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A CASPIAN ENERGY
Policy Outlook:
Chinese-Kazakh Domination
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| By Rafael Abbasov |
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The development of Caspian oil and gas could make a significant contribution to world energy supplies, while providing attractive investment and business opportunities to international entities. The Caspian Sea contains six separate hydrocarbon basins. Today 40 oil and gas deposits had been discovered along with more than 400 promising structures. Proven oil reserves for the Caspian are placed at about ten billion barrels, while potential reserves are estimated at about 233 billion barrels (Energy Information Administration, 2002). Total proven oil reserves in the Caspian comprise approximately one percent of the world's total proven (ninety percent probable) oil reserves, comparable to those of Norway and Algeria and about half of the proven reserves of the United States or Nigeria. The largest stake of the Caspian "black gold" belongs to Kazakhstan.
Recently the Kazakh Foreign office publicly confirmed a new line of its energy transportation policy: a priority of multi-vectored export routs. Due to this the country's officials announced that the feasibility studies of projects for construction of export pipelines Baku-Tbilisi-Ceyhan (BTC), Western Kazakhstan-Chine, rout Kazakhstan-Turkmenistan-Iran are on the stage of examining and engineering. Basically such statement was approved by the regional even pro-Western oriented observers because of the largest oil/gas exploration capacity of Kazakhstan in 2007-2012.
But the Kazakh President interview to Wall Street Journal typically wandered Azerbaijan: "Kazakhstan is not prioritizing the BTC due to less commercial interests in comparison with Kazakh-Chinese oil export root financially backed by the Chinese Government. Even more only agreed volume of Kazakh oil wil be delivered via BTC - 20 mln tons per year".
There are a plenty of "but" and "if" concerning Kazakhstan's collaboration to the US devised BTC export root. However two of the both sides have to be viewed: if Kazakhstan openly announces on reasonability to export its oil through the BTC it would be opposed by its largest trade partners like China and Russia. It is evident that the diversifying its export energy root allows Kazakhstan skillfully struggle for its today's export interests against the regionally dominated Russia, which enlarges and commercializes its pipelines' network. "But" is implied in the fact that due to comparative advantages the collaboration of Aktau to BTC will be enhanced in terms of the US supported INOGATE & West-East Energy corridor policy development. In many cases Kazakhstan as well as other countries of the region will be ensured by energy corridor would led to broaden democracy in newly independent countries like Azerbaijan and Kazakhstan. Thus the only non-Russian and non-Iranian pipeline routes that connect Asia to the Black Sea must pass through the Caucasian states of Azerbaijan, Georgia. These routes -Baku-Supsa and BTC - are favored by the United States, whose one of the goals is to limit Iran and Russia's involvement in the Caspian. According to BTC feasibility studies the Kazakh and Turkmen oil would be shipped via Trans Caspian pipelines, which would connect to other pipelines from the Caspian region, such as the proposed Main Export Pipeline. By supporting several East-West pipeline routes from Azerbaijan, Kazakhstan, and Turkmenistan, the United States fulfills its goal of having pipeline routes avoid Iran. At the same time, these routes reduce Russian dominion over the transit of oil and gas, because all export routes currently involve Russia.
Iran and all major European oil companies have consistently held the view that routes to the Persian Gulf through Iran are the shortest and the least expensive means of exporting oil from the Caspian Sea. Commercially it was proved that a pipeline through Iran would cost 40% less than the cost of BTC In addition, Iran's terminal facilities in the Persian Gulf could be used. In addition to reviewed pipelines taking Caspian oil to world markets, Caspian oil could be swapped with Iran. Azeri, Kazakh, and Turkmen oil would be delivered to Iran's northern oil refineries. In return, Iranian oil would be made available at Iran's terminal in the Persian Gulf. If Iran were to swap oil from Caspian sources for its northern refineries for Iranian crude on the Persian Gulf, Iran could gain approximately $0.50/ barrel or roughly $90 million per year, benefits likely to increase significantly with the next two years (IRNA-Iranian News Agency). For instance in 2001, Iran used 500,000 barrels per day of Caspian crude for its northern refineries, and in 2003 statistics depicted a sharp conservative increase of the mentioned indicator to 750,000 barrels per day. But pro-US leaders of the Caspian basin countries will hardly let them go ahead because of the United States government economic sanctions on Iran.
It is notable that the creation of the above described issues are partly lack also due to integrated world wide antiterrorist operations of the US led group of countries including Azerbaijan which is facing by the difficulties in "free-hands" negotiations with oil reached Arab powers. In terms of the terror-support policy any enlarging format of the Iranian negotiations evidently supported terrorism would be resulted in the deteriorations of political relations with the United States.
But it is very understandable that the exports rout Kazakhstan-Turkmenistan-Iran as well as Azeri light delivery via Iran are the most rational and economically sound to transport Kazakh oil to Asian market. It is obvious there are certain political difficulties but it is evident that thanks to serious support of alliance of large oil producing companies as well as of managerial head of transit countries accompanied by the soon political regime's changes, the project for transporting Caspian energy resources to terminals of Persian Gulf will come to life.
The next focal point of the US led Caspian energy policy that has to be seriously considered is "inordinate fear of the 70s syndrome" (establishment of OPEC and the world energy deficit) resulted in desire to have alternative energy roots to the OPEC & Russia. For instance today's calculations demonstrate that total proven oil reserves in the Caspian comprise approximately one percent of the world's total proven oil reserves, comparable to those of Norway and Algeria.
The crucial element of the Caspian Energy policy is the fact that the proved commercial interests of oil powers involved into the Caspian energy projects in both Azerbaijan and Kazakhstan is playing now a strategic key role in identification of any energy export streamline. In this way despite the US scare of Iran in fact there are two important Caspian interested companions that might be also rivals in nearest future: US & EU and China.
Today's overlapped commercial interests of the Kazakh & Azeri oil consortias' participants like BP, IMPEX, ITOCHU, etc. in the oil transit via Aktau-BTC (ABTC) and possibility of BTC's tariffs' manipulations is confronting with the immense commercial possibilities of Chinese market. The demand for oil in Asia is forecast to increase very quickly and to eventually command a price that would be higher than that of the Mediterranean markets that the majority of the competing pipelines would serve.
Due to the market demands the Western Kazakhstan-Chine project mentioned recently by President Nazarbayev (length 2800 km) is financially supported by the Chinese Government. At present engineering of the feasibility study that evidences feasibility of pipe construction, is completed. In consideration of perspective of steadily growing Chine energy market, realization of the project promises significant economic benefits to oil policy of both states. For instance Chinese demand for oil (and oil products) can be expected in 2010 between 5.4 and 7.0 million b/d, corresponding to GDP growth rates of 3.2% and 7.9% respectively. For 2020, demand is estimated at 6.8 - 10.9 million b/d, again for growth rates 3.2% and 7.9%.
In resume we have to state that how the Caspian Sea hydrocarbon reserves are developed will have a major impact on world oil markets, possibly equivalent to that of current major producing countries that are not contiguous to it, such as Canada, Venezuela, Norway, the United Kingdom, Iraq, Kuwait, the United Arab Emirates, and Nigeria. The full-scale development of the Caspian would provide opportunities for services and equipment sales in the tens of billions of dollars for international oil companies and engineering and construction firms. Much of this development would have to be financed by foreign capital, providing investment opportunities for international oil companies and other investors and lending opportunities for international banks.
Moreover, the development of the Caspian would enhance the diversification of global energy supplies, an important consideration in energy security first of all Caspian basin countries.
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