Which way should Odesa-Brody go?

As of late, there has been a trend of increasing 'informational splashes' related to the possibility of launching the Eurasian Oil Transport Corridor (EAOTC). The only problem is that there is no real oil available that could be pumped through the idle pipeline. The declarations of intent, which Ukraine signed with Kazakhstan and Azerbaijan, are only proof that neither Astana nor Baku want to offend their partner with a flat refusal. The Russian government and TNK have today also interest in using the Ukranian pipeline. All the recent Russian proposals (whether it be a return to the 'reverse pumping' scenario or the readiness to take part in transporting Caspian crude oil across Ukranian territory within the framework of the EAOTC) is an indication of two stances. On the hand, Moscow does not want to renounce its participation in deciding the fate of the pipeline, and, on the other hand, it does not want to further aggravate its relationships with Kyiv, especially on the eve of the 'strategically important' presidential elections in the fall of the 2004. The slow going, recently rekindled discussion on the issue of why the country's modern-most pipeline and its accompanying terminal has not been filled with crude oil for the third year now ( with the exception of a small section of the pipeline currently in operation near Odesa), even thought all construction works were completed long ago, was actually programmed by the government itself. As early as the beginning of the year, it publicly promised to fill the pipeline with Caspian crude oil within a period of three months, but failed to stick to its promise. This aside, there is another question that is more important, namely, what will become of the pipeline?

Because the world oil crisis that broke out has an acute (not chronic) nature, it is possible that it will not have any consequences on the future of the pipeline at all. Taking into consideration the current speculative market situation, neither Russia nor the West are interested in launching the Odesa-Brody pipeline, in whichever direction the crude is to be pumped.

In fact, if considerable volumes of Caspian crude or additional supplies of Russian crude start being pumped to Europe or even if there is evidence that it can become possible in the nearest future, the market will quiet down, prices will drop and Russia itself will suffer multi-billion dollar losses, which will by no means be covered by increased oil exports. As far as the potential European and American investors are concerned, they will only invest in increasing the volumes of production and transit of Caspian crude, which is both expensive and of average quality, if it becomes clear that the hike in oil prices will be protracted. But such a conclusion can be drawn only if the price of the so-called standard barrel of oil remains considerably higher than the US $30 mark for at least one year. Ironically, if and when the situation described above emerges, Russia will again show a 'real' rather than 'diplomatic' (as currently) interest in reversing the direction in which oil will flow through the Ukranian pipeline.

The crucial period in this relation is March-June of 2005. Before that time, there can be no real progress in the pipeline issue (unless the Cabinet of Ministers decides on the option involving a 'planned unprofitable' launch). For the time being, due to the existing economic and geographic realities, the EAOTC project can be only be commercially successful in the event such a highly improbable scenario as the steady skyrocketing growth of oil prises (markedly above US $35 per standard barrel) or the start of an 'oil war' between Russia and the EU takes place.

This situation, of course, is very disadvantageous for Ukraine, particularly taking into account that the time variable in resolving the issue of the use of the Odesa-Brody pipeline is far from being unlimited. Due to objective technological factors, the wear and tear on the pipeline standing in so-labeled 'dry conservation' is approximately three times faster than that of a pipeline in operation.

However, as the saying goes, every cloud has its silver lining. Indeed, the future president and the future government will not have their hands tied when it comes to the inherited oil transit legacy and the winners of the 2004 elections, is many aspects, will be able to decide the pipeline's fate from scratch.