Ukraine PM: Working to Finish Caspian to EU Pipeline

DAVOS Jan 26, 2007 (The Wall Street Journal via Dow Jones Newswires)

In a move that would help to diversify Europe's energy supplies, Ukraine's prime minister said he is working to complete a pipeline to carry Caspian-region oil directly to the European Union.

Completion of the pipeline would bring an additional 12 million metric tons of oil a year to the EU from Azerbaijan, Kazakhstan and Russia, Ukrainian Premier Viktor Yanukovych said in an interview at the World Economic Forum. That would help to diversify supplies at a time of mounting concern over EU dependence on Russian energy. The EU consumed 700 million tons of oil in 2005, according to the BP Statistical Review of World Energy.

EU concerns again came to the fore this month when Russia, without warning, shut down a pipeline that crosses Belarus during a dispute over duties. The move cut off refineries in Germany, Poland and other Central European countries.

The pipeline proposal would appear to be at odds with the perception of Mr. Yanukovych as a Russian puppet. "I consider myself pro-Ukrainian," not pro-Russian, he said.

Currently, the pipeline from Odessa stops in western Ukraine, near the Polish border. There it connects to the main Russian export lines from Siberia. Since 2004, it has carried only Russian oil south to Odessa. From there it is shipped through Turkey's overcrowded Bosporus.

Mr. Yanukovych said Russia is on board with the plan to complete the pipeline - which would enable oil to flow in the other direction. "We believe Russia will decide quite soon how big their interest will be, in terms of the amount of oil they put in the pipeline," he said, adding that Russian oil could be shipped from Novorossiysk on the Black Sea and fed into the pipeline.

Two years ago, Ukrainian President Viktor Yushchenko came to the annual World Economic Forum meeting in Davos as a political star. Just weeks earlier he had beaten Mr. Yanukovych in a rerun of a poll forced by massive street protests.

At the time, Mr. Yanukovych appeared to be hurt badly politically, along with Russian influence in Ukraine: Russian President Vladimir Putin had publicly backed Mr. Yanukovych for the job. Mr. Yanukovych allowed Russia to start sending oil south through the pipeline to Odessa before the election, a move widely cited at the time as evidence of his dependence on Moscow.

The pro-Western coalition that elected Mr. Yushchenko soon fell apart. Economic growth and investment collapsed over fears the new government might seize back thousands of companies privatized in allegedly rigged privatizations. Last spring, Mr. Yanukovych's Party of the Regions won parliamentary elections. In August, he was appointed prime minister.

This time it is Mr. Yanukovych who has come to Davos. Ukraine's economy has bounced back: Capital investment rose 16% in the second half of last year, compared with the same period in 2005.

According to Mr. Yanukovych, the reality of the Odessa pipeline story wasn't one of allegiance to Russia over the West. It was about the simple availability of oil. He noted that the pipeline had stood empty for years because the links to Poland and Slovakia hadn't been built.

"The fact is that there wasn't enough oil coming out of the Caspian basin to fill the Odessa pipeline then," he said. Next year, he added, there will for the first time be enough surplus oil flowing out of Azerbaijan and Kazakhstan to make completion of the pipeline commercially viable. How long it takes to build the Western links and start pumping oil to the EU depends on Slovakia and Poland, he said, declining to put a date on completion.

Mr. Yanukovych said he is building a consortium with Ukraine, Azerbaijan, Kazakhstan and Russia to operate the pipeline. Poland in the past has said it would like to see the pipeline finished and working.

The Belarus cutoff may have helped to persuade Russia that the project is a good idea, as it would provide them with an additional route for oil that circumvents Belarus. "Russia has an interest in securing more ways to move its oil in this direction too," Mr. Yanukovych said.

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