October 16, 2007

New 500 km pipeline joins Black and Baltic seas

VILNIUS, LITHUANIA

Ministers from five eastern European countries signed a deal recently to build an oil pipeline linking the Black and Baltic seas, a project aimed at improving regional energy security and reducing dependence on Russian crude.

The agreement by Azerbaijan, Georgia, Ukraine, Poland and Lithuania calls for a 500-kilometre extension to an existing pipeline in western Ukraine northward to the Polish port of Gdansk on the Baltic Sea, and securing supplies of Azerbaijan’s crude from the Caspian Sea.

“This deal will have great impact not only for signatory countries, but for all of Europe,” Polish President Lech Kaczynski told a news conference in Vilnius.

The estimated US$700 million project is considered to be a victory for the five countries, which are increasingly weary of Russia’s nationalistic energy policy and are searching for both alternative energy sources and supply routes.

A separate commercial deal for construction was signed by six companies, one from each participating country plus Kazakhstan.

The new pipeline will begin in Brody, western Ukraine, and stretch to Plock in central Poland, and from there to Gdansk. The pipeline will have an approximate capacity of 14 million tonnes per year.

Kaczynski stressed the agreement was not made against any country, a reference to Russia.

In the past three years, Russia has wielded its energy resources as a diplomatic weapon, punishing former Soviet satellite states for not toeing the Kremlin line. Russia has temporarily cut off natural gas supplies to Ukraine and Belarus and permanently ceased oil deliveries to Lithuania and Latvia. Moldova and Georgia have also felt Moscow delivery problems.

Europe receives 25 per cent of its natural gas and a third of its crude oil from Russia, according to Eurostat, and dependency has increased in recent years. Several east European states, particularly the Baltics, receive nearly all of their hydrocarbons from Russia.

Still, it was unclear whether Azerbaijan would be able to commit enough crude to the new pipeline. President Ilham Aliev said Azerbaijan, which recently signed a strategic energy partnership with the EU, was committed to the project and that next year’s production would reach about 55 million tonnes of crude.

The first leg of the pipeline, from Odessa to Brody, was completed in 2004 in the hope of delivering Caspian oil to central Europe. However, the project has languished, and now Russia uses it to export oil via the Black Sea.

The United States is throwing its diplomatic support behind the project, doubts remain whether there would be enough crude to fill the pipeline.

ASSOCIATED PRESS

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