Ukraine's export hopes

It took 6 months of trilateral diplomacy, but Ukraine apparently will become a transportation corridor for oil shipments from Azerbaijan to Western European refineries. Officials of the two nations have reached a verbal agreement to begin volume crude shipments by yearend. The oil industry and Georgian representatives also participated in those talks. Since early this year, Ukranian President Leonid Kuchma has been orchestrating a diplomatic blitz to establish the oil export corridor, which

June 8, 1998

3 min read

Patrick Crow
Washington, D.C.
[email protected]

It took 6 months of trilateral diplomacy, but Ukraine apparently will become a transportation corridor for oil shipments from Azerbaijan to Western European refineries.

Officials of the two nations have reached a verbal agreement to begin volume crude shipments by yearend. The oil industry and Georgian representatives also participated in those talks.

Since early this year, Ukranian President Leonid Kuchma has been orchestrating a diplomatic blitz to establish the oil export corridor, which could increase Ukrainian export earnings $300 million/year.

Routing, timing, and other details remain under discussion. But one decision is clear: when the oil does move, it will not have to cross Russian territory. That meets a key Azerbaijani objective.

The Azerbaijani crude will be welcomed in Ukraine, which gets about 95% of its petroleum from Russia. President Kuchma stressed, "We need alternative sources of energy."

Now the Ukrainian government faces the difficult problem of how to forward Azerbaijani crude to western markets in significant volumes.

Options

One possible route across the Caucacus to the Black Sea and Ukraine begins with the Baku-Supsa pipeline, which is under construction.

At Supsa, the oil would be transferred to tankers that normally proceed across the Black Sea to Western Europe via the crowded Bosporus Strait.

An alternate destination might be the terminal at Ukraine's Odessa refinery. Tankers could offload crude at the Odessa or Marioupol oil terminals directly into the Druzhba pipeline for shipment on to Poland and Western Europe.

But Ukraine's oil terminals are often operating at capacity, pumping Russian crude into Europe-bound tankers.

For some time, the Ukrainian government has pushed to construct a larger-capacity oil terminal at nearby Yuzhniy.

But limited government revenues and opposition by Odessa-based oil traders-who want to protect their virtual monopoly on Siberian oil exports via the Black Sea-have kept the Yuzhniy terminal a muddy site littered with rusting construction equipment.

Rail cars

An alternative solution is railroad tank cars.

"Overall, tanker cars are not the cheapest way to move oil," noted oil industry analyst Igor Anansky. "But it has the great advantage of being quite possible to do it."

Under that scenario, crude would be loaded into Soviet-era tank cars, which would be hauled to the port of Poti, Georgia, again without crossing Russian territory.

Georgia and Ukraine inaugurated a rail-ferry service with much fanfare earlier this year. The weekly service runs between Poti and Ilychevsk, Ukraine.

Anansky observed, "Moving a tanker car to Europe via Chop (at the Hungarian border) is something both the railroads and businessmen have long experience with."

Azerbaijan, Georgia, and Ukraine successfully tested the tank car route last April, moving five cars from Baku to the Ukraine/Poland border.