BELARUS NEWS AND ANALYSIS

DATE:

10/01/2007

Ukraine's transit potential: Can Kiev profit from Moscow-Minsk confrontation?

The system of energy carrier transit is a key strategic asset for Ukraine stipulated by advantages of its geographic location. Oil and gas transit pipelines contribute both to the country's budget, being a weighty source of income for Ukraine, and the country's national security, providing procurement of gas and oil to the domestic market. Geopolitically, the Ukrainian transit is an inalienable part of Europe's energy security in gas supply and, to a lesser extent, in oil export. Up to date, transit of the Russian oil via Ukraine is decreasing, but it is still the weighty 14-15% from the whole flow. Unsurprisingly, in reaction to the Belarusian-Russian conflict, Ukrainian officials of various levels made several statements, in particularly, that Ukraine was ready to replace Belarus and increase transit of both Russian oil and gas to Europe.

About 37,600 km of gas transporting pipelines with diameters of from 500 to 1400 mm and working pressure from 5.4 MPa to 7.5 MPa. The Russian gas is delivered to the country from several terminals located along the Russian border and from Belarus. Most of exported gas transits via Slovakia and then goes to other European countries. Apart from it, part of the gas is transported to Romania, Hungary and Poland (via Drohobych, Ukraine). Total amount of gas transit via Ukraine, most of which is sent to Western Europe, from the time of independence in 1991 increased from 118 billion cubic meters in 1991 to 140 billion cubic meters in 2002, after that it decreased up to 136 billion cubic meters in 2005. Under reports by Ukrainian Fuel and Energy Ministry, the figure is 78% from the Ukrainian system capacity. It is unknown yet, how fully the gas pipelines in Poland and Slovakia are being exploited assigned for providing extra gas delivery to Western Europe in case of emergency; the Ukrainian Fuel and Energy Ministry does not reveal such information. Indirectly, one can judge from a statement made by Fuel and Energy Minister Yuri Boyko at a briefing on December 28: "After analyzing possible scenarios, we see that in case of any conflict situations Ukraine can render assistance by increasing the transit to European consumers in the amounts necessary for functioning of their economies." However, if his optimism concerning short-term transit revenues is understandable and grounded, in a long-term perspective Ukraine can be an influential transit actor for both Russian and Caspian oil and gas products only in case it modernizes its pipelines. Most gas transport facilities in Ukraine need modernization or replacement. For instance, about 29% of gas pipelines and gas-compressor blocs exhausted their life time, more than a half of pipelines have been exploited for 10-30 years. Besides, it is worth mentioning that Ukraine gas transporting system is extremely ineffective: turbine compressors at pumping stations are too old, and contrary to their west-European analogs, have efficiency of 25%.

The oil transporting network in Ukraine contains 19 main pipelines and has a capacity of 114 million tons per year at entrance and 56.3 million ton at exit. The oil transporting system consists of three main pipelines: Druzhba, Pridneprovsky and Odessa-Brody. The Druzhba pipeline, which became notorious in recent days, divides into two branches in Mozyr (Belarus) and its southern branch comes across nine Ukrainian provinces and reaches borders of Hungary and Slovakia. The rest pipelines have no exit to the western border. The Odessa-Brody pipeline has exit to Polish Plock on paper only and, in reality, runs into Druzhba.

As Russia paid much more attention to diversification of its oil export to Europe in comparison to gas export, amounts of oil transported via the Ukrainian territory have been decreasing starting from 92 million tons in 1991 to 46.7 million tons in 2005. So, for the Ukrainian oil pipelines, which are almost idle now, extra amount of procurement could have been a good Christmas gift, however, it is not clear, how such plan can be implemented in a technical way. Besides, Ukrainian oil pipelines need serious modernization too. Under assessment of the Fuel and Energy Ministry, regular technical support and repairs needed to maintain functioning of those out-of-date facilities cost at least $100 million per year. However, this does not prevent Ukraine from hoping for increasing volume of Russian oil transit without connection to the "Belarusian situation," which was announced by Ukrtransnafta Board of Directors Head Alexander Dikusarov on January 8.

Part of Ukrainian political establishment is rather moderate while assessing prospects of increasing gas and oil transit as a result of the Belarusian-Russian conflict. For instance, Ukraine's ex-premier Yuri Yekhanurov believes that the Belarusian-Russian oil conflict will not have significant influence upon the Ukrainian economy. "The conflict almost does not touch upon interests of Ukraine. Today, the whole world is interested that Russia and Belarus settle the conflict as soon as possible, and the world market has already reacted to the situation by raising oil price by 75 cents per barrel," he said in a comment to reporters on January 9, noting that the amount of Russian oil transit via the Ukrainian territory will hardly increase: "I do not think it is real. Belarusians will come to an agreement with Russians soon."

In Ukraine's energy strategy by 2030, the government announced optimistic plans of increasing oil transit by 65 million tons by 2010 and by 70 million tons by 2015, however, in the light of the current trend to decreasing oil transit such intentions look unrealistic. The Ukrainian government plans to reach the announced figures with the help of implementing two projects: integration of Druzhba and Adria pipelines and extension of the Odessa-Brody pipeline to Plock (Poland). However, in the context of such prospects, there are too many questions left about economic efficiency of the projects. For instance, integration of Adria did not promote since 2002 because Balkan countries opposed the plan. Odessa-Brody initially intended as a part of Eurasian oil-transit corridor for transporting Caspian oil to Europe also raises doubts from the point of view of expenditures for transportation in comparison with existing routes, as well as taking into account the fact that most plants in Western Europe were built for processing Russian instead of Caspian light oil.

The material was prepared by Coordinator of REGNUM correspondent network Alexei Belyaev on the basis of information of statistical data provided by the Ukrainian Cabinet of Ministers, Naftogaz Ukraine, Ukrainian Fuel and Energy Ministry, National Statistical Committee and open sources in Ukrainian and Western media.

Source:

http://www.regnum.ru/english/764372.html