December 1, 2008
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Home / Issue Archive / 2008 / July #7 / Ukraine to Cut Russian Crude from Odessa-Brody Pipeline

№ 7 (July 2008)

Ukraine to Cut Russian Crude from Odessa-Brody Pipeline

Ukrainian President Viktor Yushchenko has signed a decree to terminate the current reverse flow of the Odessa-Brody oil pipeline.

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According to the decree, the pipeline will start pumping crude from Odessa into the Druzhba pipeline by the end of 2008. Ukraine plans to fill the pipeline with crude from Azerbaijan and Kazakhstan shipped to Odessa from the Georgian port of Supsa via the Baku-Tbilisi-Supsa pipeline (the Georgian branch of the Baku-Tbilisi-Ceyhan pipeline). The current reverse mode implies Russian export oil is pumped from the Druzhba pipeline to Odessa and onward shipment to southern European markets by tanker.

Uralsib Equity Research sees this as a negative for the Russian oil industry that could turn positive. Russia can turn the situation to its political and economic advantage. With no further tax cuts planned for the oil industry, new Transneft projects such as the East Siberian-Pacific Ocean pipeline (ESPO) and the second stage of the Baltic pipeline system (BTS-2) may lack crude volumes. As ESPO is a priority project, the westbound BTS would likely see lower volumes from Russia, in the view of Uralsib. The potential gains could be even stronger if certain European markets are dropped in favor of Asian markets, assuming the former are developing at double the rate of the European markets.

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