Ukraine – An energy hub – Be careful what you wish for

On Friday 3rd May, whilst I was enjoying my time off in the Odessa sunshine and taking in the beach life, Ukrainian Energy Minister Eduard Stavytsky had a meeting with the EU Energy Commissioner Gunther Oettinger (as well as Royal Dutch Shell and Exxon Mobil amongst others) in Brussels.

What became immediately apparent, if it wasn’t already clear before, is that Ukraine has decided that it can become a gas hub for the European continent and intends to pursue that strategy, making the most of its gas transport system and more particularly its vast underground gas storage facilities (50 billion cubic meters).

The infrastructure, whilst somewhat decrepit and thus in need of some serious investment, does at least exist already.

Very good – and an obvious goal to pursue given the soviet legacy Ukraine inherited.

But then there is the widely talked about “resource curse” to consider should Ukraine actually achieve its aim of both Black Sea Shelf and fracking production, transit and storage.  It may very well turn into an oil and (mostly) gas State.

Quite possibly a very good thing for the Ukrainian economy, GNI and indeed citizen income as well.

But at what social cost?

Of all 23 nations on the planet where 60% or more of GDP is derived from oil and gas – not a single one can be classed as a democracy.

Further all are very corrupt, almost completely unresponsive to the demands of their populations and have extremely low accountability amongst the political elite.

Looking at the Human Development Index which is a key identifier when it comes to identifying liberal consolidated democracies, almost all oil and gas States with 60% of GDP coming from those sources have extremely low HDI scores regardless of citizen wealth and GNI per capita.

That is not to say a low HDI score prevents democracy, of the bottom 46 ranking nations in HDI, 13 can be deemed a democracy of sorts and 2 of those, as liberal democracies.

Looking at the top 25 HDI scoring nations, only Singapore is not a democracy – and from the top 40 HDI scoring nations they are all democracies less Singapore and a few small oil and gas States (Qatar, UAE etc.)

Thus becoming an energy producing exporter and hub may well have dire consequences for an already “feckless” (per academic definition) political system in Ukraine.

One of the best ways to identify an effective and consolidated democracy seems to be to take the Freedom House score and multiply it by the World Bank anti-corruption score, and more often than not it closely mirrors the HDI position in the HDI league table – Spooky!

In fact, discounting the Islamic world, there is a very strong correlation between democracy, freedoms and any HDI score a nation has.

So becoming an energy producer and energy hub as planned will destine Ukraine to the usual fate of oil and gas dominant GDP nations with regards to democracy?

Well, not necessarily.

“Feckless” as the Ukrainian politics are and have been historically, there is nothing to prevent the current “feckless democracy” of Ukraine moving to a consolidated effective and possibly liberal democracy prior to the full  realisation of the energy producing/energy hub plan.  Should that movement to an effective and consolidated democracy occur prior to, or even simultaneously with the “energy plan”, then all may bode very well for democracy in Ukraine.

A very smart scholar named Przeworski has proven that (again removing the Islamic world from the equation) should the personal purchasing power of a nation reach a certain monetary figure (currently about $10,000, but a figure that needs to be index linked to remain relevant), then no democracy has ever crumbled.

In effect with a diversified economy and the average purchasing power per capita of $10,ooo or more, democracy is not only consolidated but invincible to the challenges of other governance models due to the middle class/ independent bourgeoisie.

Ergo, empirical evidence and academic works from the likes of Lipset, Prezeworski, Welzel and Ingehart etc, would all point towards the necessity of moving Ukraine’s currently “feckless politics” to an effective democracy whilst simultaneously trying to reach $X personal purchasing power and climbing the HDI league table if democracy is to survive any significant oil and gas increased share of the Ukrainian GDP.

The question is can the feckless political system stop being feckless before it leads Ukraine into the black hole of the resource cursed nations?  Looking at the entire Ukrainian political landscape and personalities within, that seems very unlikely without consistent external pressure and guidance.

All in all, an obvious and achievable plan for Ukraine – with very scary possible outcomes should it succeed.

Shell (companies), Ukraine, hydrocarbons and the limits of Ukrainian journalism (not to mention a willfully blind EU eye)?

The day after the EU met with Edward Stavysky, the current Ukrainian Energy Minister, a meeting that will bring about a high level round table over EU sponsorship over the upgrading of the Ukrainian gas transport system (GTS) amongst other things – I am left pondering many things.

There has been a bad smell over the inclusion of a company called GEO Service arbitrarily in Ukrainian government deals with major oil and gas explorers and producers.  The reason for the bad smell becomes a little clearer with this piece in the Ukraine Pravda – but it no surprise.  It is no surprise that the oil majors are going along with it either.  Big oil (and gas) is a very murky business no matter who is involved.  This for them is standard practice no doubt.

However, it does not stop at Geoservice and the inferences made within that article – possibly more so when mentioning the current Ukrainian Energy Minister.

Unfortunately Ukraine Pravda does not go further than to elaborate on what it was spoon fed/given to build a story around – and investigative journalism in Ukraine is not particularly the safest of jobs.

However, if there was a Ukrainian investigative journalist at a loose end, they may not go far wrong in looking at the Energy Minister himself and other seemingly “no value” or “strange” business entities somehow involved in hydrocarbons in Ukraine – other than the infamous Geoservices which seems to concentrate media attention.

If they were to need a few dots to join together, some interesting dots amongst the vast mosaic of opaque vested interests could be a dot/company called “Vodi Ukraine”.  Another dot would necessarily be Nadra Ukraine.  Perhaps those dots could be joined together?

The Vodi Ukraine  (which means Water Ukraine)  misnomer should not put off our investigative journalists.  Vodi Ukraine may have more to do with hydrocarbons than water perhaps?

Maybe if these dots do connect, they should look to the dots relating to shale gas exploration in western Ukraine and who holds the exploration licenses.  The oil majors who are going to explore there know already – it shouldn’t be too difficult to find out – officially or via leaks.

Naturally if all those dots can be connected – that leaves the dot that is the current Energy Minister, Eduard Stavysky.

Now he is not the dot behind Nadra Ukraine.   He is not the dot behind the oil majors exploring shale in western Ukraine.  So how does his dot connect if indeed it does?

As Vodi Ukraine adds no value to the chain but somehow managed to get the exploration licenses in western Ukraine and is therefore within the chain for no apparent reason that to siphon/make a profit from actually doing nothing of value – one might ask, perhaps, who is the dot behind the Vodi Ukraine dot?  Our ministerial dot perhaps?

As I say, I am no investigative journalist, and far be it from me to make categorical statements when lacking the type of evidence produced in the Ukraine Pravda link above, that there would be a story there waiting to be broken – but I was always very good at dot to dot as a child and never once messed up the picture.

Now if all those dots did make a pretty (but nefarious) picture just as the Geoservice dots do, given the open door policy to Ministers the oil and gas majors have, then the EU must have a completed dot to dot picture – and thus must be willfully turning a blind eye – even if for the greater good as they may see it.

Anyway, what chance that an investigative journalist would join all the dots I mention eh?

Sold – Odessa Oil Refinery (A crude and murky business)

Back in October 2011, I mentioned that the LukOil terminal in Odessa had just been put up for sale.

It has now sold.  At least it is sold subject to contract exchange.

The new owners are an umbrella company called VETEK LLC based in Kyiv.  VETEK was registered as a company in Kyiv on 28th February 2013 and is headed by a chap named Andrey Koshel.

VETEK LLC, appears to be a holding/umbrella company for Gaz Ukraine – fronted by Serhiy Kurchenko, the Kharkiv lawyer, owner of Metalist Kharkiv FC, and friend of Olexander Yanukovych, son of the current president of Ukraine.

If that seems simple, Gas Ukraine is indeed a holding/umbrella company for a number of companies and has its head office in Simferopol Crimea, and who owns what behind the front of Serhiy Kurchenko is far more difficult to determine.  Gas Ukraine, naturally, is an importer of gas, LNG, oil and owns a rapidly expanding empire of several hundred petrol stations dotted around the country.

It also appears that Odessa refinery was not the first choice acquisition for VETEK/Gaz Ukraine – It originally went after the Lysychansk refinery owned by TNK/BP who subsequently removed it from sale due to it being an asset it could charge Rosneft for during its take over.

Anyway, the net result is that whomever is behind VETEK LLC and Andrey Koshel – or should we say whomever is behind Serhiy Kurchenko who fronts Gaz Ukraine, now own the Odessa refinery – which has not operated since 2010.

In fact the only Ukrainian refinery to operate in the past 3 years has been Ukrtatnefta – who I mentioned exactly one month ago - embroiled in nefarious circumstances - naturally.

So, it will be interesting to see whether the new owners of the Odessa refinery will make it the second of the six existing oil terminals to be operating in Ukraine, or whether Ukrtatneft will be allowed to continue as the only refinery in the nation to be active.

Smelly? – Maybe it’s just the gas!

A day of annual global reports – Ukraine

I will immediately steer clear of the Transparency International Corruption Perception Index 2012, which unsurprisingly ranks Ukraine at 144th and perceived as corrupt, simply because that will grab the mainstream headlines.  Ukraine still perceived as corrupt shocker – blah blah blah – not news at all!

Instead I will bring to your attention the 2012 International Index of Energy Security Risk – an index where Ukraine ranks bottom of the top 25 energy users – but is improving!

“Since 1992, the Ukraine has had by far the worst energy security index scores of any country in the large energy user group, both nominally and compared to the OECD. Its scores over the period averaged about 181% higher than those for the OECD. A net importer of oil, natural gas, and coal, Ukraine scores particularly poorly on energy expenditures and energy use intensity. However, Ukraine’s overall risk has been trending downward. From its peak of 2,732—277% above the OECD average—in 1996, the country’s total risk score fell to 2,011 in 2009—still 130% above the OECD average but a considerable improvement, and recent trends suggest further improvements.”

Well, I can’t keep being the harbinger of entirely doom-ridden and gloomy news all the time can I?  - It seems even though Ukraine is destined to be at the bottom of the 25 biggest energy users league relating to energy security for some time, it is at least making most notable progress in the right direction!

It’s a shame the same encouraging trending dynamics can’t be said for much else in Ukraine over the past 20 years.

Naftogaz reorganisation and the role of the State in development

The Ukrainian loss making State owned behemoth that is Naftogaz Ukraine is about to get broken down, reorganised but not, as the EBRD have stated is necessary over the years, privatised.

Actually that may not be quite accurate, there are certain parts of Naftogaz that are now legally banned from privatisation and others that quite possibly could be privatised.

What has been legally banned from privitisation, be it existing or newly created entities within the Naftogaz structure we are about to receive, is the following:  Any part of the organisation that transports gas via pipeline through either trunk or distribution pipelines,  underground storage facilities and Naftogaz itself.

Now you may think that leaves nothing to be privatised or partially privatised, but Naftogaz is a behemoth as I state.  There is nothing to state that the Naftogaz subsidiaries such as exploration, transport, logistics (etc) entities under the umbrella of  Naftogaz, are off limits to privitisation that I have found within the newly signed law.

All I can see is that the gas transport system, gas storage facilities and umbrella/holding company will remain State owned and legally cannot be privatised.  This press release would seem to confirm that.  The rest of the organisation’s subsidiaries, as far as I can tell, could well be privatised at some point in the future or indeed closed and their roles put out to private sector tender.

It is not unusual in Ukraine for the government to keep possession of certain parts of the nation’s infrastructure.  Airports for example.  The terminals and all integrated bits and pieces necessary to make an airport run can be owned or leased for long periods privately, but the runways remain the property of the State.  The reason being, apparently, is that should there be a war, the State has immediate access to, and control of, all runways of Ukraine.

This goes someway to explaining many fairly nice and new modern airport terminals with runways that resemble suffering multiple IED incidents.  The terminal owners are not overly keen to maintain a State owned runway when it is really a State responsibility.  Likewise, the State know if they wait long enough, the terminal owners will eventually do something, even if it is the absolute minimum, to keep the runways serviceable.

Putting aside the inevitable conflicts and derelictions of responsibility where State meets private sector in Ukraine, it is possible to understand the retention of certain infrastructural assets by the State even if some would disagree with State ownership.  Some prefer no State involvement, others possibly limiting it to a “golden share” scenario in any privitisation, and yet others are more inclined to give the State legal powers to simply take control of such assets in times of national emergency and rely on State regulations during times of peace. – Different nations use different models, some use all the models I have mentioned and more in different areas of the national infrastructure and for different reasons.

Your position is probably based on how narrow or broad an economic definition you would give to what is “public goods” and what you consider is a national strategic asset.

This brings us to the tricky issue (or not depending on how hard your views are) of the role of the State in national development, and in the case of Ukraine, it is probably fair to say it falls on the developing nation side of the line rather than that of developed, despite any infrastructural legacy of the USSR.

I would say it probably actually sits on the line and falls completely into neither the standard definition of developed or developing, as far as nations go.

If we compare Ukraine to the USA or Japan (or other similar “Old EU” nations) the development path is likely to be far harder and less swift but for reasons that we may not immediately recognise.  It will be easier to blame the government (of which ever party is in power) for the lack of progression to reach those “Old European” standards, than it is to look back at the histories of the nations we are comparing them to and how they achieved their development successes.

Suffice to say, the State did have a big hand to play in those successes and in a far less globalised world, be it  economically, business-wise and through international laws.

Nations like the US, UK, Germany, France, and others succeeded in creating a far better entrepreneurial climate than Ukraine.  There is no denying that.  Ukraine still manages to kill off much of the white economy and white entrepreneurs through the bureaucratic and corrupt legacies inherited from the USSR.  Thus there is a large black economy, large black entrepreneurial base and a middle class that is small and in many cases un-auditable when it comes to discovering quite how their financial status and social strata has been achieved.

However, we must also recognise that the successful nations had State interference that created protectionism, subsidies and generally unfair trade conditions whilst building their developed nation status.  Even today we can watch Senate economics hearings via live podcasts where economists will sit and plainly state the the US is a protectionist economy.  The EU single market by nature and design is protectionist.  There are subsidies galore for alternative energy R&D and alternative energy companies to give a modern, contemporary example.   The controversial Common Agricultural Policy within the EU is yet another.

Such examples are bountiful when looking at the histories of the developed nations I have mentioned so far when it comes to insuring the establishment of a domestic sector via State protectionist practices before allowing a more liberal attitude.

The UK for instance even went as far as only allowing trade with other nations if the cargoes were carried by British ships.  The US upon independence imposed incredibly high tariffs and import taxes in order to allow the newly founded nation to develop internal producers and demand for the internally produced goods.  Even in the 1920′s the US maintained the highest import tariffs in the world, second only to Spain at the time.

German unification under Von Bismarck also brought with it incredibly high importation tariffs whilst Germany evolved internally through the State’s protectionist policies.  State manipulation occurred again when East and West Germany unified.

Where Germany differs from the UK and US under Von Bismarck, is simply that the State at the time was driven by an elite who wanted industrialised development and entrepreneurial classes, where as the UK and US did it via democratic governance.

I could go on and on and list developed nation after developed nation that has employed protectism for prolonged periods to reach the their developed status and not just within Europe or citing the US, but you by now get what I am pointing you towards.

Protectionism is not an option for Ukraine, at least to the scale and over the prolonged period of time that the “model developed nations” employed it.  Membership of the WTO, having to cede ground with the World Bank, IMF and others who have vested interests in Ukraine being opened up for the existing developed nations to enter, quite simply makes this a non-starter.

Ergo the protectionist policies that have allowed others to develop steadily and robustly whilst retaining absolute sovereignty beholding to none, have been replaced by the slower, liberal and politically manipulable  method of foreign direct investment (FDI) to only open and liberal developing nations.

Now I have no interest in protecting or attempting to justify the 20 years of continually wrong or poorly thought out policies of successive governments in Ukraine,  nor their consistently corrupt  practices when it has been their turn at the public trough.  Undoubtedly they, each and every one of them, have personally contributed to the lack of progress in Ukraine along with many of those they have appointed to run the agencies of State.

However, they are also not to blame for the time in history and global attitudes they have led Ukraine through, and having hoped to cast a light on the very different development paths available to those who have made it and those who are still in the process (now matter how retarded that process seems) maybe we can see some reasons why Naftogaz will remain a State owned company, why some subsidiary parts will not be privatised, why subsidies will continue to occur within the Naftogaz arena to the angst of external actors and why so much loss making infrastructure will remain, for want of a better label, “public goods” or deemed “strategic”.

Having written all of that, much of it still does not sit well with me as far as excessive State intervention is concerned, but as Aristotle put it, and who am I to argue, “It is the mark of an educated mind to be able to entertain a thought without accepting it”.

That said, much of what seems to be the modern agreement between State and society (not only in Ukraine) doesn’t sit well with me either.  I have the worrisome feeling that we as a society are far too keen to dump our personal responsibilities on the State and that the State in turn is far too keen to take them on.  Maybe it’s an age thing?

Assassination attempts, Chechnya, Odessa the EU and oil prices

Well it seems that attempted assassinations of Russians and Chechens in London are making the news over in Blighty.

Not so long ago I wrote about the attempted assassination of German Gorbuntsov at Canary Wharf and now it seems MI5 are struggling to remove a Chechen of extremely dubious and nefarious background from London, who they believe is likely to be involved in a plot to assassinate Ahkmed Zakayev, (the self-appointed Prime Minister of the Chechen Republic of Ichkeria) who has claimed asylum in London.

The MI5 court documents show the bizarre situation where two Chechen (Russian Federation) citizens have claimed asylum in London and one is believed to be involved in a plot to assassinate another.  It is extremely rare that MI5 court documents reach the public domain, so click on the link and have a read.  You will see once again Article 8 of the ECfHR is going head to head with national security concerns.  This time however, it is not a radical Islamic cleric who stands to benefit but a would-be conspirator in an assassination plot on UK soil.

Less we forget, not so very long ago two Chechens and a Russian either died or were detained in Odessa when they managed to blow up an apartment they were renting in the city.  Speculation about a would-be plot to assassinate Mr Putin emanates from Russia, Odessa authorities believe they were here to assassinate a high-flier from Odessa.

What is not in dispute is their nationalities, the explosion at their rented apartment in Odessa, the death of one in that explosion and the capture of two others, regardless of their intended target.

All of these things draws our attention to a more active Chechen insurgency with a growing inclination to act outside both Chechnya and the Russian Federation.  A cause for concern indeed but not one to get overly carried away with unless you happen to be a likely target.

However, I do wonder how long it will be before there is a change of tactics once again and these people decide that economic targeting will produce far more publicity and far more devastating results, that will incur far less loss of life (if any) but equally prove to have far less chance of detection and being caught at the time of any act or thereafter.

I am talking about huge sections of pipelines carrying oil and gas from Russia, across Ukraine and serving the EU.

Not only would ad hoc sabotage of these pipelines cause Russia and the EU major headaches if they were carried out often enough as far as energy supply is concerned (not to mention environmental damage), but it would also apply a huge amount of market pressure on Russian economics when market confidence becomes rattled.

Market confidence is a global issue when it comes to oil and thus nobody would escape the aftereffects should this ever happen.  The markets would expect strong and decisive action from Russia in Chechnya, humanitarian groups would be desperately waving the red warning flags over human rights when an undoubted crackdown came from Russia, but where the EU and US leaderships would sit is far harder to determine.  For certain national interests would far outweigh and human rights concerns when it comes to energy and oil.  Interests verses values once again (or realpolitik if you prefer).

Now we may all have our own thoughts about the effectiveness of Russian policy towards Chechen and other separatists regions in the Caucasus,  but this year alone there have now been at least 3 high profile nefarious incidents not only outside Chechnya but also outside the Russian Federation, so the policy of those who carry out such acts, either as a result of Russian policy or as a result of a change of policy by their own processes, would seem to have resulted in an expansion of high profile activity outside the traditionally reported theatre.

If policy is indeed changing, one wonders how long before acts against Russian economics and energy take precedents over current targeting methodology and what effects that will have on the EU and Ukraine in the process.  One hopes that the policy makers, spooks and international policing organisations whilst having a watchful eye on assassinations are also looking at the possibilities that can effect the larger picture.

A difficult situation for Russia and the Caucasus already.  A difficult situation for a much larger geographical area if both modus operandi, targeting and geographical theatres begin to change.

Ukraine still trading with Iran – Shocker!

Stop the press!  Hold the front page!  The Moscow Times is reporting that Ukraine is still trading with Iran!

“Traders plan to ship 63,000 tons of Ukrainian corn to Iran in coming weeks, Kiev-based ProAgro consultancy said Thursday, citing data from Ukrainian seaports.

It also said traders had exported 16,500 tons of corn and 10,500 tons of sunflower oil to Iran so far in February.

ProAgro said the cargo with corn had left Ukraine on Feb. 3 for Bandar Imam Khomeini port, while a vessel with 10,500 tons of sunflower oil left Ukraine on Feb. 10. Ukrainian sunflower oil is due to be unloaded in the Iranian port of Bandar-e-Abbas. It was not clear how Iran had paid for the latest shipments of Ukrainian corn and sunflower oil.”

Now just why would Ukraine have stopped doing business with Iran?  Ukraine has done business with Iran for decades.  There are no sanctions in place asking UN members to starve the Iranian people in some kind of international siege.

Ukraine does business with Iranian allies and foes alike as well as Iran.  That is what exporting nations do.  The Ukrainian economy is one built on exports.  That is the wonderful thing about being non-aligned.  Everyone knows you will do business with everybody unless the UN specifically puts in place sanctions over certain goods.

The most controversial thing Ukraine has done in the past 2 years relating to MENA is vote in favour of the UN resolution by the Arab League at the UNGA meeting yesterday in opposition to Russian and Chinese objections and that is not enough to antagonise Russian and Chinese business arrangements with Ukraine.

It is difficult to see a way for sunflower oil and corn to be used in nefarious ways by Iran to project its influence in the region or indeed to repress its people domestically.

Is the point of this article more to do with the fact that Iran still has the financial ability to pay for imports?  If so it is naive to think it couldn’t.  Having been public relations enemy No1 for a few decades, is it credible to think Iran didn’t have the foresight to dump large amounts of cash in those naughty little opaque havens around the world who ask no questions and keep client identities extremely secret?

China, Japan, Korea are still buying Iranian oil, maybe they paid Ukraine.

Iran could have delivered a wheelbarrow full of cash or gold to the Ukrainian Embassy in Tehran as payment.

Maybe it paid in oil directly or via a refinery holding unsold Iranian oil.

Maybe it paid in drilling rights or shares in Iranian oil.

When you get into barter payments, title flipping, futures, commodity swaps and equity swaps by direct producers, shell companies, private banks, physical gold or simply large amounts of cold hard cash,  it becomes very easy to circumvent the international electronic banking sector.

People and nations are a lot more creative and innovative when circumstances dictate.

How Iran paid Ukraine maybe unknown, but rest assured that it will have done one way or another.

Death of an EU white elephant a risk to Ukraine – Nabucco

Well the death of the Nabucco pipeline seems to have finally arrived as I (and many others) have predicted years ago.  It was, of course, doomed to failure from the outset, not because of the idea or reasoning behind it both of which are sound, but because of the parties involved and the geopolitics.

Unsurprisingly, the Nordstream gas pipeline is now open and supplying gas directly from Russia to Germany removing at least some German/EU and Russian dependence on Ukraine as a transit route.

So why has Nabucco died?  Well for a start Azerbaijan and Turkey have eventually signed an agreement on any transit line through Turkish waters which you would think would be a step in the right direction rather than its death, but you would be wrong.

The death of Nabucco relates to putting enough gas into the pipeline at the Azerbaijani end of the pipe. Nobody was ever quite sure where the 30 billion cubic meters of gas to be pumped through Nabucco was going to come from.  The existing Shah Deniz field doesn’t produce that much gas in a year, there were and are additional risks by asking Turkmenistan to make up the difference by pumping into the same pipeline, and the latest Azerbaijani discovery, the Absheron field is some way from being developed.

None of this took into account the shares holders in the existing and highlighted Shah Deniz field which is not solely run by the government in Baku.  As in most cases there such ventures are joint ventures and the Shah Deniz field has several major stakeholders.  Stakeholders begin to worry about risk when other suppliers are needed to connect to the artery they push their product through as it allows external influences and actions that were never in the risk assessment model.

It is of course typical EU grandiose thinking to decide on a 30 billion cubic meter per year pipeline (not to mention 20 billion Euro price tag) ahead of knowing exactly where all that gas will come from.  It shows the awareness and risk analysis similar to creating a common currency without any common fiscal directives to run along side it, and we are all aware how that has turned out.

Anyway, BP, a major stakeholder in the Shah Deniz field has effectively pulled out of Nabacco and offered up its own, smaller 10 billion cubic meter per year alternative.  Thus, Nabucco is no more as there is no supplier of gas.

Good news for Ukraine you would think.  There is now only Nordstream and Ukraine as routes for Russian gas to the EU and no route from the Caspian Sea at all.

Alas, whilst Nabucco remained a pipe dream, Ukraine remained fairly secure as a gas transit route.  Nabucco was never going to work, everybody new it except those in ivory towers, but so long as the Nabucco pipe dream continued no other Caspian alternatives would be considered before this EU flagship pipe line.

The simple fact that Nabucco was as ill-fated from the onset as the Mary Rose, a similarly grand flag ship that barely made out of Portsmouth harbour, is all rather irrelevant to the planners within the EU.

Now however, whilst the Russian/EU South Stream pipeline plans may be on the back burner, to the point EU institutions are making promises of funds to upgrade the Ukrainian gas transport system with Russia and Ukraine, the Caspian Sea issue becomes a very real threat as far as Ukraine is concerned.

With Azerbaijan and Turkey in agreement over undersea routes, BP whilst pulling the plug on Nabucco has submitted a plan called the South East Europe Pipeline (SEEP).  Also submitted some time ago, but largely ignored was the Trans Adriatic Pipeline (TAP) amongst others.

All these smaller proposals envisage 10 billion cubic meters per annum delivery from Azerbaijan.  All these smaller proposals have quietly continued to jump through the geopolitical and sub-sea survey hoops.  Statoil and partners E.On, Ruhrgas and EGL would seem to have stolen a march with the TAP pipeline when it comes to the bureaucratic requirements and are probably ahead of other smaller project submissions in this regard.

BP and SEEP are some way behind.

It is also worth mentioning that Statoil and BP are equal partners in the Azerbaijani Shah Deniz field which could make things quite interesting as far as that partnership goes.

Regardless, the demise of Nabucco is not a blessing for Ukraine as it was a threat that was never likely to happen.  The alternatives, however, are very real threats with the undoubted finances behind them to make it a reality now that Turkey and Azerbaijan have signed their transit agreements.

The Azerbaijani government in Baku now has to decide which project to go with and the threat becomes a reality.

The saving grace, if there is one, is that neither the Russian/Germanic Nordstream or any 10 billion cubic meter pipeline from the Caspian Sea combined, will completely remove the need for gas transited across Ukraine.  Yet.

However things change.

On the up side for Ukraine, is that the exploration of the Black Sea shelf and tapping its own hydrocarbon reserves looks ever more likely with China, RD Shell, BP and Petrobas all signing or in the process of signing on dotted lines with Ukraine.  Ukraine could well end up being a net exporter in the decades ahead.  What is not sent to China or used internally could very well head towards the EU if the existing GTS system is saved from falling into further disrepair.

Unfortunately for Ukraine, given its complete inefficiency and bureaucratic nature, there is more chance of the Caspian TAP, SEEP and others being in existence before Ukraine gets its act together with its partners.