Global Energy Review

Energy Exports from Central Asia & the Trans-Caucasus

A Report by Dr Paul McDonald Consulting Editor, Oil and Energy Trends

Contents

 
Introduction
Assessing the Resources		   Exporting the Region’s
Energy: Oil		 Present Pipelines
Baku-Novorossiisk
Baku-Supsa
Atyrau-Samara
Tengiz-Novorossiisk
Black Sea Exports
Bypassing the Turkish Straits
Other Export Routes
Routes via Iran
Routes to Asia
Azerbaijan Production Outlook
Kazakhstan Production Outlook
Kashagan: a difficult Development
Turkmenistan Production Outlook
Uzbekistan Production Outlook
 
Other Countries Armenia
Georgia
Kyrgyzstan
Tajikistan		 Exporting the Region’s
Energy: Gas		 Routes via Russia
Routes via Iran
Routes to Asia
Export Outlook
 
Pipeline Politics Oil Exports, 2010
Natural Gas Exports, 2010
Latest Developments

List of Tables

Introduction

Central Asia and the Trans-Caucasus are seen by many energy analysts as constituting a serious rival to the Middle East in terms of hydrocarbon reserves.  This notion has become politically charged as some countries, notably the United States of America, seek to encourage developments here in an attempt to reduce their dependence on the Middle East for imports of oil and gas.  The politics, however, go much deeper than this.  The USA is not simply seeking to reduce its own dependence on the Middle East.  Washington believes that reducing the role of Middle Eastern oil and gas in other countries’ energy balances will make the governments of the Middle East more susceptible to American influence in other spheres.  In particular, the USA wants to see more democracy in the Middle East and to end the support of certain Middle Eastern regimes for international terrorism.

The USA is therefore anxious to see the oil and gas exports of Central Asia and the Trans-Caucasus grow as rapidly as possible.  To this end, it has sought to influence not only the speed at which the region’s hydrocarbon reserves are developed but also the routes by which they are exported.  It does not want, for example, to see export pipelines routed via the Middle East.

The USA is not the only country seeking to influence events in Central Asia and the Trans-Caucasus.  Russia, too, wants a major say in energy developments in these former members of the Soviet Union.  One way it might achieve this  is to ensure that as much of their energy exports as possible pass through Russian territory.  This, in turn, brings it into conflict with Washington, which is promoting NATO-member, Turkey as the primary route for energy exports.

The struggle for dominance between Washington and Moscow reflects the nineteenth and early twentieth century conflict between Russia and Great Britain when the two empires tried to carve out spheres of influence in what was then a politically unstable part of the globe.  The British called this struggle the ‘Great Game’.  For them, the Great Game meant protecting their interests in India and the Middle East, and covered not only the areas that were to be absorbed by the Soviet Union but also the strategically important gateway to the region, Afghanistan.  The new Great Game involves a similar set of countries and issues, except that the USA is involved instead of Great Britain, and energy now plays the leading role in the conflict.  What happens will, as before, influence events far beyond the borders of the Trans-Caucasus and Central Asia.

The countries covered in this report are as follows:

The four main oil and gas producers of:

Plus the remaining ex-Soviet republics of:

And the neighbouring countries of:

The last five countries are considered largely as transit routes for the oil and gas exports of the former Soviet republics.

Assessing the Resources

The energy resources of Central Asia and the Trans-Caucasus are concentrated in four countries: Azerbaijan, Kazakhstan, Turkmenistan and Uzbekistan.  Estimates of proven reserves vary, but in general, do not indicate enormous numbers.  OET’s estimates give a total for the region of 17.3 bn bbl for proven oil reserves: less than 2% of the world total, making Central Asia and the Trans-Caucasus only slightly larger than the North Sea in reserve terms.  (Link to Table 1.1, Annual Statistical Review)

The natural gas reserves of the region, at 239.2 trillion cubic feet (tcf), constitute about 4% of the world total, according to OET’s figures, roughly comparable, again to North Sea levels.  (Link to Table 2.1, Annual Statistical Review)

Kazakhstan has the largest proven oil reserves in the region (see Table 1) as well as the largest production (see Table 2).  Azerbaijan has the second-largest output and reserves, followed by Turkmenistan and Uzbekistan. Output is growing in Kazakhstan, Azerbaijan and Turkmenistan but appears to be close to its peak in Uzbekistan.

The region’s main gas producer is Turkmenistan, which also has the largest proven reserves (see Tables 3 and 4).  It is closely followed in both cases by Uzbekistan.  Kazakhstan has similar-sized reserves of gas but much lower production than Turkmenistan and Uzbekistan.  Azerbaijan’s gas production is less well-developed than in the other three countries and its reserves are about half those of the three main producers.

Oil potential

The level of proven oil reserves is expected to rise from its present level of 17.3 bn bbl as more exploration is carried out.  Some oil companies report higher numbers than those used by OET.  The highest estimates are in the region of 40 bn bbl.

Oil production is also expected to rise over the next 10-15 years.  Forecasts for peak production levels tend to be in the range of 2.5 to 4.0 mn bpd, compared with 1.7 mn bpd in 2003.  Peak production is predicted for about 2015.  The actual level will depend not only on geology but also on the availability of export pipelines (see below).

Gas potential

Proven gas reserves are expected to rise from their present 239 tcf level with additions mainly from Azerbaijan and Kazakhstan.  The region has the potential to double its gas production but the actual volumes will depend on the ability of producers to find long term buyers and to build the necessary pipeline infrastructure (see below).

The outlook for oil and gas production is covered in more detail in the following section, which surveys the region country-by-country.

Table 1 Central Asia and the Trans-Caucasus: Proven Oil Reserves, 2003
Country Reserves Reserves Remaining
  (bn bbl) (years)
Azerbaijan 7.0 62
Kazakhstan 9.0 24
Turkmenistan 0.6 8
Uzbekistan 0.6 10
Others 0.1 56
Total 17.3 28
 
Source:  OET Annual Statistical Review, 2003
Table 2 Central Asia and the Trans-Caucasus: Oil Production, 2003
Country Production*
  (th bpd)
Azerbaijan 309
Kazakhstan 1,025
Turkmenistan 194
Uzbekistan 170
Others 5
Total 1,703
 
* includes condensate in Kazakhstan and Turkmenistan
Source:  RPI Inc/MEES; country data
Table 3 Central Asia and the Trans-Caucasus: Proven Gas Reserves, 2003
Country Reserves Reserves Remaining
  (trillion cf) (years)
Azerbaijan 30.0 165
Kazakhstan 65.0 133
Turkmenistan 71.0 34
Uzbekistan 66.2 32
Others 7.0 –
Total 239.2 50
 
Source: OET Annual Statistical Review, 2003
Table 4 Central Asia and the Trans-Caucasus: Gas Production, 2003
Country Production
  (mn cfd)
Azerbaijan 499
Kazakhstan 1,340
Turkmenistan 5,721
Uzbekistan 5,610
Total 13,170
 
Source: RPI Inc/MEES; country data

Azerbaijan

Oil has been produced in Azerbaijan since antiquity.  The modern history of production dates from the 1820s, when oil was extracted from hand-dug pits.  Drilling for oil began in 1871 and Azerbaijan became Russia’s and, later, the Soviet Union’s principal oil-producing region until Western Siberia was opened up.  By the 1950s, Azerbaijan’s output was in decline and, by the mid 1990s, it had fallen below 0.2 mn bpd.  Production has since risen to 0.3 mn bpd (see Table 5), still below the former peak level of the 1940s, though this total is set to rise further.

Table 5 Azerbaijan: Energy Profile, 2003
OIL
  Reserves 7.0 bn bbl
  Reserves:Production Ratio 62:1
  Production 309,000 bpd
  Consumption 118,000 bpd
  Net Exports 191,000 bpd
 
 
NATURAL GAS
  Reserves 30.0 tcf
  Reserves:Production Ratio 165:1
  Production 499 mn cfd
  Consumption 499 mn cfd
  Net Exports nil
 
Source: RTI Inc/MEES

Most of Azerbaijan’s production comes from a large offshore area known as Azeri-Chirag-Guneshli, a block containing more than 5 bn bbl of proven reserves.  The field is operated by a BP-led consortium known as the Azerbaijan International Operating Company (AIOC).

Large reserves of liquids are also found in the Shah Deniz field, an offshore gas and condensate project being developed by another BP-led consortium.  Condensate reserves are put at 2 bn bbl.  The first stage of the development is expected to produce 60,000 bpd of condensate along with around 800 mn cfd of gas.  This, combined with output additions from the Azeri-Chirag-Guneshli field, is expected to raise Azerbaijan’s production to 1 mn bpd by about 2010.

Shah Deniz is scheduled to become Azerbaijan’s most important gas field, with production scheduled to begin in 2006.  Reserves are estimated between 15 tcf and 40 tcf.  The first phase of development is based on recoverable reserves so far identified of 15 tcf.  Gas production from this phase is forecast at 800 mn cfd once it reaches its plateau level.  The gas is intended mainly for export, though up to 150 mn  cfd could be consumed within Azerbaijan.

Turkey is intended as the main market for the gas with further sales planned in Georgia, Greece, Bulgaria, Romania and other parts of Europe.  The plan is to transport the gas via a 700 mn cfd pipeline to be known as the South Caucasus Pipeline (SCP).  The $1bn, 42-inch line will run from Shah Deniz, through Georgia, to Erzurum in Turkey, where it will connect with the Turkish pipeline grid and, ultimately with export pipelines to the rest of Europe.  Some 610 mn cfd of gas is earmarked for Turkey, with a further 77 mn cfd for Georgia.

Turkey, however, has overcommitted to future gas imports and has informed two suppliers – Russia and Iran – that it wishes to reduce contracted purchases.  The Shah Deniz consortium may nevertheless believe that as a comparative short haul supplier it can undercut other potential suppliers to Turkey, such as Turkmenistan.  It also has plans to use Turkey as a bridge to reach other countries further west.  Turkey plans to link its gas transmission system to that of Greece in 2005 as part of what officials there call an ‘energy bridge to Europe’.  A further interconnexion is planned with Bulgaria and thence to Eastern Europe.  Sales beyond Turkey, however may not really take off until after 2010.  Up to that date, Azerbaijani exports are likely to be limited to 700 mn cfd.

Production Outlook

Oil and gas output is forecast as follows:

OIL
  2003 0.3 mn bpd
  2010 1.0 mn bpd*
 
* including condensate from Shah Deniz
 
 
NATURAL GAS
  2003 0.5 bn cfd
  2010 1.3 bn cfd
Hyper-links:

Kazakhstan

Kazakhstan is the second-largest oil producer in the former Soviet Union, after Russia.  Production has risen sharply since the early 1990s, when it was around 0.4 mn bpd.  There are three large onshore fields, Tengiz, Uzen and Karachaganak, with as major offshore field under development at Kashagan.  The country has plans to double production by 2010, but disagreements between the government and foreign oil companies over upstream terms are threatening to slow down progress on major new developments.

Table 6 Kazakhstan: Energy Profile, 2003
OIL/CONDENSATE
  Reserves 9.0 bn bbl
  Reserves:Production Ratio 24:1
  Production 1,025000 bpd
  Consumption 246,000 bpd
  Net Exports 779,000 bpd
 
 
NATURAL GAS
  Reserves 65.0 tcf
  Reserves:Production Ratio 133:1
  Production 1,340 mn cfd
  Consumption 940 mn cfd
  Net Exports 400 mn cfd
 
Source: RTI Inc / MEES; country data

Expansion at Tengiz appears to be more or less on schedule.  There, output is slated to rise from 0.3 mn bpd to nearly 0.5 mn bpd by 2007.  Delays, however, have occurred at the Karachaganak gas and condensate field owing to problems connecting the field to the Caspian Pipeline Consortium (CPC) export pipeline.  Kashagan is also behind schedule.  Commercial production was due to begin in 2005.  Now, the field is not due on stream until 2008, when it is scheduled to begin producing at just under 0.1 mn bpd.  Thereafter it is slated to rise to between 0.4 and 0.5 mn  bpd by 2010, then to 1.2 mn  bpd in 2016.

Gas developments will thus make an important contribution to Kazakhstan’s future output of liquids.  Karachaganak currently provides 0.2 mn bpd of condensate in addition to its gas production of 700 mn cfd, following an expansion programme last year which more or less doubled the output of condensate.  A further development programme is now being drawn up which should raise the output of condensate to nearly 0.3 mn  bpd and increase gas production to 1.0 bn cfd.  Following the completion of this phase another one is planned to bring production up to 2.4 bn cfd.

Neither of these last two development phases, however, can proceed until a market can be found for the gas.  Part of Karachaganak’s output is reinjected to boost the production of condensate, but most has to be disposed of elsewhere.  Karachaganak’s only pipeline connexion is with Orenburg, just over the Russian border: a relict from the Soviet era, when Karachaganak was operated as part of the Orenburg gas field complex and all its output was processed there for onward sale in the USSR.  The lack of other outlets often obliges Kazakhstan to accept a distressed price for its output.

Production Outlook

Kazakh expansion plans between now and 2010 are likely to feature liquids rather than gas, owing to the problem of finding new gas export markets.  For the next few years, Kazakhstan is likely to have to rely solely on Russia to export its gas, which will restrict expansion plans.  Oil and gas output are forecast as follows:

OIL
2003 1.0 mn bpd
2010 2.0 mn bpd
 
NB Totals include condensate
 
NATURAL GAS
2003 1.3 bn cfd
2010 2.0 bn cfd
Hyper-links:

Kashagan: a difficult Development

Kashagan is the largest undeveloped oil prospect in Central Asia and the Trans-Caucasus, but its development has been held up by disputes between the government and the foreign oil companies involved in the scheme.  The development plan was finally agreed in February, 2004: two years behind schedule.

Large Reserves

Kashagan was discovered by Soviet geologists but neglected in favour of oil developments in Siberia.  After independence in 1991, Kazakhstan invited foreign oil firms to explore the northern Caspian field to prove up reserves.  These are likely eventually to be estimated between 9 bn bbl and 13 bn bbl.

In 1996, a consortium consisting of Agip, ConocoPhillips, ExxonMobil, Inpex, Shell and Total signed a 40 year production sharing agreement to develop the field.

Environmental Problems

The field lies in shallow waters that are routinely ice-bound.  It is an important area for sturgeon and other marine life.

The hydrocarbon reservoir itself lies some 13,000 feet below the surface.  Drilling has proved a costly and lengthy process, owing to the winter ice and the need to protect the important local caviar industry.  A further problem for the drillers is the high pressures in the deep reservoir, which present a blowout risk if drilling proceeds too rapidly.

Dispute arises

Oil production was supposed to begin in 2004.  When the start date was put back, the government claimed compensation from the consortium for the delay.  The two sides eventually agreed to a lower sum than that demanded by the Kazakh authorities, but only after the field’s commissioning had been delayed still further.

The dispute has made other foreign companies wary of signing new deals.  The government may be forced to delay future licensing awards as a result.

Production Timetable for Kashagan
2008 75,000 bpd (first oil)
2010 450,000 bpd
2013 900,000 bpd
2016 1,200,000 bpd (plateau level)

The project is expected to require an investment of $29 bn over 15 years.

Turkmenistan

Turkmenistan is Central Asia’s largest natural gas producer and the second-largest in the former Soviet Union.  Its oil production, at 0.2 mn  bpd, however, is modest.  It has encountered considerable difficulties in exporting its gas owing to its over-dependence on Russia.  The country nevertheless has ambitious plans to expand the production of both oil and gas.

The government has drawn up plans for both oil and gas covering the period to 2020.  Oil production is supposed to rise ten-fold to 2 mn  bpd.  Much of the new production is scheduled to come from deep formations, located at depths below 15,000 feet.  While some promising discoveries are being made at such depths, there are not yet enough proven reserves to justify such high forecast levels.

Table 7 Turkmenistan: Energy Profile, 2003
OIL/CONDENSATE
  Reserves 0.6 bn bbl
Reserves:Production Ratio 10:1
Production 194,000 bpd
Consumption 158,000 bpd
Net Exports 36,000 bpd
 
NATURAL GAS
Reserves 71.0 tcf
Reserves:Production Ratio 34:1
Production 5,721 mn cfd
Consumption 596 mn cfd
Net Exports* 5,125 mn cfd
 
* Contracted levels
Source: RTI Inc / MEES; country data

Turkmenistan will also need a crude oil export pipeline before long if it is to meet its production goals.  At present, oil is exported by tanker and rail to the Black Sea or Iran.  Pipelines are also a constraint on Turkmenistan’s gas plans.  As with Kazakhstan, during the Soviet era, Turkmenistan was required to deliver its gas to Russia for onward sale to the rest of the USSR.  At their peak, such exports amounted to nearly 8 bn cfd.  By the late 1990s, however, they were close to zero following a series of disputes over non-payment, particularly by Ukraine, and counter-disputes with Russia over transport tariffs.

At the end of the 1990s, Turkmenistan appeared to recognise the realities of dealing with Russia and the former Soviet Union and agreed more flexible payment terms.  Contracts were agreed with Ukraine, Iran and with Russian gas trader, Itera.  These now cover sales of about 5.1 bn cfd, though not all the volumes contracted for are necessarily delivered.  Exports to Iran have been erratic as well (see ‘Exporting the Region’s Energy: Gas’ below).

Production Outlook

Recently, Turkmenistan has set out a series of ambitious plans to raise oil and gas production by 2020 with proposals to raise oil production to 2 mn  bpd and gas to 23 bn cfd.  Neither looks likely.  Gas exports are likely to be affected by competition from nearby countries, including Russia and Iran, as well as an increase in the proportion of sour gas produced inside Turkmenistan.  Far from rising sharply between now and 2020, Turkmen gas production may well peak in about 2010 at around 6.5 bn cfd.  Oil and gas output are forecast as follows:

OIL
  2003 0.2 mn bpd
2010 0.4 mn bpd
 
NB Totals include condensate
 
NATURAL GAS
2003 5.7 bn cfd
  2010 6.5 bn cfd

OET ARCHIVE

July 02/F
Jan 03/G
Oct 03/G
Nov 03/L

Hyper-links:

Uzbekistan

Uzbekistan is a minor oil producer but a substantial producer of gas (see Table 8).  Unlike other countries in the Trans-Caucasus and Central Asia, it did not experience a decline in output of these commodities following independence in the 1990s.  One consequence of this was it became self-sufficient in oil in the mid-1990s.  It is now a small net exporter of both oil and gas.

The country’s oil fields are described officially as ‘highly prospective’, but most international interest is likely to focus on gas rather than oil.  The country’s small reserve base (see Table 1) suggests that oil production is not likely to rise much further.  The national oil company, Uzbekneftegaz has said there could be up to 32 bn bbl of crude oil in place plus a further 5 bn bbl of condensate, but this must be viewed as little more than speculation.  Oil production is likely to be little changed by 2010.

Table 8 Uzbekistan: Energy Profile, 2003
OIL
  Reserves 0.6 bn bbl
Reserves:Production Ratio 10:1
Production 170,000 bpd
Consumption 140,000 bpd
Net Exports 30,000 bpd
 
NATURAL GAS
Reserves 66.2 tcf
Reserves:Production Ratio 32:1
Production 5,610 mn cfd
Consumption 4,960 mn cfd
Net Exports 650 mn cfd
 
Source: Pearl Oil estimate

Gas reserves have been estimated as high as 190 tcf by Uzbekneftegaz.  This is probably less of an exaggeration than in the case of the state company’s estimate of the country’s oil reserves.  The Uzbeks, though, suffer from the same difficulties as their Central Asian neighbours, Turkmenistan and Kazakhstan.  Gas exports must pass through Russia en route to customers whose commercial creditworthiness sometimes leaves something to be desired.

Output of natural gas is forecast by the state oil and gas company to go on increasing over the next few years thanks to developments in existing gas fields.  From 2010, Uzbekneftegaz intends to commission new fields on the Kazakh border.  These will mainly be aimed at export markets.  It is difficult to see, however, where such new markets might be.  The Uzbeks are highly unlikely to meet their ambitious production target of 6.8 bn cfd in 2010, and production may, in fact, decline.

Production Outlook

The lack of proven reserves and their distribution across many small fields is likely to constrain future oil production.  Gas production will be affected by a shortage of commercially creditworthy offtakers.  Oil and gas output are forecast as follows:

OIL
2003 0.2 mn bpd
2010 0.2 mn bpd
 
NB Totals include condensate
 
NATURAL GAS
2003 5.6 bn cfd
2010 5.1 bn cfd
Hyper-links:

Other Countries

The remainder of the Trans-Caucasus-Central Asia region is poor in energy resources and has only minimal production.  It is a net importer of both oil and gas from former parts of the Soviet Union.  There are few prospects for oil and gas production between now and 2010.

Armenia

Armenia possesses no proven reserves of oil and gas.  It consumes under 10,000 bpd, most of which is imported from Russia.  Consumption has fallen sharply since independence in 1991, when it was 50,000 bpd.  Armenia has been subject to an economic embargo by Azerbaijan and Turkey since 1995, following the secession of the Armenian exclave of Nagorno-Karabakh from Azerbaijan, which has interrupted the imports of oil from its neighbours.  The government has tried to encourage foreign oil companies to explore for oil and gas, but the prospects for commercial production appear small.

Half of Armenia’s energy is provided by natural gas imported from Russia and Turkmenistan, via Russia.  All of Armenia’s gas is supplied by Gazprom and, in an attempt to end the Russian company’s monopoly, Armenia is proposing to import gas from Iran.  This will require a 90 mile pipeline to connect it to the Iranian transmission system, but no agreement has yet been reached on the routing of the line or the pricing of the gas.

Table 9 Armenia: Energy Profile, 2003
OIL
Reserves nil
Production nil
Consumption 9,000 bpd
Net Imports 9,000 bpd
 
NATURAL GAS
Reserves nil
Production nil
Consumption 135 mn cfd
Net Imports 135 mn cfd
 
Source: Pearl Oil estimate

The lack of indigenous hydrocarbons makes Armenia heavily dependent on nuclear power, which constitutes nearly a quarter of the primary energy balance.  The country’s sole nuclear plant was reopened in 1995 despite having been shut down by the Soviet authorities in 1989 following an earthquake.

Hyper-links:

Georgia

Georgia’s proven reserves of oil and gas are tiny (see Table 10).  Its importance in energy terms lies in its position astride three proposed export pipelines from Azerbaijan: Baku-Tblisi-Ceyhan; Baku-Tblisi-Erzurum; and Baku-Supsa.

Oil production is in the region of 2,000 bpd and unlikely to rise by very much despite the government’s aim to become self-sufficient.  Most of Georgia’s oil is imported from Azerbaijan and Russia.  All of Georgia’s gas is imported from Russia and Turkmenistan.  The main source of commercial energy is hydro-electricity, which accounts for about 35% of the primary energy balance.

Table 10 Georgia: Energy Profile, 2003
OIL
  Reserves 35 mn bbl
  Reserves:Production Ratio 48:1
  Production 2,000 bpd
  Consumption 40,000 bpd
  Net Imports 38,000 bpd
 
NATURAL GAS
  Reserves 300 bn cf
  Production nil
  Consumption 110 mn cfd
  Net Imports 110 mn cfd
 
Source: Pearl Oil estimate; US Energy Information Administration
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Kyrgyzstan

Kyrgyzstan has small reserves of oil and gas and similarly low levels of production.  Its main hydrocarbon reserves are coal but, even here, reserve and production levels are low.  Moreover, production is in decline and Kyrgysztan must now import most of its coal.  Most of the country’s power is generated from hydro-electricity.

Kyrgyzstan produces just over 1,000 bpd of oil.  The government plans a large scale exploration programme with foreign help, but reserve levels at present are tiny (see Table 11).  Gas constitutes the main fuel in the energy balance, nearly all of which is imported from Uzbekistan.  Prospects for commercial production of gas are slim.

Table 11 Kyrgyzstan: Energy Profile, 2003
OIL
  Reserves 40 mn bbl
  Reserves:Production Ratio 73:1
  Production 1,500 bpd
  Consumption 20,000 bpd
  Net Imports 18,500 bpd
 
NATURAL GAS
Reserves 200 bn cf
Production negligible
Consumption 115 mn cfd
Net Imports 115 mn cfd
 
Source: US Department of Energy; Pearl Oil
Hyper-links:

Tajikistan

Tajikistan has insignificant reserves of oil and gas (see Table 12).  Oil production is about 200 bpd and gas output is a minuscule 2 mn cfd.  There is a small and declining coal industry and the country’s energy future lies mainly in indigenous hydro-electric power and imports of natural gas.

Gas is at present imported from Uzbekistan.  The Tajiks have asked for deliveries to be raised by 40% but the country has had difficulties in paying for imports.

Table 12 Tajikistan: Energy Profile, 2003
OIL
  Reserves 12 mn bbl
  Production negligible
  Consumption 30,000 bpd
  Net Imports 30,000 bpd
 
NATURAL GAS
  Reserves 200 bn cf
  Production negligible
  Consumption 100 mn cfd
  Net Imports 100 mn cfd
 
Source: US Department of Energy; Pearl Oil
Hyper-links:

Exporting the Region’s Energy: Oil

None of the main oil producers of the Trans-Caucasus and Central Asia is connected to the world’s oceans.  Hence exports of oil require transit via at least one other country.  Until the 1990s, this country was Russia.  The arrangement was a relict of the Soviet Union which was dominated both politically and economically by the Russian Republic.  Since the break-up of the USSR in 1991, Russia has used its stranglehold over the region’s oil and gas exports to maintain some political influence in the former Soviet republics.  This has, in turn, prompted the main producers to seek outlets via other countries.  The need for further export routes has increased as oil production from the Caspian region has risen, since the Russian pipeline system cannot handle all the oil the region is likely to be producing soon.  Some producers further believe that they need export routes to Asia in order to reduce their dependence on Europe, which takes the vast majority of their output at present.

The following export options are available to the Trans-Caucasus and Central Asia:

Most of the activity centres on the northern and western routes.  To the north, Russia is backing schemes to increase deliveries by pipeline to the Black Sea port of Novorossiisk.  The USA, anxious to detach the region from political dominance by Russia, is promoting a rival western route from Baku to the Turkish Mediterranean port of Ceyhan.  Faced with a growing need for oil imports, China is anxious to see a pipeline heading eastwards.  Here, again, the USA has a counter-proposal: this time for a pipeline via Afghanistan to the Arabian Sea, from where exports could go by sea to the rest of Asia.  The various schemes are summarized in Table 14.

OET Archive

Caspian – July 02/F
Russia – Dec 02/F
– Dec 03/F
Asia – Aug 02/F
China – Feb 03/F
– Feb 04/F
USA – Jan 03/F
– Sep 03/F
Hyper-links: Maps of Regions Showing Pipelines
Table 13 Present Oil Export Pipeline Routes
Route Length Capacity
  (miles) (th bpd)
 
Azerbaijan-Russia
 Baku-Novorossiisk* 870 100
 
Azerbaijan-Georgia
 Baku-Supsa 515 145
 
Kazakhstan-Russia
 Atyrau-Samara

430

 300
 Tengiz-Novorossiisk 990 560
 
Total Capacity   1,105
 
* 120,000 bpd spur by-passing Chechnya opened in 2000
Source: Country data

Present Pipelines

There are at present four pipeline export routes, of which three are via Russia and the fourth goes to Georgia.  Three of the lines go to Black Sea terminals (two to the Russian port of Novorossiisk and the third to Supsa in Georgia) while the fourth connects with the Russian transcontinental pipeline system at Samara (see Table 13).

Baku-Novorossiisk

The State Oil Company of the Azerbaijan Republic (Socar) ships some 50,000 bpd through the line from Baku to Novorossiisk: just half the line’s nameplate capacity.  Russia has tried to persuade Socar to increase its exports so as to fill the line, but the Azerbaijani state company has declined to do so, since it believes it is not obtaining the full value of its crude, which is not sold separately but blended with the lower quality Russian standard Urals export crude.  Russia also wants to raise the charges for the use of the route.  Socar has paid a flat rate of $15.67 a tonne since 1996.  In 2000, the Russians added a 120,000 bpd line to by-pass the war-torn region of Chechnya.

Baku-Supsa

Azerbaijan’s main pipeline outlet is the 515 mile east-west line to the Georgian Black Sea port of Supsa, which operates close to its 145,000 bpd capacity.  There have been proposals to increase capacity on this route to as much as 600,000 bpd, but most oil companies sending oil via Baku are likely to prefer the new pipeline to Ceyhan in Turkey which is due to open in 2005.

Atyrau-Samara

This line, heading northwards from the Kazakh Caspian port of Atyrau, connects with the Russian trunk pipeline system some 430 miles inland at Samara.  From there, it can go south to Novorossiisk, north to Russia’s Baltic export terminals or by pipeline directly to Western Europe, using the systems operated by the Russian pipeline company, Transneft.  Unlike the Baku-Novorossiisk line, shippers are able to obtain credit from Transneft for higher quality crudes blended into lower quality, standard Russian export blends.  Kazakhstan wants to raise capacity by 200,000 bpd on this route.

Tengiz-Novorossiisk

This line is operated by an international consortium known as the Caspian Pipeline Consortium (CPC).  It was opened in late 2001 and primarily serves the Tengiz field (see section on Kazakhstan above).  Throughput has been growing steadily as other fields have been tied into the system.  The line carried 295,000 bpd in 2003 and is scheduled to take 480,000 bpd in 2004, including condensate from the new Karachaganak field.  There are plans to raise capacity to 1.34 mn bpd, but Russia, which owns 24% of the CPC system, is threatening to delay the expansion, claiming that revenues are below those originally anticipated.

Black Sea Exports

All four of the above routes serve export terminals on the Black Sea.  The Black Sea, however, suffers from two major drawbacks as an export route.  In the first place, it is prone to winter storms which can disrupt loadings at Novorossiisk.  Secondly, the exit to the Black Sea is heavily congested as it passes Istanbul, which affects the size of any expansion plans for pipelines serving the Black Sea (see Table 14).  Of these two issues, congestion in the Turkish Straits is by far the more significant.

Table 14 Pipeline Expansion and Newbuild Plans
Route Length Proposed Capacity* Completion
  (miles) (th bpd) (year)
 
Azerbaijan-Russia
 Baku-Novorossiisk 870 300 N/A
 
Azerbaijan-Georgia
 Baku-Supsa 515 600 N/A
 
Azerbaijan-Turkey
 Baku-Ceyhan 1,040 1,000 2005
 
Kazakhstan-Russia
 Atyrau-Samara 430 500 N/A
 Tengiz-Novorossiisk 990 1,340 N/A
 
Kazakhstan-China
 Aktyubinsk-Xinjiang 1,800 800 N/A
 
Kazakhstan-Iran
 Kazakhstan-Kharg Island 930 1,000 N/A
 
Kazakhstan-Pakistan
 Kazakhstan-Gwadar 1,040 1,000 N/A
 
Kazakhstan-Azerbaijan
 Aqtau-Baku 370 N/A N/A
 
* Figures quoted are the total capacity of the new or expanded system
N/A = not available
Source: US Department of Energy; country data; Pearl Oil

Bypassing the Turkish Straits

At the southern end of the Black Sea is a 17 mile long waterway that connects the Black Sea with the Mediterranean.  This sea passage narrows to half a mile where it passes through Istanbul in a stretch of water known as the Bosphorus.

Through this narrow neck of water pass some 50,000 vessels a year, including 5,500 oil tankers carrying around 3 mn bpd of oil.  The Bosphorus is now approaching saturation levels and the Turkish government has begun to impose restrictions on tanker traffic designed to reduce the risk of collisions and the pollution that might arise from marine accidents.  These restrictions include a ban on large tankers from transiting the Bosphorus during the hours of darkness.  Such restrictions are especially difficult when loadings at Black Sea ports are delayed by storms, as happened in early 2004, when tankers were delayed up to 30 days, incurring demurrage charges of $100,000 a day for the shippers involved.  Some companies producing oil in Caspian countries, including BP and ChevronTexaco, were forced to shut in production for a time.

Vessels using the Turkish Straits incur a further penalty in the form of draught restrictions, which limit tankers to about 200,000 deadweight tons (dwt).  This has led to a search for new oil terminal sites outside the Black Sea where vessels about 200,000 dwt can be accommodated.  Accompanying this search has been a series of proposals for new pipelines designed either to by-pass the Turkish Straits or to avoid the southern Black Sea exit altogether.  Among these are the following:

Of these, the last two are the most realistic.  Ukraine already has a crude oil pipeline between the Black Sea port of Odessa and Brody, some 420 miles inland.  The line, which opened in 2001, was designed to carry crude from the Caspian states to Western Europe via the Druzhba Pipeline; but Ukraine was unable to secure term commitments from Caspian producers and the 240,000 bpd line has lain idle since completion.

Russia proposed that Ukraine should reverse the line’s direction to allow Russian crude to pass through the line en route to Odessa and thence to the Mediterranean via the Black Sea.  The European Union and the USA have both encouraged Ukraine to stay with the original idea.  Early in 2004 ChevronTexaco indicated that it would be willing to use the line.  Ukraine has now agreed to extend the pipeline to Poland: initially as far as the Polish town of Plotsk and, eventually, to the Baltic port of Gdansk.  Completion of the section to Plotsk is due in about 2007.

Turkey and Russia are now talking about building a 1.2 mn bpd line between the two Turkish ports of Kiyiköy, on the Black Sea, and Ibrikbaba on the Ægean.  This route looks to be the most realistic and least costly way of by-passing the congested southern exit to the Black Sea, though Transneft apparently believes the line’s capacity should be no higher than 0.7 mn bpd.

Other Export Routes

The export proposals that appear to have made the most progress towards their realisation are those designed to transport Caspian oil to the west, primarily to Europe.  There are, however, proposals for more than 3 mn bpd of new pipeline capacity connecting the Caspian to various parts of Asia.  The main ones are listed in Table 14.

Routes via Iran

Several proposals involve Iran.  In most cases, the idea appears to be to supply crude oil to refining centres in the north of Iran in return for Iran’s exporting crude of a similar value from its own crude production.  Among the schemes proposed have been a 400,000 bpd pipeline from Baku to Tabriz and a 370,000 bpd line from the Iranian Caspian port of Neka to Tehran.  Another scheme, however, proposes the direct export of Caspian crude via a pipeline from Kazakhstan to Iran’s Persian Gulf terminal at Kharg Island.

While there is a certain logistical sense in some of these proposals, the USA is strongly opposed to any export route that passes through Iran.  Given plans for new lines and the proposed expansion of existing lines to the Black Sea and Mediterranean, it is unlikely that any line to Iran will find sufficient users to make it economic.

Routes to Asia

China is taking a growing interest in Central Asia as a source of crude oil to satisfy its increasing need for imports.  As long ago as 1997, the China National Petroleum Corporation (CNPC) signed an agreement to develop three fields in the Aktyubinsk region of Kazakhstan and to build a 1,800 mile pipeline from there to western China.  Little progress has been made on the pipeline since then, since there is no agreement about funding for the line.

Another long shot until recently was a plan to build a 1,040 mile, 1 mn  bpd pipeline from Kazakhstan to the Arabian Sea via Afghanistan.  The line, which would also pass through Turkmenistan on its way to a new marine terminal at Gwadar in Pakistan, was first proposed in the 1990s by the US oil company, Unocal.

The scheme fell foul first of the Taliban government, then of the US government as it changed its mind about supporting the regime in Kabul.  Following the US-led invasion of Afghanistan in October 2001, the plan is back under consideration.  The Afghani government is trying to involve other American oil companies in the scheme and the Asian Development Bank may be approached for funding.  The pipeline, though, probably remains a long shot given both the political chaos in Pakistan and the number of competing pipeline plans.  The northern and western routes remain the only realistic export corridors for the foreseeable future.

Exporting the Region’s Energy: Gas

There are even fewer long distance gas pipelines serving the Trans-Caucasus and Central Asia than there are major oil export pipelines.  The region’s three net exporters rely almost exclusively on Russia for the transit of their gas to foreign markets.  Their primary interest is in supplying Western Europe; but this is also the main business focus of the Russian state utility, Gazprom, which sees Central Asia’s exports as competing with its own.

Routes via Russia

Kazakhstan, Turkmenistan and Uzbekistan are connected to Gazprom’s Russian gas transmission system via a network of pipelines dating from the Soviet era.  Turkmenistan and Uzbekistan have as their main connexion a series of pipelines running north-westwards to the Saratov region on the Lower Volga.  There is also a north-south line serving all three Central Asian countries with spur lines linking Kazakhstan to Russian pipeline terminals such as Orenburg (see section on Kazakhstan).

This arrangement obliges the three countries to sell their gas to other parts of the former Soviet Union (FSU), since Gazprom regards Central Asian producers as competitors in its main foreign markets in Western Europe.  The Central Asian countries, for their part, want an export route of their own independent of Gazprom in order to be able to supply Western Europe directly.  The only non-FSU export line at present is a short line connecting Turkmenistan and Iran, but this has not lived up to expectations (see next section).

Routes via Iran

In an attempt to break the Russian stranglehold over its exports, Turkmenistan built a 125 mile line in 1996-7 from the southern Caspian Korpedzhe field to Kurt Kui just across the border in Iran.  A contract was signed to supply 475 mn cfd of gas to a power station there, but deliveries have been erratic since the pipeline opened in December, 1997, following disputes over pricing and a reported lack of storage at the Iranian end.

The pipeline itself can carry about 800 mn cfd and there have been proposals to raise deliveries to Iran to 1.3 bn cfd, but no firm deal has been agreed.  The line was supposed to form the first stage of a trans-continental pipeline linking Turkmenistan with Turkey and Western Europe.  It was envisaged that such a line would carry around 3 bn cfd to Turkey and Europe, with deliveries due to start in 2005.

A sharp downward revisions of official forecasts of Turkish gas consumption has led in turn to attempts by Turkey to cut the amount of gas it is committed to buy from various gas exporters.  This is likely to undermine the economics of the Turkmen line.  Iran, in any case, has export ambitions of its own in the gas sphere and may not necessarily welcome competition in the international market from Turkmenistan.  The USA indicated its opposition to the building of any Turkmen export pipeline that passed through Iran.  Another proposal suggested a parallel route to the north passing under the Caspian Sea en route to Turkey and, ultimately, Western Europe (see Table 15).  Azerbaijan also plans a route to Turkey, passing through Georgia.

Table 15 Gas Export Pipeline Proposals
Route Length Capacity
  (miles) (bn cfd)
Turkmenistan-Turkey-Europe  
 Turkmenistan-Turkey (via Iran) 1,000 3.0
 Turkmenistan-Turkey (via Azerbaijan) 1,000 3.0
 
Azerbaijan-Turkey  
 Baku-Erzurum 540 0.7
 
Turkmenistan-Asia  
 Daulkatabad-Multan (Pakistan) 870 1.9-2.9
 Turkmenistan-Xinjiang (China) 4,000 2.7
 
Source: US Department of Energy; country data; Pearl Oil

Routes to Asia

Given the problems of selling to an oversupplied Turkey, Central Asian attention is turning increasingly to Asia.  The overthrow of the Taliban regime in Afghanistan has revived a proposal made by Unocal in the 1990s for a pipeline from Turkmenistan to Pakistan via Afghanistan.  Unocal withdrew its support from the proposal in December 1998, citing the “sharply deteriorating political conditions in the region” as well as the low energy prices at the time.  Unocal also proposed an oil pipeline route to Pakistan via Afghanistan, which met a similar fate (see above).

A new proposal envisages a bigger line (2.9 bn cfd instead of Unocal’s 1.9 bn cfd) and the Afghan authorities have asked the Asian Development Bank to back the scheme.  The line’s economics, however, depend on selling to more than just Pakistan.  India is the obvious market, but several Indian politicians have indicated that they would not be willing for India to rely on Pakistan for supplies of energy.

A much more ambitious plan is to build a line connecting Turkmenistan and China, with a possible extension to Japan.  Geography probably counts against such a scheme since the main areas of gas demand in China lie on the side of the country that is furthest from Turkmenistan.

Export Outlook

Central Asia is likely to have to rely on export routes via Russia for the foreseeable future, and its best hope lies in finding better commercial arrangements with buyers in the FSU.  Turkmenistan appears to be going in this direction already, though the export pipelines to both Western Europe and Asia remain an official aspiration over the longer term.

Azerbaijan probably has the best opportunity to supply markets to the west of the region with its proposed 700 mn cfd pipeline from Baku to Erzurum, designed to export gas from the Shah Deniz field.  The project is known as the ‘South Caucasus Pipeline’ and is scheduled for completion in 2006.

OET Archive

Caspian – Jul 02
China – Feb 03/F
  – Feb 04
Iran – Oct 03/G
Hyper-links: Maps of Regions Showing Pipelines OTHER ARTICLES

Pipeline Politics

Despite efforts by a number of countries in the Trans-Caucasus and Central Asia, backed by the support of the USA, to open export routes that avoid the Russian Federation, Russia maintains a stranglehold over the region’s exports of oil and natural gas.  The only independent oil pipeline so far is from Azerbaijan to Georgia.  Georgia, however, is itself dominated politically by Moscow.

There is also only one gas export pipeline that is independent of Russia: that from Turkmenistan to Iran.  Following earlier disputes over pricing that led to a cut in deliveries to Iran, the Iranians and Turkmen appear to be planning to increase deliveries.  Turkmenistan’s long term plans to extend the line beyond Iran into Turkey and even further westwards, however, seem as far away as ever.

A second oil pipeline independent of Russia is due to open in 2005, giving the producers of the Caspian a 1 mn  bpd outlet direct to the Mediterranean.  This line, known as the Baku-Tblisi-Ceyhan (BTC) pipeline should certainly provide the region with an important alternative to other lines that pass through Russia.  In the long term, it could be doubly valuable to oil exporters in that it allows them to avoid the congested Bosphorus waterway between the Black Sea and the Mediterranean.

A second independent gas pipeline will take a little longer to materialize.  The most likely candidate is the proposed Baku-Tblisi-Erzurum (BTE) line, also known as the ‘South Caucasus Pipeline’.  This route is designed to supply gas from Azerbaijan’s Shah Deniz field to the Turkish gas transmission network at Erzurum, in the east of the country.  The BTE project is due on stream in 2006.

Progress on other independent pipelines will depend in part on the build up of oil and gas production in the Trans-Caucasus and Central Asian region.  In Tables 16 and 17 we present our forecast of oil and gas production and oil and gas exports from 2003 to 2010.

Table 16 Trans-Caucasus and Central Asia: Oil and Gas Production, 2003-2010
Country Production
  2003 2010 Change
OIL (mn bpd)
Azerbaijan 0.3 1.0 0.7
Kazakhstan 1.0 2.0 1.0
Turkmenistan 0.2 0.4
Uzbekistan 0.2 0.2 unch
Total 1.7 3.6 1.9
 
 
NATURAL GAS (bn cfd)
Azerbaijan 0.5 1.3 0.8
Kazakhstan 1.3 2.0 0.7
Turkmenistan 5.7 6.5 0.8
Uzbekistan 5.6 5.1 (0.5)
Total 13.2 14.9 1.7
 
NB: Totals rounded
Source: Tables 2 and 4 (2003); Pearl Oil (2010)
Table 17 Trans-Caucasus and Central Asia: Oil and Gas Exports, 2003-2010
Country Exports
  2003 2010 Change
OIL (mn bpd)
Azerbaijan 0.2 0.8 0.6
Kazakhstan 0.8 1.7 0.9
Turkmenistan * 0.2 0.2
Uzbekistan * * unch
Total 1.1 2.7 1.6
 
 
NATURAL GAS (bn cfd)
Azerbaijan nil 0.7 0.7
Kazakhstan 0.4 0.9 0.5
Turkmenistan 5.1 5.8 0.7
Uzbekistan 0.4 † (0.4)
Total 5.9 7.4 1.5
 
* < 0.1 mn bpd
† < 0.1 bn cfd
NB: Totals rounded
Source: Tables 2 and 4 (2003); Pearl Oil (2010)

Oil Exports, 2010

The forecasts suggest that there will be an additional 1.6 mn  bpd of oil exports by 2010, with exports amounting to 2.7 mn bpd in total by then.  On present plans, there will be 2.1 mn bpd of export capacity by that date (see Tables 13 and 14).

The deficit could easily be met by raising capacity of existing pipelines, which suggests that no new pipelines will be needed before 2010.  The Tengiz-Novorossiisk line looks to be the best candidate for expansion, though Russia may well press for an increase in capacity on the northern route out of Kazakhstan to Samara, as well.  Small capacity increases are also possible on the two Black Sea routes out of Azerbaijan (see Table 13).  In all events, Russia appears set to retain its current hold over oil exports from the Trans-Caucasus and Central Asia.

Natural Gas Exports, 2010

Gas exports are set to rise by 1.5 bn cfd to 7.4 bn cfd in 2010, according to our forecast.  All of the increase from Azerbaijan will be accounted for by the proposed 0.7 bn cfd South Caucasus Pipeline to Erzurum.  Uzbek exports are expected to decline by 0.4 bn cfd to virtually nil by 2010.

Kazakhstan and Turkmenistan are forecast to have an additional 1.2 bn cfd between them by 2010.  This is insufficient to fill any of the long distance pipelines to Turkey and Asia detailed in Table 15, which suggests that both countries will seek to export any additional volumes via Russia, leaving it the dominant exit route in 2010, as it is now.

Latest Developments

Oil Production

Oil production for 2007 is reported by Russia’s RPI as follows:

 

 (th bpd)

Azerbaijan

821

Kazakhstan

1,351

Turkmenistan

194

Oil Productionn

RPI reports 2007’s gas production as:

 

 (mn cfd)

Azerbaijan

863

Kazakhstan

2,766

Turkmenistan

6,509

Previous:

OET ARCHIVE LINK: ‘Exports from Azerbaijan: is Europe being too optimistic?’, Focus, Apr08

Kazakhstan

Output at the Tengiz field was increased by 90,000 bpd at the start of the year to 400,000 bpd and is forecast to reach 545,000 bpd by late 2008.

Gas Exports

OET ARCHIVE LINK: ‘Russia ties-up more oil and gas’, Focus, Feb 08

OET ARCHIVE LINK: ‘Iran exports gas crisis as imports cease’, Gas & Power, Feb 08

Pipelines

OET ARCHIVE LINK: ‘EU wrongfooted as Russia moves ahead with new export pipeline’, Gas and Power, Jan08

Kazakhstan

OET ARCHIVE LINK: ‘Kazakhs cut output forecasts as Kashagan delays mount’, Focus, Jan08

Pipelines

OET ARCHIVE LINK: ‘Russia pre-empts Iranian and Caspian pipeline plans’, Gas and Power, Nov07

Kazakhstan

The government has told ENI and its partners to suspend work on the Kashagan field, alleging environmental and other violations. The move appears to be part of a campaign to increase the state’s revenues from the giant project, which is already over-budget and behind schedule. There is no definite date for the start of production. Peak output from the first stage is estimated at 450,000 bpd. Subsequent phases could raise this to 1.5 mn bpd, according to ENI

Turkmenistan

Turkmenistan has reconfirmed its intention to supply China with 2.9 bn cfd of gas by pipeline from 2009. It is not certain, however, that the line can be built by then.  Turkmenistan has also agreed to supply Russia with an additional 2.9 bn cfd by 2010, which would bring its total deliveries to Russia to 7.7 bn cfd.  It is not clear that Turkmenistan can fulfil both these obligations, given present uncertainties about its production plans.

OET ARCHIVE LINK: ‘Caspian: Plenty of pipelines, but where is the gas?’, Gas and Power, Jul07

Production

BP forecasts production of the Azeri-Chirag-Guneshli field in Azerbaijan as follows:

(mn bpd)

2007

0.7

2008

0.7

2009

1.0

2010

1.2

After 2010, the aim appears to be to maintain production at 1.2-1.3 mn bpd for at least eight years, according to industry sources.

Production

Oil and gas production in 2006 is estimated as follows:

Oil

(th bpd)

 

 

Azerbaijan

650

Kazakhstan

1,300

Turkmenistan

170

Uzbekistan

100

 

 

Gas

(bn cfd)

Azerbaijan

0.65

Kazakhstan

2.48

Turkmenistan

6.30

Uzbekistan

5.80

Pipelines

Uzbekistan has agreed to build an export pipeline to carry 3 bn cfd of gas to China. No date for completion has been given, nor is it clear where the gas is to come from.

Turkey has begun work in April 2007 on a 1 mn bpd pipeline from Samsun on the Black Sea to the Mediterranean port of Ceyhan. The line is supposed to carry crude from Russia and the Caspian

The EU is to support a crude pipeline from the Romanian port of Constanta to Trieste, which would connect directly to the Western European pipeline network.

The EU is examining the idea of transporting Central Asian gas across the Caspian as LNG or compressed natural gas (CNG). The LNG or CNG would be regasified onshore in Azerbaijan before being piped to Western Europe.

Production

Kazakhkstan has cut its output forecast for 2015 by 0.5 mn bpd to 2.5 mn bpd, partly because of delays to the Kashagan field and partly because of possible delays to new export pipelines. Kazakhstan produced 1.3 mn bpd in 2006.

China’s state-owned Shengli Oilfield Dongsheng Group has cancelled plans to develop seven oilfields in Fergana province. The Chinese blame high Uzbek taxes for the move.

CENTRAL ASIA/TRANSCAUCASUS

Pipelines

Iran and Armenia have opened a 90-mile gas pipeline allowing Armenia to import gas from outside the former Soviet Union for the first time.  The line runs from Tabriz to Kadzharan.

Throughput is currently around 40 mn cfd, but is intended to reach 240 mn cfd by 2008.

Greek and Bulgarian shareholders in the proposed 700,000 bpd crude pipeline from Burgas in the Black Sea to Alexandroupolis on the Ægean are said to be looking to sell parts of their stakes in the line.  More oil from Central Asia is reported being exported via the Iranian Caspian port of Neka as a result of higher transit charges imposed by Azerbaijan for the transit of Kazakh and Turkmen crude.  The US is trying to discourage oil contacts of any description with Iran as part of its plan to isolate Iran economically until it abandons its uranium enrichment programme.  The US State Department has confirmed that it has recently renewed pressure on non-US oil firms not to invest there and is pressing Congress to provide for tougher US sanctions on those companies that do invest in Iran.

Azerbaijan

Azerbaijan has resumed gas deliveries from its troubled new Shah Deniz field to Georgia.  The field has been shut twice since it was commissioned in December 2006.  During the interruptions, Azerbaijan supplied Georgia with gas from other fields

Azerbaijan

Azerbaijan says it will be able to export gas to Western Europe by 2012. The US State Department believes the Azeris could be exporting 3 bn cfd by 2015. The gas is supposed to come from fields in the Caspian, but experience with the newest fields there casts doubt on these forecasts. BP's Shah Deniz field has been shut twice since it opened on 15th December, 2006, and now looks most unlikely to meet its planned target of 850 mn cfd by the end of this year. Most of any additional Azeri gas production over the next five years is likely to go to the domestic market or to nearby Turkey and Georgia rather than Western Europe.

Pipelines

Bulgaria, Albania and Macedonia have agreed to build a pipeline from the Black Sea to the Adriatic to allow Caspian crude to be delivered to southern and western Europe.  Completion is slated for 2011, but a number of important issues about the pipeline have still to be resolved.

Pipelines

Russia has backed a proposal for a pipeline under the Caspian to carry gas produced in Turkmenistan . The project, known as the Trans-Caspian Gas Pipeline is designed initially to link Turkmenistan with Erzurum in Turkey , from where further pipelines might eventually carry it to Western Europe . Other countries in Central Asia might subsequently be linked to the line.

Russia , which handles much of Central Asia's gas exports through its own pipeline system, had until recently been hostile to the idea of an alternative route to the west, avoiding Russia . The Trans-Caspian line, on the other hand, had been enthusiastically backed by the US and the EU. Russian support for the line, however, appears conditional on some form of participation by the national gas company, Gazprom. Nevertheless, before the pipeline can go ahead, the five littoral countries of the Caspian will need to come to an agreement on the legal status of the seabed: an issue on which they have been unable to agree since the break-up of the Soviet Union in 1989.

Natural Gas

OET ARCHIVE LINK: ‘Does Russia have enough Gas?', Gas&Power, Dec06

Pipelines

Russia 's pipeline company, Transneft says it does not think that the 5460,000 bpd CPC pipeline from Kazakhstan to the Black Sea should be increased in capacity until there is a pipeline from the Black Sea to the Ægean, allowing the Bosphorus to be by-passed. Transneft, a non-shareholder in the CPC pipeline consortium, has opposed its proposed expansion to 1.26 mn bpd. Transneft has just taken a 17% share in the proposed 0.7 mn bpd line connecting Burgas on the Black Sea with Alexandroupolis on the Ægean.

Another pipeline by-passing the Bosphorus has been proposed by Turkey . Italy 's ENI and Turkey 's Calik plan a 1.5 mn bpd line from the Turkish Black Sea port of Samsun to Ceyhan on the Mediterranean . India 's IOC and Shell have also expressed interest in participating in the scheme.

Kazakhstan is planning to build two large pipelines to China by 2010: a 400,000 bpd oil pipeline and one designed to carry 2.9 bn cfd of natural gas. The Kazakhs plan to double their gas production by 2010 to 4.6 bn cfd, according to KazMunaiGaz.

Pipelines

The first crude oil from the new pipeline from Kazakhstan to Dushanzi in Western China arrived at its destination on 29th July, 2006. The line is the first import pipeline serving China. It is designed to transport 200,000 bpd of Kazakh and Russian crude to China. Eventually, capacity is to be increased to 400,000 bpd. It serves the Dushanzi refining complex, which can process 120,000 bpd now, and is being expanded to 200,000 bpd. The first crude arrived some seven months after the completion of the line, following what were described as "technical problems".

China wants to increase its imports from Kazakhstan, but Kazakhstan may not have the extra crude in the near future. The Chinese-owned producer, PetroKazakhstan, has seen its output fall in the past 18 months by a third to 100,000 bpd. The Chinese state company, CNPC, has since sold a one-third stake to the Kazakh state company, KazMunaiGaz, which may sell some of its share of the oil production to the west. The Kazakh government is also to send more oil westwards. Following pressure from the US, it has agreed to export 150,000 bpd via the new BTC pipeline from Baku to Ceyhan.

Pipelines

OET ARCHIVE LINK: 'BTC pipeline sparks Kazakh interest', Looking Ahead, July06

Turkmenistan

Turkmenistan and Russia have failed to agree a new price for Turkmen gas supplies in 2007. Turkmenistan wants Gazprom to pay $100 per 1,000 cm ($2.83 per 1,000 cf), which represents a 54% increase on this year's price.

Turkmenistan is due to supply 2.9 bn cfd of gas to Russia during 2006, but Moscow has been negotiating for additional supplies this winter. Some of the gas is due to be resold by Russia to Ukraine, which is reluctant to pay more for gas sourced via Russia. The US has accused Russia of 'energy blackmail' in its dealings with Ukraine. Ukraine meanwhile is seeking ways of importing directly from Turkmenistan.

Pipelines

The first cargo of Azeri Light to be lifted at Ceyhan has been sold. Linefill began on the Baku-Tbilisi-Ceyhan pipeline in mid-May 2006 and is expected to take five months.

Kazakhstan

Production of crude and NGL is projected to rise from 2005's 1.2 mn bpd to 3.6 mn bpd in 2015, according to official forecasts.

Pipelines

The first crude oil from a new pipeline from Kazakhstan has reached China. The line is part of a scheme to deliver some 200,000 bpd of crude to China. At present, the line ends at a rail terminal on the Chinese border. China plans to build a line from its side of the border to allow the Kazakh crude to be transported to refineries in Gansu province.

Oil & Gas Production

Oil and gas production for 2005 is reported by RPI Inc of Moscow and MEES as follows:

(th bpd)

Crude Oil and Condensate

Azerbaijan

519

Kazakhstan

1,226

Turkmenistan

183

(mn cfd)

Natural Gas

Azerbaijan

562

Kazakhstan

2,303

Turkmenistan

6,091

Pipelines

Plans have been announced for a gas pipeline under the Black Sea from Georgia to Ukraine. The idea is to allow Caspian gas to be exported to Western Europe without going via Russia. Initial capacity would be 0.8 bn cfd, rising eventually to 3.1 bn cfd. The line is one of several east-west pipelines planned for the region. It is not clear how the gas would be exported onwards from Ukraine.

Production & Pipelines

The start-up of the Baku-Tbilisi-Ceyhan pipeline has been postponed around three months to the end of the second quarter of 2006.

Russia says it will only support the expansion of the heavily-used CPC pipeline from 0.56 mn bpd to 1.30 mn bpd if the other shareholders agree to back a 0.70 mn bpd pipeline from Burgas to Alexandroupolis, designed to by-pass the congested Bosphorus.

Production & Pipelines

Production at the West Azeri field began on 30th December, 2005. Plateau output is forecast at 0.3 mn bpd. West Azeri forms part of the Azeri-Chirag-Guneshli field complex, which is expected to produce 1.0 mn bpd in 2008.

Gas Exports

Kazakhstan is to buy 155 MMcfd of gas from Uzbekistan in 2006, at a border price of $55 per th cm.

Production & Pipelines

Baku-Tbilisi-Ceyhan

The opening of the 1 mn bpd BTC pipeline has been delayed until about May 2006 following construction problems. It had earlier been expected on-stream in late 2005.

Other pipeline developments

Production & Pipelines

The following projects are scheduled to come on-stream in 2006:

Country

Field

Operator

Peak Production

Azerbaijan

Azeri-Chirag-Guneshli

BP

0.5 mn bpd

Kazakhstan

Tengiz (expansion)

Chevron

0.30-0.45 mn bpd

100 mn cfd

Production & Pipelines

Following protracted negotiations, the Caspian Pipeline Consortium (CPC) has agreed to expand its export line from Kazakhstan to Novorossiisk from 640,000 bpd to 1.34 mn bpd by 2010, at a cost of $1.6 bn. The private shareholders have agreed to Russian demands concerning the financing of the line, including a $2.50 increase in the tariff to $30.83/t.

Kazakhstan

The national oil and gas company, KazMunaiGaz (KMG), is to be privatized via a listing on the London Stock Exchange, probably later this year. The government is considering selling up to 49% of the company.

KMG produces about 0.2 mn bpd out of Kazakhstan 's total output of 1.2 mn bpd. Its proven reserves are estimated to be close to 2 bn bbl. As well as operating in over 40 oil and gas fields, KMG runs the country's oil and gas pipeline network.

Production & Pipelines

The 1,100-mile, 1 mn bpd Baku-Tbilisi-Ceyhan (BTC) pipeline was officially inaugurated on 25 th May, 2005. The line is now being filled and the first cargo is expected to be loaded at Ceyhan during the fourth quarter of the year. Ceyhan can accommodate tankers up to 300,000 dwt: almost twice the size that can use the routes via the Black Sea .

The line is not expected to be used to its full capacity until about 2009, when output from Azerbaijan 's Azeri-Chirag-Guneshli (ACG) field is due to reach 1 mn bpd. The following year, Kazakhstan 's Kashagan field might export 0.3-0.5 mn bpd via BTC.

The line could be expanded to about 1.8 mn bpd, according to its operator, BP. The addition of drag-reducing agents could allow it to carry an additional 0.4 mn bpd. A further increase of 0.4 mn bpd could come from looping and the addition of pumping stations

Production & Pipelines

The Caspian Pipeline Consortium (CPC) has announced plans to expand capacity as follows:

(th bpd)

Early 2005

560

Late 2005

640

Early 2007

840

Early 2008

1,000

Early 2009

1,340

Politics

Following a series of terrorist attacks culminating in an attack on a school at Beslan in the Caucasus, the Russian government announced a series of measures to tighten state control over the energy sector. OET: Looking Ahead, October 04

Production & Pipelines

April 11, 2005:

Russia's Lukoil has established a joint-venture with KazMunaiGaz to develop the 281 mn bbl, 11 tcf Khvalynskoye field in the Caspian Sea off Kazakhstan. It has also joined with KazMunaiGaz and Gazprom in a joint-venture to develop the Tsentralnaya field, also in the Caspian, which may contain 1 bn bbl

Turkmenistan plans to increase oil production from its 2004 level of 200,000 bpd to 2.0 mn bpd by 2020, of which 1.3 mn bpd would be exported, according to the country's President, Saparmurat Niyazov. These latter numbers seem unlikely, given Turkmenistan's proven reserves in 2005 of only 546 mn bbl.

Niyazov also said gas production would rise from 5.7 bn cfd to 23.2 bn cfd over the same period with exports of 13.5 bn cfd in 2020. This forecast looks almost as unlikely. Gas exports in 2004 were 4.1 bn cfd: down 3% on 2003.

Oman is looking to increase its participation in Kazakhstan. It already owns 7% of the Caspian Pipeline Consortium’s export pipeline to the Black Sea, and now wants a share of the 700 mn bbl Zhemchuzhina field, according to press reports in Muscat.

Recent announcements of plans for production and new pipelines, including a 620-mile, 0.2-0.4 mn bpd route from eastern Kazakhstan to western China, have caused us to update our forecast for oil exports from Kazakhstan and Azerbaijan.

BP has announced that the third and final phase of the Azeri-Chirag-Guneshli (ACG) field in the Caspian had been given the go-ahead by the government of Azerbaijan. ACG is due on stream in mid 2008, with peak production estimated around 300,000 bpd.

Russia's Ministry of Energy and Industry has said Russia may use the 0.2 mn bpd pipeline now under construction from Atasu to western China to export some of its own crude. There are two proposals for pipelines from Eastern Siberia-one to Daqing in China, the other to the Pacific port of Nakhodka-but no final decision has been made on either. Russian crude could be piped to Kazakhstan via an existing pipeline from Western Siberia serving refineries in Kazakhstan.

The Caspian Pipeline Consortium (CPC) has announced plans to increase the capacity of its 990-mile crude export pipeline from Tengiz in Kazakhstan to South Ozereika, near Novorossiisk on the Black Sea. The line will be expanded in stages as follows:

(bpd)

Current capacity:

560,000

First half 2006:

760,000

Late 2007:

1,000,000

Late 2008:

1,340,000

The pipeline carried just over 500,000 bpd in 2004, of which some 270,000 bpd was from the Tengiz field.

OPEC

A ministerial meeting in Vienna on 30th January 2005 left quotas unchanged at 27.0 mn bpd (see OPEC Latest Developments, November 2004) but suspended the target price band of $22-28/bbl. A new band will be discussed in Isfahan on 16th March, 2005. The number of crudes in the price basket used to set the OPEC price will probably be increased from the present seven. Many ministers want a price floor somewhere in the range of $30-35.

For updates on Algeria and Libya, see North Africa: Latest Developments

Saudi Arabia

Saudi oil minister, Ali Naimi, said the country would raise its production capacity from the current 11.0 mn bpd to 11.7 mn bpd in 2007.

UAE

Al-Jazirah of the UAE and Ukraine's Naftogaz are to explore for oil and gas in Fujairah. Gas use is set to rise there and in the other northern emirates once a gas grid is built by Sharjah's Crescent Petroleum. Ras al-Khaimah is to import gas from Oman.

Kuwait

Kuwait Oil Company reports that Kuwait's production capacity is now 2.8 mn bpd.

Iraq

Iraq has allocated $3 bn for capital expenditure in the oil industry during 2005. The sum covers both upstream and downstream expenditure.

OET ARCHIVE: 'Iraq's oil sector mired in problems despite successful election', Focus, January05

Exports

Exports of CPC Blend from Kazakhstan exceeded 0.5 mn bpd in November 2004: a rise of nearly 70% over year-earlier levels. The additional exports have pushed down the price of CPC Blend by more than $4 a barrel in relation to the North Sea benchmark, BFO. High freight rates have restricted long haul sales, keeping most of the crude in the Mediterranean, where there is only a small market for CPC, owing to its lightness and the presence of mercaptans in the crude.

Azerbaijan and Kazakhstan: Oil Exports and Pipeline Capacity, 2003-2010

Country 2003 2010 Change
 
  Exports (mn bpd)
Azerbaijan 0.2 1.1 0.9
Kazakhstan 0.9 1.7 0.8
Total 1.1 2.8 1.7
 
  Export pipeline capacity (mn bpd)
Azerbaijan      
    via Russia 0.1 0.1 unch
    via Georgia 0.1 0.1 unch
    via Turkey - 1.0-1.4 1.0-1.4
Kazakhstan      
    via Russia 0.9 1.1-1.8 0.2-0.9
    via China - 0.2 0.2
Total 1.1 2.5-3.6 1.4-2.5

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