit corridor. Ukraine’s application to join western structures should be evaluated on the country’s domestic merits, but sending the right signal to Kyiv would contribute to the improvement of Europe’s energy security. And, energy projects like Odessa-Brody and White Stream could, in-turn, help firmly anchor Ukraine to the West geopolitically.

Alexandros Petersen is Program Director of the Caspian Europe Center in Brussels and Adjunct Fellow with the Center for Strategic and International Studies (CSIS) in Washington, D.C.

The views expressed in this article are those of the author and do not necessarily reflect the opinions of the Center for European Policy Analysis.