Poland to become oil gatekeeper thanks to Odessa-Gdańsk pipeline
This year, recent events in the oil sector could see the arrival of a new, positive epithet, that of 'America's Gatekeeper in Eurasia.'
The project at the heart of the matter, an extension of the existing, expensive though as-yet-unused Odessa-Brody pipeline in Ukraine on to Płock and eventually the port of Gdańsk, was given official support by the Polish and Ukrainian administrations a week ago. The first phase will be the formation of a joint venture by pipeline network operator PERN and Ukrainian equivalent Ukrtransnafta. According to Deputy Prime Minister and Infrastructure Minister Marek Pol, the venture will seek to attract foreign - (read American) - investment, which is expected to come in large part from the world's top five oil companies.
Once the 500 kilometer extension from Brody in western Ukraine to Gdańsk is completed, a zł.1.845 billion ($500 million) project that will take at least two years to realize, Gdańsk will be able to feed tankers bound for world markets with oil that has been piped from Odessa in the Black Sea, where it has arrived from the Caucasus region.
After Persian Gulf and Ural oil, Caspian oil is currently the third largest reserve in the world. In recent weeks, world oil markets have been shaken by the news that major oil companies, most notably Royal Dutch-Shell, have vastly overestimated the size of their reserves and the bounty being found by new prospects. Iraqi supply has still not materialized, and Russia remains a political uncertainty. Caspian oil's moment has arrived.
But much Caspian oil reaches world markets by pipeline via Russia, the very country that the enourmous American consumer wishes to avoid. Currently, the alternative supply line is by tanker from Georgia, and on through the Bosphorus straights in Turkey which are congested, expensive and open to enormous environmental risk. In winter, only six oil tankers per day can get through the straights, while one day's delay can cost a shipper as much as zł. 184,350 ($50,000). According to a recent BBC report on the issue, "Officials and campaigners speak with one voice: it is an accident waiting to happen." Quite simply, the channel will not be able to cope with the projected increase in demand for Caspian crude, and a new route will have to be found.
Despite the practical need for the Odessa-Gdańsk route for Caspian oil as an alternative to the Russian route, the future of the Gdańsk extension is still under threat not surprisingly from Russian interests. During its two to three year construction period, the use of the existing Odessa-Brody section will be open to question. One solution, as proposed by the Russian oil provider TNK, is to send Ural oil, and Caspian oil that has been piped into central Russia, south down the pipeline, using Odessa as an export route to join Black Sea traffic.
But Cezary Federowicz, head of Ukrtransnafta's Poland office, likens the TNK proposal to the cynical ploy of a drug-pusher, who supplies his product cheaply for a given time period until his victim is dependent, at which point the pusher has complete control over his customer. "This offer is ridiculous," says Federowicz. "It is irrational in business terms and only makes sense to the pro-Russian oligarchs in Kiev who don't want the Brody pipeline to be created." The danger is, runs Federowicz's argument, that once international investors with interest in the Caspian region (such as Chevron-Texaco, which has already expressed its interest in the Gdańsk extension) see that Caspian oil is not being sent south to north from Odessa, but that Ural (Russian) oil is being sent north to south to Odessa, there will be far less confidence in (and therefore finance for) the completion of the project. "The risk of investment must be lower. If there's a decision that the Russians control the Odessa-Brody pipeline it would be much more difficult to raise finance," says Federowicz. "We still need to canvass international investors."
Most importantly, the temporary 'reverse supply' will be a signal that the Russian interest in Ukraine, represented by Russian ambassador Chernomyrdin, former prime minister of Russia, is realizing Russia's strategic goals in the country. Chernomyrdin is a veteran of Kremlin intrigue and the former chairman of Russian gas monopoly Gazprom, where he was heavily involved in jostling for power in the Ukrainian energy sector. Not a professional diplomat but a seasoned politician and big businessman, Chernomyrdin also reputedly has close personal ties with Ukrainian President Leonid Kuchma.
"Even if the decision is made for the pipeline to be used for Caspian oil," says Federowicz, "the Russians will try to show that there is not enough supply, or that the consumers have problems getting it. They are ready to pay Ukraine any price to stop their cooperation with Poland, and to preserve their oil supply monopoly." This week, a Ukrainian energy delegation will visit Washington DC, where a working group hosted by U.S. Energy Secretary Spencer Abraham will have the Odessa-Gdańsk pipeline on its agenda.
On Tuesday, U.S. Ambassador to Ukraine John Herbst met with President Kuchma to discuss constitutional change and opportunities for Ukrainian involvement in the reconstruction of Iraq. At the same time, Ukrainian opposition leader Viktor Yuschenko received Kuchma's assurances of new elections in October. The Ukrainian-Polish agreement on the Gdańsk extension was attended by the American ambassador to Poland.
Ilan Berman, Vice President for Policy at the American Foreign Policy Council, a Washington DC research institute, says that last year's unprecedented expansion of ties between Warsaw and Washington on the political and military fronts are a precursor to even more dramatic co-operation. "The (Brody-Gdańsk) extension deal has positioned Poland to become a major energy hub for new, non-OPEC and non-Russian crude from Central Asia as well" wrote Berman in correspondence with the Business Journal. "This pivotal position suggests the U.S.-Polish partnership is poised to expand dramatically, with Warsaw becoming not only an American outpost in Eastern Europe, but a much-needed gateway to Eurasia as well."
As an analyst of geopolitics, Berman points to the Caspian and Caucasus as an area of vital strategic importance, where Russian and U.S. competition is growing, as a result of Russia's "...aggressive, neo-imperial strategy there" and "...the defense transformation now underway in the Pentagon" which have fed into the "...ongoing energy competition between the USA and Russia." In this scenario, the Odessa-Gdańsk pipeline is "...a vital conduit to bring Caspian energy to European markets" as well as for the political independence of the "post-Soviet space" a term he uses for the new democracies stretching from the Caspian to the Baltic.
The project at the heart of the matter, an extension of the existing, expensive though as-yet-unused Odessa-Brody pipeline in Ukraine on to Płock and eventually the port of Gdańsk, was given official support by the Polish and Ukrainian administrations a week ago. The first phase will be the formation of a joint venture by pipeline network operator PERN and Ukrainian equivalent Ukrtransnafta. According to Deputy Prime Minister and Infrastructure Minister Marek Pol, the venture will seek to attract foreign - (read American) - investment, which is expected to come in large part from the world's top five oil companies.
Once the 500 kilometer extension from Brody in western Ukraine to Gdańsk is completed, a zł.1.845 billion ($500 million) project that will take at least two years to realize, Gdańsk will be able to feed tankers bound for world markets with oil that has been piped from Odessa in the Black Sea, where it has arrived from the Caucasus region.
After Persian Gulf and Ural oil, Caspian oil is currently the third largest reserve in the world. In recent weeks, world oil markets have been shaken by the news that major oil companies, most notably Royal Dutch-Shell, have vastly overestimated the size of their reserves and the bounty being found by new prospects. Iraqi supply has still not materialized, and Russia remains a political uncertainty. Caspian oil's moment has arrived.
But much Caspian oil reaches world markets by pipeline via Russia, the very country that the enourmous American consumer wishes to avoid. Currently, the alternative supply line is by tanker from Georgia, and on through the Bosphorus straights in Turkey which are congested, expensive and open to enormous environmental risk. In winter, only six oil tankers per day can get through the straights, while one day's delay can cost a shipper as much as zł. 184,350 ($50,000). According to a recent BBC report on the issue, "Officials and campaigners speak with one voice: it is an accident waiting to happen." Quite simply, the channel will not be able to cope with the projected increase in demand for Caspian crude, and a new route will have to be found.
Despite the practical need for the Odessa-Gdańsk route for Caspian oil as an alternative to the Russian route, the future of the Gdańsk extension is still under threat not surprisingly from Russian interests. During its two to three year construction period, the use of the existing Odessa-Brody section will be open to question. One solution, as proposed by the Russian oil provider TNK, is to send Ural oil, and Caspian oil that has been piped into central Russia, south down the pipeline, using Odessa as an export route to join Black Sea traffic.
But Cezary Federowicz, head of Ukrtransnafta's Poland office, likens the TNK proposal to the cynical ploy of a drug-pusher, who supplies his product cheaply for a given time period until his victim is dependent, at which point the pusher has complete control over his customer. "This offer is ridiculous," says Federowicz. "It is irrational in business terms and only makes sense to the pro-Russian oligarchs in Kiev who don't want the Brody pipeline to be created." The danger is, runs Federowicz's argument, that once international investors with interest in the Caspian region (such as Chevron-Texaco, which has already expressed its interest in the Gdańsk extension) see that Caspian oil is not being sent south to north from Odessa, but that Ural (Russian) oil is being sent north to south to Odessa, there will be far less confidence in (and therefore finance for) the completion of the project. "The risk of investment must be lower. If there's a decision that the Russians control the Odessa-Brody pipeline it would be much more difficult to raise finance," says Federowicz. "We still need to canvass international investors."
Most importantly, the temporary 'reverse supply' will be a signal that the Russian interest in Ukraine, represented by Russian ambassador Chernomyrdin, former prime minister of Russia, is realizing Russia's strategic goals in the country. Chernomyrdin is a veteran of Kremlin intrigue and the former chairman of Russian gas monopoly Gazprom, where he was heavily involved in jostling for power in the Ukrainian energy sector. Not a professional diplomat but a seasoned politician and big businessman, Chernomyrdin also reputedly has close personal ties with Ukrainian President Leonid Kuchma.
"Even if the decision is made for the pipeline to be used for Caspian oil," says Federowicz, "the Russians will try to show that there is not enough supply, or that the consumers have problems getting it. They are ready to pay Ukraine any price to stop their cooperation with Poland, and to preserve their oil supply monopoly." This week, a Ukrainian energy delegation will visit Washington DC, where a working group hosted by U.S. Energy Secretary Spencer Abraham will have the Odessa-Gdańsk pipeline on its agenda.
On Tuesday, U.S. Ambassador to Ukraine John Herbst met with President Kuchma to discuss constitutional change and opportunities for Ukrainian involvement in the reconstruction of Iraq. At the same time, Ukrainian opposition leader Viktor Yuschenko received Kuchma's assurances of new elections in October. The Ukrainian-Polish agreement on the Gdańsk extension was attended by the American ambassador to Poland.
Ilan Berman, Vice President for Policy at the American Foreign Policy Council, a Washington DC research institute, says that last year's unprecedented expansion of ties between Warsaw and Washington on the political and military fronts are a precursor to even more dramatic co-operation. "The (Brody-Gdańsk) extension deal has positioned Poland to become a major energy hub for new, non-OPEC and non-Russian crude from Central Asia as well" wrote Berman in correspondence with the Business Journal. "This pivotal position suggests the U.S.-Polish partnership is poised to expand dramatically, with Warsaw becoming not only an American outpost in Eastern Europe, but a much-needed gateway to Eurasia as well."
As an analyst of geopolitics, Berman points to the Caspian and Caucasus as an area of vital strategic importance, where Russian and U.S. competition is growing, as a result of Russia's "...aggressive, neo-imperial strategy there" and "...the defense transformation now underway in the Pentagon" which have fed into the "...ongoing energy competition between the USA and Russia." In this scenario, the Odessa-Gdańsk pipeline is "...a vital conduit to bring Caspian energy to European markets" as well as for the political independence of the "post-Soviet space" a term he uses for the new democracies stretching from the Caspian to the Baltic.
