Viktor Yanukovych came first in the presidential elections in Ukraine, but Yuliya Tymoshenko has instructed lawyers to bring to the courts evidence of voting irregularities to put Yanukovych’s margin of victory under question. Even if the latter is able to muster a negative majority to oust her from office and form his own parliamentary majority, he may be forced to call new parliamentary elections. Nevertheless, he has already moved on the energy front through floating new proposals, if not yet able to offer them formally for legislative consideration. The elections in Ukraine change the odds also for other projects in the east-west energy corridor from Central Asia and the Caucasus to Europe.
An international energy conference was held in Batumi, Georgia, in mid-January, originally planned as a high-level summit. However, the timing ended up putting it just before the first round of presidential elections in Ukraine, and very late in the game President Viktor Yushchenko decided not to attend, in order to pursue his ill-fated campaign. Other heads of state subsequently cancelled for protocol reasons, and the meeting went ahead as a preparatory conference for the postponed, yet to be rescheduled, high-level summit. This conference identified two priority projects for further promotion: the reversal of the Odessa-Brody Pipeline for oil (OBP, sometimes now called Sarmatia) back to its originally intended southeast-to-northwest direction inside Ukraine, and the international White Stream natural gas pipeline. The results of the elections in Ukraine and the current situation hold implications for both these projects, as well as for the Russian-sponsored Nord Stream and especially South Stream natural gas pipelines.
The White Stream gas pipeline proposes a way for Caspian Sea basin natural gas that passes neither through Russia nor through Turkey on its way to Europe. It seeks to route the gas across Azerbaijan and Georgia to Supsa, then under the Black Sea, for delivery to the Balkan member-states of the EU, notably Romania (at the port of Constanta), and then from there further westwards. In particular, the EU feasibility study of White Stream projects that the gas pipeline, after making landfall in the Balkans, would extend overland to Italy along the route of the Pan-European Oil Pipeline. It would be possible for Azerbaijan alone to supply the 8 billion cubic meters per year (bcm/y) called for in White Stream’s first stage: construction could begin in 2012 and the pipeline could enter into service in 2015.
The other project discussed at Batumi is the reversal of the OBP and its extension into Poland to the port of Gdansk for export by way of the refinery at Plock. At the time of its conception, the OBP was intended to receive oil from Kazakhstan through the Georgian ports of Batumi and Kulevi to the Ukrainian port of Kherson. The decision was taken to pursue construction in the absence of supply guarantees; the pipeline lay empty from its completion in 2001 until 2004, when another decision was taken to reverse the intended flow so as to take Russian oil from the southern branch of the Druzhba pipeline towards the southeast inside Ukraine. This pipeline inside Ukraine was integrated into the Euro-Asian Oil Transportation Corridor (EAOTC) agreed among Azerbaijan, Georgia, Lithuania, Poland, and Ukraine in May 2008. Under the concept endorsed in Batumi, the EAOTC would be implemented by sending oil through the Druzhba pipeline to the Kralupy refinery in the Czech Republic while the work was under way to extend the OBP through Poland. That oil (like the first gas for White Stream) would come first of all from Azerbaijan, as President Ilham Aliev three years ago indicated its readiness to supply the crude necessary for the EAOTC project, including the reversal (or, actually, re-reversal) of OBP.
During the run-up to the election, Yanukovych promised to seek ways for Ukraine to “participate” in the Russian-based Nord Stream (Russia to Germany under the Baltic Sea) and South Stream (Russia to Bulgaria under the Black Sea) natural gas pipeline projects. This was, among other things, a reference to orders for pipeline production either by enterprises of the Interpipe Group (connected with his close associate Viktor Pinchuk) or, still more likely, the Khartsyzsk Pipe Plant (now part of the Metinvest Group, itself the major part of Rinat Akhmetov’s wholly-owned holding company System Capital Management). It was implicitly part of the deal with Germany that German industry would receive an order for the manufacture of the Nord Stream pipeline (Germany also becomes Russia’s monopsonistic gas distributor in northern Europe), but the Khartsyzsk plant is also close to state-of-the-art, its pipes having been used for the Blue Stream gas pipeline under the Black Sea from Russia to Turkey.
Yet observers suggest that Yanukovych would not wish to see South Stream built, because this would decrease the throughput of gas from Russia to Europe. But it is designed to transit the Turkish rather than the Ukrainian sectors of the Black Sea, so he cannot stop it on that account. Therefore he has in the last few days revived the idea of making Gazprom co-owner of the Ukrainian gas-transport system, perhaps inducing Russia to decrease the market prices that Ukraine is now forced to pay, and also seeking to induce it to help modernize the country’s system. Given that Gazprom has little capital to invest even in its own modernization, however, this does not seem a reasonable hope. Perhaps for that reason, he does not also exclude the participation of European companies in a consortium still to be defined. (In order to do any of this, it would be necessary to amend 2006 legislation written by Tymoshenko as prime minister, and for which his Party of Regions voted at the time.)
Yushchenko signed a decree in May 2009 to implement the reversal of the OBP back to its originally planned southeast-to-northwest direction. In December that year, in the run-up to the first round of the election, Yushchenko predicted that the EAOTC would lie dormant, without the OBP being reversed back to its originally intended flow, if either Tymoshenko or Yanukovych were head of government. This is probably so. Although the Pryvat Group behind the OBP supported Yushchenko and Tymoshenko together during the Orange Revolution, its principals fell out with the latter in 2008. Ukraine’s original 2004 decision to reverse the flow of oil to west-to-east came only three days after a visit to Moscow by Prime Minister Viktor Yanukovych, but in November 2006 the latter publicly endorsed Yushchenko’s new proposal for an extension to Kralupy in the Czech Republic, as a first stage towards realizing the Plock-Gdansk flow. Today, however, Yanukovych has no apparent reason to favor the (re)reversal of the OBP when the Adria pipeline (running from Croatia’s port of Omisalj on the Adriatic Sea to Hungary) is itself a candidate for reversal to an east-to-west direction, giving the southern Druzba pipeline (running through Ukraine and from which OBP at present descends) a new export outlet on the Adriatic Sea.
In this fluid context, White Stream seems to be the major project in the EU’s Southern Corridor strategy that has the best prospect for (relatively) unhindered development. One variant of this project includes the pipeline’s interconnection with the domestic Ukrainian pipeline system en route to the Balkans. Yanukovych’s presidency would make this variant unlikely; the project could nevertheless proceed. By the time Azerbaijan’s gas begins to reach Romania, development of gas resources from Turkmenistan (offshore or onshore sites to be identified) and/or Kazakhstan (offshore Kashagan deposit) could make it feasible to consider additional White Stream strings bringing the project up to 24-32 bcm/y later in the decade, not excluding still further expansion in the further future. Its advantage is that it crosses neither through Turkey nor Russia, removing both potential geo-economic bottlenecks. It is worth noting that the White Stream project was included in May 2009 (Prague Summit) as part of the EU’s Southern Corridor strategy alone with the Nabucco pipeline and the Italy-Turkey-Greece Interconnector (ITGI).
Competing with White Stream are various liquefied natural gas (LNG) and compressed natural gas (CNG) projects for crossing the Black Sea from Georgia. Indeed, Azerbaijan already last year signed a memorandum of understanding (MoU) with Bulgaria for the export of 1 bcm/y as from 2011 with an eventual target of 8 bcm/y. CNG technology has not been used for such large-scale transportation before and its tankers are more expensive than those for LNG. But CNG does not require expensive gasification and de-gasification infrastructure. The Batumi energy conference in January discussed specific projects for construction of CNG terminals although not LNG. Industry analysts are currently at work calculating and verifying costs of transport, which will likely govern which technology may be chosen in the long run. In view of Europe’s long-term growth in demand for natural gas, it is not to be excluded that more than one technology and more than one route are developed and implemented as time goes by.
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First published in Central Asia – Caucasus Analyst 12, no. 3 (17 February 2010): 7–9.