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Bridging Energy Supplies

By virtue of geographical and historic factors Ukraine has been playing an important role in oil and natural gas supply to European energy markets. Such status is basically attributed to the fact that Western and Central European countries,while being rather big consumers of natural hydrocarbons,have shortage in their own energy resources. On the other hand,major natural gas and oil reserves are concentrated in the Russian Federation,Caspian region and the Gulf area. Owing to such advantageous position,Ukraine has become a major junction in the transit of gas and oil from Russia,Kazakhstan and Turkmenistan to European markets.

The expected increase in consumption of natural hydrocarbon resources,as well as their uneven distribution,makes Ukraine,owing to its suitable geographical location and the developed gas and oil network,an "energy bridge" between the exporting countries and consumers in the industrialised Europe.

The today's Ukrainian oil and gas sector is represented with well-equipped oil and gas transmission and production companies whose activities extend to the Black Sea and Sea of Azov offshore areas,six high-capacity oil refineries,tube works producing wide range of pipes for the oil and gas sectors,design and research institutes,and specialized construction and service units.

Ukraine’s gas transmission system is the second largest on the continent after Russia's,providing natural gas deliveries to domestic consumers and most of the Russian gas export to other European countries. Over the whole 50 years plus history of gas export and transit operations there has been not case a single of failure.

Ukraine is not only a gas transmission,but also an important crude oil transport crossroad of Europe. Ukraine's trunk line system transports crude oil from Russia and Kazakhstan to Ukrainian refineries,and is used to export oil to Central European countries.

It is the Caspian region that seems now the most promising in terms of oil production growth and export potential. One of the projects for the transport of Caspian oil to Ukraine and further on to other European countries is the Eurasian Oil Transport Corridor that crosses this country. The first stage of this project is nearing conclusion. The linear part of the oil pipeline from Brody to Odesa was completed in August 2001,and construction of the oil terminal station in the port of Pivdenny near Odesa is conducted at a fast pace,with the first stage scheduled for completion in late 2001. The competitive strength of the Odesa-Brody system is primarily ensured by preserving the value of Caspian oil on its route to the customers - oil refineries in Europe,as well as attractive economic indexes,such as the reduced general transport fee. A further extension of the Odesa-Brody system up to Poland's Plotsk and Gdansk will make possible the transport of crude oil from hydrocarbon-rich Caspian states to Poland,Germany and other West and North European countries.

Ukraine is interested in the implementation of mutually beneficial international projects related to oil and gas transit,reliable operation of transit systems and enhancing safety of energy supplies to Europe.

Ukraine has deep-seated traditions in the field of oil and natural gas production and utilization. Oil production began here as far back as in the 18th century,reaching 2 million tons at the beginning of the 20th century,and exceeding 14 million tons in 1974. Ukraine's commercial gas production dates back to 1924,reaching its peak of 68.7 billion cubic meters in the '70s of the past century.

By delivering natural gas to Poland in 1944 Ukraine initiated the first export of natural gas in the world. In 1967,Ukraine began to export its gas to Czechoslovakia,and then to Austria. The transit of crude oil to Czechoslovakia via Ukraine began in 1962.

Presently,oil and gas account for 61% in the total balance of Ukraine's primary energy consumption. The priority energy supply is natural gas,making up to 41% - 43% in the energy balance over the recent years.

Covering only 20% to 25% of natural gas demand and 10% to 12% of oil demand by domestic production,Ukraine is numbered among the countries experiencing shortage of home natural hydrocarbon resources.

With gas consumption registered at 118.1 billion cubic meters in 1991,Ukraine was the third world's biggest gas consumer left behind only by the US and Russia. Use of natural gas has decreased by more than one third over the last decade,totalling 73.4 billion cubic meters in 2000.

In the last two years,consumption of crude oil and petroleum products in Ukraine set at the level of 25 to 29 million tons.