Where Does “Caspian Corridor” Go?

By Liudmila Razumnova

Caspian region with bordering territories became the most promising and gasul regif the world by the beginning of decade. Proved stocks of “black gold” here are about 10 billion tons, and overall resources of oil and gas condensate are estimated as 18-20 billion tons. The experts of the US Energy Ministry suggest that by 2015 Caspian region will cover 7% of world production of liquid hydrocarbons and 12% of their export (200-230 million tons annually).


However today Caspian region attracts the attention of many countries of the world not only due to its reach hydrocarbons stocks. First of all it has a strategic significance as a crossroad of perspective transport ways in direction of East-West and North-South. The establishment of Eurasian energy transporting corridor will let supplies of hydrocarbon raw materials to European states as well as to intensively developing countries of South, South-East and East Asia. And this will immediately influence the balance of forces in the world.
Safe Way

Central Asia region today is the area of special interest for the West, Japan and China. First of all it attracts these biggest oil-importers with significant supplies of hydrocarbon stocks and its geostrategic position which allows setting relatively safe overland ways of oil and gas transportation, round the kind of troublesome area as Straits of Ormuz and Malacca as well as Russia.

Waterway from Persian Gulf though the Strait of Ormuz is considered to be one of the most important sea transport communications. Today it transfers up to 40% of world oil export supplied from I. Every day tankers export from this region from 16.5 up to 19 million barrels of “black oil”, most part of which (about 13 million barrels daily) is delivered to Asian states, mainly to Japan and . And through Bab el Mandeb and Suez Canal th material is transported to European countries. A part of Arabian oil goes to the USA ather states of America.

Except for oil Ormuz Strait carries (mainly from Iran and Qatar, as well as from Saudi Arabia and the UAE) daily up to 3.5 billion of cubic meters of condensed natural gas for Japan, South Korea, India, Europe and North America.

Experts think that even a short-term termination of shipping through will lead to suspension of most oil and gas supplies from Persian Gulfch will negatively affect the world hydrocarbon market. This is perfectly proved by the explosive oil prices growth, incited by information about the threat of armed conflict in this region. Thus, in case of American-Iranian encounters Iran can block shipping through Ormuz Strait which is one of the variants of reaction on the US invasion.

As for than it is a significant sphere of interest of China, as about 80% of oil imported  by sea is transported through it. Annually about 50 thousand of ships goes through the Strait and assure under various estimates from one fifth to one fourth part of the goods turnover of the Peoples Republic of China. In this respect Chinese Government is afraid of conflict with Taiwan which in this case can block the Strait. To reduce the load on this direction Beijing considers several alternative variants of oil supplies including by the oil pipleline from Kazakhstan.

PirateThe establishment of alternative ways of energy transportation has gained urgency due to arise and development in 2004 piracy in the area of Aden Strait which carries about 10% of world shipping and more than 30% of marine oil transportation. During a year there goes about 16 thousand of trade ships. According to the information of International Maritime Bureau, despite presence of NATO and military ships of Russian, India and Malaysia in the Strait, starting from October 2008 pirates have attacked 32 ships, capturing 12 of them. More than 250 hostages are still kept. During 2008 according to some information sea pirates have “earned” more than 150 million dollars. In addition at the moment their attacks are even more daring. In this respect it’s much more secure to transport hydrocarbons not by sea, but along the ground particularly though Kazakhstan.
A Bridge Between Europe and Asia

Transcontinental ways laying within the territory of Kazakhstan connect the states of Europe, Near and Middle East, Asian-Pacific region. Here lies a part (150 km) of Tran-Siberian railway which assures significant reduction of cargoes delivery time from the countries of APR to Europe in comparison with Southern sea way round Eurasian continent. The country is a kind of a bridge between Europe, Central and South-East Asia. Kazakhstan has the shortest ground way from Europe to India which deals with the main cargo flow. This geoeconomic position is beneficial for the Republic.

Other advantage of is its hydrocarbon resources. In the list of oil-reach countries the state takes the eighth place after Saudi Arabia, Iran, Iraq, Kuwait, UAE, Venezuela and Russia. In the beginning of 2008 the Republic possessed about 3.3% of world oil reserves and 1.5% of gas. More than a half of all forecasted stocks of “black gold” (13-18 billion tons) lie in the Caspian Sea basin, which in future will be the main oil producing region of the country. Proved stocks comprise about 40 billion barrels or 6.5 billion tons. Among CIS states Kazakhstan is the second after Russia in the amount of the oil produced (68,7 million tons annually).

Kazakh petroleum companies develop about 80 fields of hydrocarbon. More than 80% of stocks are used. In the period of 1997-2007 the production grew three times – from 0.5 up to 1.5 million barrels daily. Only in August 2007 oil production grew on 3.9%.

The Government of Kazakhstan predicts that by 2015 oil production can reach 3.5 barrels a day (150 million tons annually) 3 millions of which will be exported. Thus by 2017 the Republic intends to join the ten biggest oil producers in the world. According to the experts of the International Rating Agency Fitch Ratings, in 2007-2015 the oil production will grow on the average 5.7% annually.

Oil-gas sector is observed as the most promising branch of Kazakhstan economy for the coming 30 years; however on this stage of development the situation with of oil production is still complicated. Most fields being developed already reached the maximum of production by 2002. At the same time the country gains new prospects of implementation of its flourishing energy resources.

TengizFurther growth of the production on ground is first of all connected with the intensification of big fields development, such as Tengiz (extracted oil stocks more than 1 billion tons) and Karachaganak (about 700 million tons of oil and 1.3 trillion cubic meters of gas). Since 1994 Tengiz has held a joint venture “Tengizshevroil” (TSHO), founded by American companies ChevronTexaco Overseas (50%), ExxonMobil Kazakhstan Ventures Inc. (25%), Kazakhstan NC <<KazMunajGaz>> (20%) and Russian-American JV LUKARCO В. V. (5%). In 2010 TSHO intends to enhance the production up to 27 million tons. Karachaganak is covered by the international consortium “Karachaganak Petroleum Operating B.V.” including BGGroup companies (32,5%), ENI (32,5%), Chevron (20%) and “Lukoil” (15%). It’s planned to reach the maximum of gas production here (15 billion cubic meters) up to 2012. Contracts concluded between Russia and Kazakhstan anticipate that “blue fuel” supplies for Orenburg oil-processing plant and its export to Europe via “Gazprom” pipelines.

At the same time researches showed that the main growth of developed stocks and production of hydrocarbon raw material Kazakhstan should search in the Caspian Sea equatorial, where the Republic has 75% of oil and 45% of gas. To develop these resources the country needs 33.5 billion dollars. In the period of 2006 to 2010 Kazakhstan plans to invest about 12.9 billion dollars, and during the next stage (2011-2015) – 16.8 billion. As a result oil production in Kazakhstan sector of Caspian Sea should grow by 2010 up to 18 million tons, and by 2015 – up to 90 million tons annually.
Quotas and Lack of Terminals Impede

Territorial nearness of such biggest and intensively developing countries as Russia and China extends prospects for Kazakhstan hydrocarbons export. This anticipates the improvement in the Republic the system of main pipelines, reprofiling and modernization of the part of machine building industry, development of sea navy and ports, establishment of a big oil-chemical production. Naturally, the solution of these tasks will demand sufficient investments. That is why the strategy of Kazakhstan is based on research and development of the most promising fields of oil and gas, and also on the accomplishment of infrastructure projects of foreign, mainly Western oil companies that are able not only to invest into OGC but also to organise the total production including hydrocarbon transportation.

Despite underlined favorable conditions of Kazakhstan oil-gas industry development, there are two factors limiting its further growth. First of all, the lack of effective system of distribution and demanded infrastructure, which has impeded to reach internal self-provision with oil for a number of years. Secondly, there are no sufficient communications to export “black gold” and “blue fuel” for international markets, which in its turn reduces the possibility to gain finances to accomplish social-economic plans. Till 2006 export went only through the territory Russia, and today is limited with quotas on transit. By Caspian Sea the export is limited by the capacitry of terminals and the lack of own tanker fleet.

During coming ten years almost all oil from the Kazakh fields developed at the moment will be transported through the Russian Federation. In accordance with agreements signed in 2001-2002, Kazakhstan is able to export to Russia about 55 million tons of “black gold” annually. These agreements anticipate transfer of 15 million tons of oil to Samara, which is the centre of oil-processing industry and the delivery of more than 20 million tons of oil from Tengiz to Novorossiysk, the biggest Russian oil-loading terminal on Black Sea. Also the agreements specify the transportation to Novorossiysk more than 10 million oil from the sea field of Kurmangazy.

Today, according to the view of Kazakh economists and politicians, the construction of extensive network of export pipelines connecting biggest oil fields of Kazakhstan with Western and Eastern consumers becomes one of the most urgent issues.

Among leading players with economic interests in Kazakhstan there are EU states, the USA, China and neighboring countries of Central Asia. And by this Kazakhstan realizes that building its relations in the region, each of the great powers concentrates on its sphere of interest.
Own Interest

CNPCObviously, China aims at a long-term presence in the oil-gas sector of Kazakhstan. Chinese National Petroleum Corporation (CNPC) has operated in the Republic for already nine years and owns AO “Aktobemunaigaz”. Today CNPC takes the third place in the country in the capacity of oil production, has a license on hydrocarbons extraction on three fields: Zhanazhol, Kenkiyak above-salt and Kenkiyak subsalt. Beijing intends to extend its access to Kazakhstan oil resources. It’s perfectly proved by the agreement concluded in January 2007 on joint development with Kazakhstan the field of Karazhanbas.

Beijing is interested in accomplishment of Kazakhstan-China oil pipeline construction. In spring of 2003 the first part of the given main pipeline, the line of Atyrau – Kenkiyak was constructed; in December 2005 was commissioned the second one Atasu (Kazakhstan) - Alashankou (China), which became the first export “thread”, allowing transportation of oil to East round Russia. It is planned that oil pipeline Kenkiyak – Kumkol in length of 750 km and capacity of about 20 million tons annually will be the third (last) part of the project that will assure the flow of West-Kazakhstan oil to the border of the People’s Republic of China. The commissioning of the main pipeline to Chine is planned on the end of 2009.

After purchasing the company  “PetroKazakhstan” CNPC controls in the Republic the production of about 12 million tons of oil annually, however it is real for the new pipeline to transfer not more than 4-5 million tons annually, as it is liable to supply hydrocarbons to the pipe of Caspian Pipeline Consortium (CPC) and for OPP in Chimkent. In near future Kazakhstan plans to load a new oil pipeline in full capacity with the help of Russian raw materials particularly with the supplies of OAO “Gazprom Neft” and TNK-BR.

The USA also has its interest in Kazakhstan. During Post-Soviet period the US invested into the economy of the Republic more than 12 billion dollars and keep on to intensify the investment flows. Only for the first quarter of 2008 it was 0.5 billion USD. In the country there are leading American corporations such as ExxonMobil, Conoco Phillips, Halliburton and Access Industries. The last one includes one of the biggest oil-chemical companies of the world (Basell). It starts the accomplishment of the project on construction within the territory of Kazakhstan one of the most technologic oil-chemical complexes costing 4 billion dollars.

On June 24th 2006 in Astana there was an official start of Kazakhstan-American initiative on state-private economic partnership, directed on attraction of investments into non-primary sector of economy. Especially the USA underlines the significance of the participation of Kazakhstan in the accomplishment of the pipeline project Baku-Tbilisi-Ceyhan assuring transportation of Kazakh oil to the Mediterranean.

The oil pipeline began operating in May 25th 2005, when its Azerbaijani section was commissioned. Shareholders of the project include BR (30,1%), GNKAR (25%), Chevron (8,9%), Statoil (8,71%), TRAO (6,53%), Itochu (3,4%), AmeradaHess (2,36%), ENI (5%), ConocoPhillips(2,5%), Inpex (2,5%) and Total (5%).

In June of 2006 Kazakhstan officially joined BTC project by signing an agreement with Azerbaijan on transferring of 25 million tons of oil through this main line (at the initial stage it was planned to set 7.5 million tons).

In October 2008 oil supplies began in this direction from the field of Tengiz (about 100 thousand barrels daily). It is delivered with tankers from the Aktau port to Apsheron, and then pumped into BTC. Starting from July 2006 the quantity of raw materials, transporting though the oil pipeline Baku-Tbilis-Ceyhan was raised from 500 thousand up to 1.2 million barrels a day.

From geopolitical point of view the main objective of the pipeline construction was to establish the way of oil transportation from Azerbaijan and Kazakhstan to world markets independently from Russia.

pipeline2This is the first CIS pipeline that lies round the Russian Federation with direct participation of the USA and Great Britain. The US not only acquire the source of raw materials alternative to Persian Gulf, but also extends its influence within the region. The commissioning of the oil pipeline intensifies the development of Kazakhstan field Kashagan and Azerbaijani block of fields Azeri-Chirag-Guneshli. Kazakhstan considers the participation in this project as a possibility to diversify energy supplies abroad and founding of the third way except for energy export to Russia and China.

There is a chance that in future Turkmenistan will also use the new transportation way. Economic losses of Russia from its construction are estimated by some experts in 200 million dollars annually.

In comparison with the USA West-European countries follow only pragmatic interests rather than geopolitical ideas. The events of recent years put into agenda the issue of gaining independence of the EU from Arab oil. The most real prospect for Europe is the Caspian “black gold”. The European Union involved with diversification of energy sources and the ways of transportation to Europe, also supports the construction of new pipelines from Caspian Sea basin round Russia. The EU Strategy in Central Asia designed in 2007 follows this aim.

Kazakhstan provides about 20% of energy import into the EU states. For a number of European countries it has become a leading oil and gas supplier. Biggest European companies are presented in the energy sector of the Republic: Total, Agip, ENI, Shell, British Gas and BR.

European investments into the economy of Kazakhstan (first of all into the energy sphere) comprise more than 24 billion dollars a year – this is about a half of the total amount of investments (49.7 billions). The most part of them is from Great Britain (13,7%), Italy (7,1%), Netherlands (5,5%), France (1,7%) and Germany (1,5%).

In December 2006 The Ministry of Energy of Kazakhstan and the European Commission signed a Memorandum on mutual understanding in the sphere of energy. This document acknowledges the key role of the Republic as a big producer of natural gas and oil, and also mutual interest of the Parties in a joint business in energy sector. In March of 2006 the European Union approved the Energy Strategy in the framework of which up to 25% of energy import the EU will be from Caspian region (i.e. - Kazakhstan).

The European Union is attracted by two project directly connected with hydrocarbons transportation from Central Asia region, - the oil pipeline Odessa-Brody-Plotsk-Gdansk and Nabucco pipeline. The first of them was built in 2001 to reduce the dependence of Ukraine and the EU from supplies of raw materials from Russia. Its capacity is about 15 million tons annually, but can be raised up to 40 million tons. Currently, there goes a discussion to connect its with the main polish oil pipeline Plotsk-Gdansk. Initially, it was planned to transfer though this way Caspian (including Kazakh) oil from the port Yuzhny into West-Ukrainian town of Brody, and than via “Druzhba” pipeline to pump it to Eastern and Central Europe. However, during first three years Odessa-Brody has never been loaded due to the lack of capacity of “Transneft” and KTK. That is why a decision was adopted to use it reversely. As a result it transferred 9 million of tons from Russian to Odessa.

Reverse regime is still kept at the moment, however Ukraine tries to change it and start exporting Caspian oil to the EU countries. New round of negotiations started in 2003 in Brussels, when a three-Party declaration in the format of Ukraine-Poland-the EU was signed on the accomplishment of the project of connecting Ukrainian and Polish pipelines.

In 2005 European investment bank declared its readiness under special conditions to finance the construction of 600 million dollars. Then Kazakhstan for the first time declared in public its interest in supplies of Caspian oil to Europe within the territory of Ukraine.

Another way of supplies of Caspian oil into the EU, probably, Pan European pipeline (PanEuropean Oil Pipeline - EOP) from Romanian city Constanta to the city of Trieste in Italy. Most probably it will transport “black gold” from Kazakhstan and Azerbaijan which will unload Bosporus and Dardanelles.  By preliminary estimates the construction of this pipeline 1.4 thousand km long and capacity of 60-90 million tons of oil annually will cost 3.5 billion dollars. Its commissioning is planned in 2012 and it will carry the raw material to the oil-processing plants in Northern Italy and Central Europe states. This way can be used to transport gas.
Vector of Changes

GasBurnOffLately Kazakhstan and Azerbaijan increases oil supplies to Europe by already existing ways. And Astana strives to become more independent in export having gained control over pipelines. In this respect Turkey introduced limitations on passing of tankers through Bosporus, Kazakhstan expressed its intention to buy from Greece and Bulgaria a share in the pipeline project of Burgas - Aleksandrupolis, which will allow it to supply oil to Europe round the strait of Black Sea.

In near future Azerbaijan plans to increase the capacity of the pipeline Baku-Supsa from 7.5 to 10 million a year. This main line of 840 km long belongs to BR company and lies through the territory of Georgia (see fig. 4). At the same time it is planned to fill the pipeline mainly with Kazakh oil, which then flow to European markets through the oil pipeline Odessa-Brody. It is planned to enhance the capacity of the oil pipeline Baku-Tbilisi-Ceyhan by the flow of raw materials from Kazakhstan (up to 1.4 million barrels daily).

And this is only a part of activity in the framework of supplies diversification. On November 14th of 2008 GNKAR and “KazMunajGazom” signed an agreement on basic principles of the Trans-Caspian Transportation System (TCTS). Its objective is to establish a secure scheme of oil transportation though the terminals in Kazakhstan and Azerbaijan and its further export through the BTD pipeline and other oil-transporting infrastructure. Particularly it is planned to construct an oil pipeline Eskene-Kuryk, to extend a sea port of Kuryk, to buy tankers with a deadweight of more than 60 thousand tons. Within this project the fields Kashagan and Tengiz will become a resource basis for Kazakhstan. In prospect the republic will be able to export through Azerbaijan up to 1.2 million barrels a day (60 million annually) which corresponds to the current capacity of the pipeline Baku-Tbilisi-Ceyhan. TCTS should be commissioned by the end of 2012 which will coincide with the beginning of industrial development of Kashagan sea field.

In the following four years Kazakhstan plans to complete the transport-project of North-Kazakhstan Transportation System, which involves the construction of two offshore terminals and the pipeline Atyrau-Aktau.

However many experts firstly see in these plans not economic but political motives. So the ways of transportation of Azerbaijani oil through Georgia and Turkey are less beneficial than the use of oil pipeline Baku-Novorossiysk (see fir.3). But the USA strated to lobby exactly Turkish way as a counter to Russia, as a result the project of Baku-Tbilisi-Ceyhan arose which initially was absolutely unprofitable as Azerbaijani stocks are not enough to fill the pipeline.

Gas conflict between Russian and Ukraine in January 2009 made urgent (due to fault of Kiev) the establishment of transport corridors round Russian Federation and promoted significance of Caspian basin for energy security of Europe.

However, we should realize that if initially the interrelations between Russia, Kazakhstan and other CIS countries within petroleum-energy sphere developed considering that “map of ways” which the states gained as a heritage from the USSR, then all other following changes in energy supplies depended on the change of their foreign policy vector. Geopolitical competition for the right of laying of new transport corridors goes into the stage of struggle for the flows of Caspian oil between global and regional powers and transiting states. In general the future map of energy ways will be defined by the political choice of post-soviet states, and first of all by the choice of Kazakhstan as a key element of Eurasian energy bridge.
Translated from Neft Rossii (Oil of Russia)