International Security and Its Influence on Fuel and Energy Complex of Caspian Region

Vladimir Yevseyev

Fuel and Energy Complex (FEC) covers the sphere of mining and production of energy resources, processing, delivery and consumption of all types of energy. FEC of Caspian region that includes all Central Asia, Caucasus and Caspian Sea adjoining regions of Russian Federation and the Islamic Republic of Iran (IRI) is pretty well developed and includes oil and gas industries, power industry grounding of thermal and hydroelectric power plants, and also a great number of coal and natural uranium fields in development.

It’s almost impossible to cover all the range of issues referring to the promotion of regional FEC that is why we’ll overview only the problems of mining and transporting of raw hydrocarbons. In many aspects the solution of these problems are determined by the reached level of international and regional security.

It’s widely known that Caspian Sea and surrounding areas possess significant stocks of raw hydrocarbons.  According to the evaluations of Russian and foreign experts forecast resources of oil are 15-22 billion tons, of gas - 12-18 trillion cubic meters, and proven stocks: 8,4 billion tons of oil (5,8% of the world reserves) and 7,4 trillion cubic meters of natural gas (about 5% of world reserves). A sufficient part of proven oil stocks belongs to Kazakhstan and Azerbaijan then follows Russia and Turkmenistan. The main part of proven stocks of natural gas in the given region belongs to Turkmenistan (2,9 trillion cubic meters) and Russian part of Caspian region (2,5 trillion cubic meters). Except for that sufficient gas stocks were found in Kazakhstan and Azerbaijan, and also in Uzbekistan that doesn’t have access to Caspian Sea.

> Caspian Region Map

In Caspian region Kazakhstan has a leading role in the quantity of oil production and its proven stocks.  The second and third places in oil production rank for Azerbaijan and Turkmenistan. The main gas fields explorer is Turkmenistan, the second and third places in natural gas production rank for Kazakhstan and Russia. Iran doesn’t produce raw hydrocarbons in Caspian region, although it is already constructing oil platforms.

Naturally, Caspian oil and natural gas can’t become an alternative to the corresponding supplies from Persian Gulf region, as Saudi Arabia possesses a fourth part of world oil stocks. But they can stabilize general situation within this market that beyond doubts will positively affect the development of global economy and will reduce its dependence from OPEC states or Russia.

Economic well-being of Caspian raw hydrocarbons exporting countries (Kazakhstan, Turkmenistan, Russia, Uzbekistan and Azerbaijan) greatly depends on corresponding world prices. Within conditions of deep global economic crisis the demand on oil and natural gas has reduced and this is one of the reasons for preserving relatively small prices (for example, about 50 dollars for a barrel of crude oil). At the same time, the EU is still highly interested in diversification of this raw material flows, especially after another gas conflict between the Russian Federation and Ukraine in the beginning of 2009.

Except for that Europe considers that oil reserves of North Sea can deplete in 10-15 years, that has already increased the share of Caspian oil from 1 to 7% within total energy consumption in Germany in recent years. This is also required by the demand to preserve and develop own oil-production industry. As a result, such companies as Statoil (Norway, Sweden), British Petroleum (Great Britain), Total (France) and Eni (Italy) extend their activity within Caspian region.

Together with these exporting countries, a number of states of the given region act as transiting countries of raw hydrocarbons. Particularly, Georgia that has almost no own stocks of oil and natural gas is vitally interested in the transit of Caspian energy resources by oil pipelines Baku-Supsa and Baku-Tbilisi-Ceyhan, and also by the gas pipeline Baku-Tbilisi-Erzurum. Azerbaijan is also interested in the transit of raw hydrocarbons as it would like to become a kind of gates to Europe for Kazakhstan, Turkmenistan and Uzbekistan.

> Caspian Pipelines Map
However, the main flow of Caspian oil and natural gas goes through the Russian Federation. Particularly, the most powerful of existing regional oil pipelines lays within the territory of Russia – the pipeline of Caspian Pipeline Consortium (CPC). The pipeline connects Western Kazakhstani fields, including such big as Tengiz, with Russian harbor of Novorossisk. At first its capacity comprised 28 million tons of oil per year, 22 million tons of which were of Caspian origin. By now, the capacity has increased up to 33 million tons.

The Russian Federation has an extended system of oil and gas pipelines, laid already during Soviet times and oriented mostly on export.

And in 2009 it is planned to start the construction of Caspian regional gas pipeline that will lie along the territory of Turkmenistan, Kazakhstan and Russia. Up to 20 billion cubic meters of natural gas annually will be transported by this pipeline from Turkmenistan and Kazakhstan.

IRI also plans to become a transiting state, for example, of Turkmen natural gas. At the moment Teheran purchases annually from this country for its own facilities more than 8 billion cubic meters of gas. In case of increase of supplies and establishment of corresponding infrastructure gas could be delivered to Europe (which is the shortest way of transportation) and South Asia.

In addition, Teheran is interested in extension of so-called operations of SWAP, when supplied oil from Russia, Kazakhstan and Turkmenistan to Caspian harbor Neka (IRI) is substituted for equivalent quantity of Iranian oil from harbors of Persian Gulf.

Now this transit hardly exceeds 100 thousand barrels a day, but there is a potential tp increase the capacity up to 1 million barrels.

The same could be made with Russian or Kazakh natural gas that could be supplied though the territory of Azerbaijan.

After the description of the situation in the sphere of mining and transporting of raw hydrocarbons in Caspian region, we can move forward to review its interconnections with the level of international security. A demonstrative example of the last is IRI that has a paradoxical situation within gas sphere. Holding the second position in the world in supplies of natural gas (16% of the world), Iran in practice has no sufficient export capacity. Iranian gas is exported only in Turkey (1,1 billion cubic meters per year). At the same time it purchases natural gas from Turkmenistan, and supplies of the gas to Armenia are accompanied by counter supplies of electric power (about 3,3 billion kW/h). Mostly, it is due to extremely tensed relations between IRI and West in security sphere.  As a result, the extremely important flow of investments and modern technologies into Iranian gas industry is mostly blocked.  Implicitly even materials are banned if they can be used within nuclear or missile engineering sphere.

But international (regional) security mainly influences the ways of transportation of raw hydrocarbons due to the high cost of main oil and gas pipelines. The payback of such projects is pretty long-term, that is why as a rule investors don’t participate in them by serious risks in the security sphere.

Let us demonstrate this conclusion by two examples.

Benazir Bhutto In 1995 former president of Turkmenistan Saparmurat Niyazov and former Prime-Minister of Pakistan Benazir Bhutto signed an Agreement on the development of technical and economic assessment of Trans-Afghan gas pipeline which was planned to deliver gas from Turkmen field Dovletabad (the stocks are estimated from 1,7 up to 4,5 trillion cubic meters of gas) to South Asia. Later calculations demonstrated that the total length of the pipeline would be 1680 km, (within the territory of Turkmenistan – 170 km, within Afghanistan – 830 km, and within Pakistan – about 400 km). The amount of project was estimated in 4 billion dollars by annual capacity up to 30 billion cubic meters a year.

At the same time The USA had no compelling contradictions with ruling Taliban in Afghanistan, that is why already in October 1995 Turkmenistan, American company Unocal and Saudi Arabia Delta Oil Co signed a contract on construction of Trans-Afghan gas pipeline.

Then it was signed an agreement on construction of oil pipeline with project capacity up to 259 million tons of oil annually parallel to the gas pipeline. However, later an issue on oil transportation, Kazakhstan oil primarily, was suspended for indefinite period.

In 1997 the International Consortium Central Asia Gas Pipeline, Ltd. (CentGas) was established for the accomplishment of the contract. It included Turkmenistan, Pakistan, Unocal, INPEX and ITOCHO Oil Exploration Co. Ltd. (Japan) and Hyundai Engineering & Conctruction Co, Ltd. (South Korea). However, in 1998 talibs granted a shelter to the leader of Islamic terrorist organization “Al-Qaeda” Osama Ben Laden. As a result the fundamental American company Unocal had to withdraw from the Consortium.

Trans-Afghan gas pipeline got the “second breath” already after the defeat of talibs in the spring of 2002, when during the meeting of leaders of Turkmenistan, Pakistan and Afghanistan a new Agreement on Trans-Afghan gas pipeline construction was signed again. Asian Bank of Development sponsored designing of technical and economic assessment, and in 2006 India joined the project as an observer. But the fulfilment of the project has never started due an extremely grave security situation in Afghanistan and in Pakistani Belujistan, and also due to the refusal of Delhi, one of the main investors, to become depended from Islamabad.

The second example is the situation around accomplishment of Nabucco project – main gas pipeline from Central Asia to the EU countries. Its length can comprise up to 3,3 thousand kilometers, and the project capacity - 31 billion cubic meters annually. Consortium on gas pipeline construction includes the following companies: OMV Gas GmbH (Austria), BOTAS (Turkey), Bulgargaz (Bulgaria), S.N.T.G.N. Transgaz S.A. (Romania), MOL Natural Gas Transmission Company Ltd. (Hungary) and RWE AG (Germany).

In 2004 the project of Nabucco gas pipeline was designed to deliver gas from Iranian field “South Pars” (which influenced its name). However, as Iranian nuclear problem aggravated, Kazakhstan and Turkmen fields have been considered as main sources of natural gas, which was planned to deliver into Azerbaijan along the bed of Caspian Sea by Trans-Caspian pipeline. But here also was a serious problem rooted in the uncertainty of the status of Caspian Sea.

Gurbanguly Berdimuhamedov In 2002 Russia, Kazakhstan and Azerbaijan managed to agree on dividing the Northern part of Caspian region into national sectors. Its Southern part remain integrate. And after Gurbanguly Berdimuhamedov came to power in Ashkhabad Turkmen-Azerbaijani relations started improving and the compromise on the Sea status became more real, then Iran with only 11% of Caspian coast still insists on 20% by the partition of Caspian Sea.  This resulted into an armed conflict on sea (2002) between Azerbaijan and Iran, when Iranian military ships impeded the exploration of hydrocarbon stocks within high-potential fields “Araz”, “Alov” and “Sharg” in the southern part of Caspian Sea and forced the exploring ship to leave the area.

Later the exploration of these fields has never proceeded.

Objectively, neither Moscow nor Teheran is interested in the resolving of the problem of Caspian Sea status. The both states oppose against third countries military presence in Caspian region, primarily the USA. They also try to reduce the influence of West within the region. At the same time Teheran actively promotes ecologic problems of the unique marine and land flora and fauna in Caspian region.

In general we should acknowledge that the probability of Nabucco accomplishment is still low, and this is caused not only by the uncertainty of Caspian Sea status, but also by the absence of significant additional exporting possibilities of Central Asia states considering the construction of Caspian regional gas pipeline. Moreover, at the moment Turkey and Azerbaijan have suspended its participation in this project as tragic events of August 2008 in Caucasus revealed the risks in South Caucasus in transporting of raw hydrocarbons, due to uncontrolled conflicts of Georgia with Abkhazia and South Ossetia.

Thus, the state of international (regional) security sufficiently affects production of oil and natural gas in Caspian region. It also influences the ways of delivery. The situation aggravates due to uncertainty of Caspian status and due to intensive activity of such non-regional players as the USA, China, the EU, Japan and Turkey. Until now military and political positions of Russia have been firm in Caspian region, and this allows accomplishing here their own national interests in association with Iran.

However, further, as the influence of West gains power, Moscow will have to cooperate with it, and first of all to preserve here internal stability and to assure the demanded security level.
Translated from vestikavkaza.ru