Peace & stability pipeline
History of Odessa-Brody

History of Odessa-Brody

History of Odessa-Brody building started from 1993, when government of Russia notified Ukrainian government about future limited provision of oil to Ukraine. At that time Ukrainian prime minister was Leonid Kuchma, present President of Ukraine. He was the first to take steps on formation of new alternative oil transportation route. Government of Ukraine decided to create new technical opportunity for oil delivery to Ukraine. On February 15, 1993 Leonid Kuchma, Prime-Minister of Ukraine signed Decree on building oil feeling terminal "Pivdenniy"

President of Ukraine Leonid Kuchma at solemn ceremony dedicated to "Gold Joint" of pipeline "Odessa-Brody" in August of 2001 "When I took welding apparatus, my hands began shaking from excitement and happiness, because many-years work of our constructors almost accomplished. I express my thanks to them for invaluable present to the tenth anniversary of Independence. Existence of alternative oil delivery source to Ukraine is the guarantee of our country's security"

"Odessa-Brody" oil pipeline, 674 km, was built by Ukrainian government to diversify supply of energy resources to the country and to strengthen Ukrainian role in transit of energy resources in the region. Recent changes in the market have considerably increased commercial success chances of "Odessa-Brody" project. World practice shows that projects of such size pass 8-12 years period from its construction till full-scale development. For example: project Tengiz-Novorossiysk of Caspian pipeline consortium - 10 years passed from the moment of project development till its exploitation.

Fauzi Bensarsa- Representative of European Commission General Directorate on transportation and energy issues "Independent decision of Ukraine to build Odessa-Brody oil pipeline was historical moment for diversification of energy supply to European market".

Oil pipeline construction launched in 1996 and finished in 2002. On August 5, 2002 first tanker with dead-weight 100 thousand ton with Caspian oil marked Tengiz, which was injected to oil transportation system "Odessa-Brody" as technological, was accepted. For more effective use of oil terminal "Pivdenniy" railroad overpass construction project was developed for reversing transshipment of oil and oil products from railroad to tankers and vice versa using "Pivdenniy" terminal objects in the volume 3.2 mln. ton annually. In January 2003, JSC "Ukrtransnafta" launched exploitation of 52 km part of Odessa-Brody oil pipeline and "Pivdenniy" terminal in reversing routine, thus creating an opportunity for export of additional Russian and Kazakh oil volumes. It's supposed that in 2003 over 4 mln t. oil will be transported in addition to usual volumes. Thus, functioning of terminal and 52 km part oil pipeline makes it not only breakeven, but also helps to earn money. Already this year state budget of Ukraine will gain $10 mln profit from its work.

Advantages of Odessa-Brody oil transportation route

Geopolitics and common sense

First of all it is a strategic advantage - today Odessa-Brody is the only oil transportation system in Europe which together with pipelines "Drujba" and "Adria" passes around Bosporus and is ready for transportation of Caspian high-gravity oil to European market. Abrupt change of situation in oil market also shows the advantage of Odessa-Brody system, which is caused be several factors. Increase in oil production in Kazakhstan and Azerbaijan

Performance data of "Odessa-Brody" oil transportation system:

Length 674 km

Diameter 1020 mm

Initial capacity 9 - 14.5 mln.t/annually

Capacity after injection of II turn 45.0 mln. t/annually

Quantity of main pumping stations 1

Quantity of main pumping stations after injection of II turn 3

Dead-weight of tankers up to 100 thousand t.

Capacity of tank field of I turn 200 thousand m3

Capacity of tank field after injection of II turn 600 thousand m3

requires creation of reliable, safe and economically profitable transportation routes. Geopolitical changes after collapse of Eastern block and USSR, NATO and EU expansion dictate new rules in oil market. And Europe, which is oriented to consumption of high-gravity oil grades, faces several important issues: to ensure own energy and environmental safety, decrease dependence from risks in oil markets of Middle East, as well as provide diversification of oil supply routes. Till recently, tanker transportations were cheaper in comparison with pipeline transportation. However, after September 11, 2001 risk factors increased. Tankers became attractive targets for terrorist attacks, considering resonance, scales and consequences for marine environment and coastal countries. Incident of 2001 with French tanker "Limburg" near Yemen coasts and catastrophe of tanker "Prestige" near coast of Spain once again proves it. All these factors fastened EU decision to limit use of old tankers with age of over 10 years, with one hull and in future to use only double hull tankers with exploitation period up to 10 years. It rose up prices of transportation - insurance rates increased and oil carrier freight charges tripled. As a result, routes with considerable tanker constituents became less competitive. All above-mentioned conditions speak in favor of oil pipeline transport, and EU pays more attention to this type of transportation, which is more reliable and safer for environment. Thus, Europe faces another issue: by which land routes Caspian high-gravity oil can be transported. Just at such right moment and with necessary potentials, JSC "Ukrtransnafta" offers oil transportation route Odessa-Brody, which can provide diversification of oil supply to European market, guarantee ecological safety, as well as is economically effective.

Hagas Mingarelli - Head of European Commission directorate on Eastern Europian, Caucasus and Central Asian republics issue "Ukraine becomes key country for energy resources transit and diversification to Europe".

Ukraine is provided with decisive opportunity to achieve progress in its economic interests and symbolically to join closely with European community.

Odessa-Brody is Europe's choice!

Another considerable advantage of Odessa-Brody project is support by European Commission.

Loyola de Palacio -Vice-president of European Commission "We have undertaken deep obligations to support this project and want to realize it as soon as possible".

A year ago European Union skeptically addressed Ukraine and its oil transport project Odessa-Brody. Today Europe's position changed radically from minus to bold plus symbol. According to many experts Odessa-Brody pipeline may be first oil transport corridor supplying Caspian high-gravity oil grades to European markets. Commercially successful Eurasian oil transport corridor may help Ukraine to achieve energy independence, to increase budget inpayments and strengthen country image as a reliable transiter of Caspian oil to European markets and further. In September 2002 Loyola de Palacio, Vice-president of European Commission characterized Odessa-Brody as "European project", emphasizing its importance for strengthening energy security of states - pretenders to entering European Union and European Community. Thus, Ukrainian oil transport project received support in the person of European Commission, which is of course great advantage. Mr. Ditmar Studeman, Ambassador of German Federative Republic to Ukraine stated the role of EAOTC project for Europeans and said, "Europe is interested in Odessa-Brody pipeline". Ukraine got carte blanche from EBRD - Jean Lemyer, President of European Bank for Reconstruction and Development (EBRD) stated his desire to participate in realization of "Odessa-Brody-Gdansk" pipeline project in the form of crediting and investment. On May 13, 2003 EU confirmed so called Communication From The Commission To The Council And The European Parliament On The Development Of Energy Policy For The Enlarged European Union, Its Neighbors And Partner Countries, where Odessa-Brody attributed to priority oil transports of Europe. Member of EU Poland's position is also very interesting, this country supports development of oil system Odessa-Brody with Polish terminals, though historically it depended from Russian oil supply to its petroleum refineries and other refineries in Europe. Project Odessa-Brody-Gdansk first of all oriented to transportation of oil to Europe from Caspian region which shows its attractiveness for Europeans as an additional route of alternative Russian oil supply. Thus, Odessa-Brody has indisputable advantages. In this sense, project EAOTC and its Ukrainian part Odessa-Brody was seriously inspected by well-known American and European companies. Researches of companies "Gulf interstate", "Cambridge Energy Research Associates (CERA)" confirmed economical cost-effectiveness and expediency of EAOTC project's further development. In the frame of European Union TACIS/INOGATE program, German company "Rozen" implemented technical audit of Ukrainian oil structure and confirmed its correspondence to allstrict technical and ecological requirements of EU.

Harmonization of Odessa-Brody project with Baku-Supsa, Tengiz-Novorossisk and Drujba-Adria is real. All mentioned projects mutually supplement each other and helps to increase oil supply through Odessa-Brody. Project Drujba-Adria. At present there are two framework agreements regulating this project. First is an agreement between economic subjects , i.e. those who transport oil: "Transneft", Gomel's "Drujba", "Ukrtransnafta", Transpetrol (Slovakia), Mol (Hungary) and Janaf (Croatia). In December 2002 second framework intergovernmental agreement on this project was signed. The objective of the second agreement is organization of reversing of "Adria" pipeline's Croatian part and export of Russian oil though the port Omishal on Adriatic Sea. Validity period of the agreement is 10 years. During the first stage 5 mln ton oil will be transported though Omishal annually, during the second stage - 10 mln t, third stage - 15 mln t oil annually. Parties agreed to set single tariff on the fist stage along the whole route at the amount of $0.64/t per 100 km. Croatia has the largest investment load - it must reconstruct Adriatic pipeline at the site Sisak-Omishal for use in reversing regime, as well as reconstruct oil terminal in Omishal, adapted for acceptance of oil and its supply inside Croatia, and not for export shipment. Amount of necessary investments is estimated as $50-80 mln. "Ukrtransnafta" already contributed to the project "Drujba-Adria" by enhancing its security and ecological constituent. Construction of new part in Carpathian Mts roundabout of dangerous landsliding territories was good news for participants of project "Drujba-Adria", as it will increase reliability of system work. 2 lines with diameter 700 mm and 500 mm with length 30 km each, were constructed. In 2003 another part with the same length has to be built and it will be priority in investment of company means. Participation of Ukraine in project "Drujba-Adria" corresponds to Ukrainian government strategy concerning effective use of its own transit potential. Reserve of pipeline "Drujba" on Ukrainian territory is 98.2 mln t oil annually. Project Odessa-Brody jointly with project "Drujba-Adria" enables export of Caspian oil to American continent as well through terminal "Omishal" roundabout Bosporus. "Ukrtransnafta" already received confirmation from Croatian part their desire to ship Caspian oil together with Russian oil. It is a question of consecutive transportation of two oil grades. If project "Drujba-Adria" will be realized and if we harmonize it in the matter of two oil grades transportation, then we actually will gain by-pass roundabout Bosporus.

Vesna Trnokop - Tanta - President of Croatian National Oil transportation company "JANAF" Adriatic oil pipeline is built to transport up to 34 mln. t oil annually. If we speak about transportation of different grades (Urals or Kazakh) at present we can transport though port Omishal different oil grades. Concerning new main route Odessa-Brody-Ujgorod-Omishal proposed by Ukrainian part using "Drujba-Adria" for transportation of Caspian oil, we believe that launching new transport branch can bring only benefit to us.

Concerning project Baku-Supsa perspectives of oil transport pipeline Baku-Supsa-Odessa-Brody- Plock are as follows. By 2010 according to forecasts of Energy Information Administration, as a result of Caspian shelf development annual oil extraction in Azerbaijan will reach 60 mln t, in Kazakhstan - 100 mln.t, in Turkmenistan - 10 mln t. Under such conditions skeleton consisting of oil extracting and oil transit countries: Azerbaijan, Georgia and Ukraine is formed around Ukrainian-Polish pipeline. During his recent visit to Ukraine President of Georgia Eduard Shevarnadze stated that in near future from Supsa till terminal "Pivdenniy" (it's an integral part of oil transport system Odessa-Brody) app 15-20 mln t oil can be delivered annually.

Elshad Nasirov, Chief of Foreign Relations deparment - State Oil Company of Azerbaijan "SOCAR" "By 2005 we will considerably increase oil extraction. And it's extremely important for us that oil passes through territory of friendly country, which is not oil producer. Odessa-Brody is the best variant for us".

Oil pipeline Tengiz-Novorossisk. "Ukrtransnafta" considers two variants of oil transportation through this pipeline to Odessa-Brody. At present transportation of Caspian oil from Novorossisk to Odessa-Brody is possible by marine route - with tankers to port "Pivdenniy". The second variant, which is actively studied now, is transportation of Caspian oil to Europe using pipeline Tengiz-Novorossisk and Ukrainian oil transport system. "Ukrtransnafta" proposes to use route of Kazakh oil transportation, supplied via pipeline CPC till Tikhoretsk, and from there-to Lisichansk, Kremenchug with switching to the system Odessa-Brody. For realization of this project, intersystem girth joining CPC with Ukrainian system of main pipelines, has to be built. Experts and managers working in the oil business sphere think that considering new tendencies in the oil services market, the said variant is of great interest for owners and developers of CPC project. Ecological constituent and economic indicators, as well as route length (difference only 50-60 km) speak in favor of this project. The said route is pipeline for transportation of Caspian oil to Europe, roundabout the Black Sea , it helps not only to settle the Bosporus problem, but also considerably decrease marine transportation of oil. At present majority of routes carrying Caspian oil pass through the Black Sea and its narrow place - Bosporus, however tanker transpirations though this strait gets more problematic every passing year: oil extraction increases, Bosporus potential decreases. To reach high capacity level at Bosporus, even provided that it will be equipped with new navigation equipment and use of large capacity tankers, which will decrease physical number of tankers passing though the straight, will be possible app in 2006-2007. By that time another infrastructure will be created. Today experts consider all possible by-pass variants around Bosporus. It's known that European companies interested in Caspian oil, think that Odessa-Brody can become first real by-pass round Bosporus. Necessity of alternative oil routes use is connected with tense situation in Iraq, which no doubt, will influence oil market, oil extraction strategy development, transportation and oil refining. European oil consumers interested in consumption of qualitative high-gravity Kazakh oil, are concerned with conventional monopoly by Russian company "Transneft", and with the fact that its functioning system today can't handle large oil volumes, even with reconstruction. Therefore, besides Odessa-Brody, other alternative routes, such as to China, Far East and Murmansk, are being considered. Today Western oil experts want to create pipeline system not controlled by "Transneft", to form a kind of competition, thus stimulating faster development of infrastructure and flexibility with Russian company, especially in pipeline access, formation oil quality bank, etc. matters.

Ravil Cherdabayev, Ambassador Extraordinary and Plenipotentiary of Kazakhstan to Ukraine "Caspian oil can pass through pipeline "Odessa-Brody", if girth over Kerchen straight can be thrown over".