Poland, Ukraine agree on Euro-Asia oil transport

Business Materials 14 April 2008 20:32 (UTC +04:00)

(dpa) - Poland and Ukraine on Monday agreed on an ambitious oil transportation project in cooperation with a major US energy firm to connect Central Asian fields with European consumers.

Representatives for Sarmatia, a company jointly owned by the Ukrainian and Polish governments, and US-owned Granherne Ltd., a subsidiary of KBR Energy, signed contracts for the project in Warsaw.

Polish President Lech Kaczyski and Ukrainian President Viktor Yushchenko were on hand for the signing ceremony.

The development programme foresees the extension of a little-used trans-Ukrainian oil pipeline, to run from the Ukrainian Black Sea port Odessa, to the Polish Baltic port Gdansk.

An initial step in the development programme would be a Granherne evaluation of the state of Ukraine's pipeline system, and the investment necessary to bring it up to an international standard, Yushchenko said at a post-signing press conference.

An agreement detailing the scale of later investment and specific development planning to complete the pipeline is likely at an Polish- Ukrainian energy summit later this year, Kaczyski said.

The partially-built pipeline, designed to transport Caspian Sea crude expected to come on line in the coming decade to Poland and its neighbours, would if completed break current tight Russian control of Central Asian oil exports, as Central Asian crude oil currently must use Russian pipelines to reach Western markets.

The new link, called the Odessa-Brody-Plotsk-Gdansk pipeline, would bypass the Russian route by allowing Kazakhstan and Azerbaijan to transport oil to market across the Black Sea, via the Georgian port Poti by tanker to Ukraine's Yuzhny oil terminal, and onward via a pipeline across Ukraine and Poland to consumers.

The Ukrainian section of the line and the Yuzhny port terminal were completed in 2004. Currently the terminal is unused and only sections of the Ukrainian line is used, to augment pipelines shipping Russian oil, as Caspian product has not been forthcoming.

A multinational consortium including Polish Lithuanian, Georgian, and Azerbaijani shareholders has been working on the Polish section of the line since 2007, with little visible progress.

Granherne Ltd. was founded in London in 1984, and merged with Houston-headquartered MW Kellog in 1996. The firm was later controlled by US Halliburton and currently is a subsidiary of Houston-headquartered KBR Inc.

A Black Sea pipeline allowing the former Soviet republics Kazakhstan, Azerbaijan, Georgia to import oil and transport it onwards without Kremlin interference, has been talked by regional energy planners since the early 1990s.

Progress on the idea has been extremely slow, in part because of estimated 2 billion dollar price tag on the project, and because of questions as to whether oil shipped by pipeline then tanker and then pipeline again could compete with Russian oil transported to market through pipelines without transshipment.