caspian energy oil and gas

Caspian Energy: Oil and Gas Resources and the Global Market ² 391

II. Caspian Energy: Oil and GasResources and the Global Market

MEHDI PARVIZI AMINEH AND HENK HOUWELING

ABSTRACT

This article develops several concepts of critical geopoliticsand relates them to the energy resources of the Caspian Region.Energy resources beyond borders may be accessed by trade,respectively by conquest, domination and changing propertyrights. These are the survival strategies of human groups inthe international system. The article differentiates betweendemand-induced scarcity, supply-induced scarcity, structuralscarcity and the creation, respectively, transfer of propertyrights. Together, the behaviors referred to by these conceptscreate a � eld of social forces that cross state borders involvingstate and a variety of non-state actors. During World War II,the US began to separate the military borders of the countryfrom its legal-territorial borders. By dominating the world’soceans, the Anglo-Saxon power presided over the capacity toinduce scarcity by interdicting maritime supplies to allies andenemies alike. Today, overland transport increasingly connectseconomies and energy supplies on the Eurasian continent. TheUS has therefore to go on land in order to pre-empt theland-based powers from unifying their economies and energysupplies.

Introduction

The oil and gas reserves of the Caspian Region 1 are undeniably signi� cant.According to the Statistical Review of World Energy (BP 2002), proven oil

1 When we speak about the Caspian region, if not mentioned otherwise, we mean its � velittoral states (Azerbaijan, Kazakhstan, Turkmenistan, Iran, and Russia).

Perspectives on Global Development and Technology, Volume 2, issue 3-4Ó 2003 Koninklijke Brill NV, Leiden

392 ² Amineh & Houweling

reserves of the � ve Caspian littoral states (Azerbaijan, Iran, Kazakhstan,Russia, and Turkmenistan) are in total 153.8 billion barrels (billion bbl).The total gas reserves are estimated at 2688.3 trillion cubic feet (tcf).In terms of percentages, the � ve Caspian littoral states have about 14.6percent of the world’s total proven oil reserves and almost 50 percent ofthe world’s total proven gas reserves.

The region’s vast oil and gas resources have transformed it into alocation in which the forces of interstate rivalry, enterprise competition,and responses by regional state and non-state actors intersect. All majorindustrialized powers and many of the multinational companies that havetheir home base in these countries meet in that part of the world.Contenders from late-industrializing countries try to get a foothold in theregion. Local actors have to respond to social forces coming to the regionand penetrating it from without. In such a complex matrix of social forces,competition and cooperation are ad hoc and multilevel. The region isnot incorporated into the territorial sphere of security institutions of oneof the major powers and its allies. This part of the world is not dividedinto agreed upon, and thus stable, zones of in� uence either. In the regionunder study here, extra regional state and non-state actors undertake toproject their power and in� uence into the polities and societies of theirhosts, interacting with local actors. Uncertainty and thus unpredictabilityare part of the rules of the game. “Multidimensional rivalry” is probablya suitable term for what is going on. Because everyone is involved andregime legitimacy is at stake, major power competition in the CEA regionhas the potential for aggravating instability of the world system as a whole.

Michael Klare (2001) captures the interstate dimension of competitionfor control over the region’s energy sources. He argues that global politicsof today evolves around the competition between state actors for gettingaccess to natural resource wealth. This is what Klare calls the Econocentricapproach to international security affairs. According to this view, thepossession of a huge military arsenal and an extended alliance system is nolonger necessary for state survival. Survival of state and domestic societyinstead depend on economic dynamism, on the cultivation of technologicalinnovation, and getting access to raw material inputs required for both.We think that critical geopolitics is an improvement on Klare’s Econocentricapproach to security (see Introduction).

This article surveys the oil and gas reserves of the Caspian region inthe matrix of competitive forces of the post-Cold War. It centers on thefollowing three factors:

(i) The increasing global demand for oil and gas;(ii) The scarcity of vital commodities such as oil and gas and;(iii) The dispute over ownership rights of these resources.


Ownership Rights, Scarcity and Regime Change

Global demand and supply, scarcity and ownership rights over territorycontaining oil resources, respectively, over oil resources within a territory,refer to social forces at work at the transnational level. Sub-state andnon-state actors create that level of interactions. State actors, however,participate in transnational interactions in a variety of ways. The reason isthat inputs of energy into the power-wealth producing machinery of state-society complexes of high-income countries are traded in transnationalnetworks that cross state borders. Wealth of society and power of thesestates originate in technological innovation and the incorporation of itsfruits into capital goods, which are used in production of traded goods, andinto military capability, which is used to conquer or control territory in which� nished goods, or input resources required for production, are located.Capital goods and weapons stocks become idle without fossil energy inputsto fuel them.

Controllers of territory can pick up inside borders what they want.Producers of wealth procure for local consumption or for trade. Territorialcontrol and production/trade are strategies of human groups to survive.One strategy man shares with other animals. The other one is unique forhumans. Unlike members of a � ock of birds, humans do not forage inisolation; they survive in groups by developing a social division of labor inproduction and trade (cf. Jacobs 1994).

Both strategies, however, interact when goods picked up in territoryare traded beyond borders, respectively when pro� t from production andtrade is invested in military capacity for the conquest of territory thatcarries goods and resources. Conquest is followed by diversion of tradewhen traders of one group are ousted from the network to be replacedby traders from another group. These processes are currently underwayin Iraq. The US has announced its intention for a repeat performance inIran. After the fall of the Shah, the US engineered regime change withoutconquering the territory � rst. Instead, the US engineered internal regimechange, which is the cost-effective way to divert trade, to be followedby the removal of Iranian state traders and the reinstatement of Anglo-Saxon-based companies. Regime change in Iran was followed by tradecreation when the new regime bought large quantities of weapons fromUS-based private producers and arms dealers. This process of interactionbetween both survival strategies will be started in Iraq as soon as theUS government has installed a government prepared to buy US weapons.A third case of interaction between survival strategies occurs when statescollude, use, or threaten military force to create a barrier for third parties toenter the market. This happened to Iraq after the imposition of economicsanctions. For these reasons, markets are not institutionally separated in


international relations from states and the distribution of military capability(see Chapter I on state-society complexes and on oil as a commodity andoil as a strategic asset).

As global consumption rises, per capita availability of oil and gas froma � xed stock will after some point in time begin to decrease. This effectis called demand-induced scarcity. Demand-induced scarcity is due to threefactors:

(i) Population growth in consuming countries.(ii) Rising per capita income in high-income countries, which are

the major consumers and importers, and in late industrializingeconomies, particularly in South and East Asia where the bulkof world population lives. Demand-induced scarcity thus variesfor groups at different levels of per capita income. Those whocannot afford market prices � nd themselves excluded without anyactor deciding to exclude them. Due to the lopsided distributionof societies according to their level of per capita income, demand-induced scarcity will enter into the lives of high-income societies last.These are the countries that industrialized � rst on cheap energy.In the past, demand from these countries coincided with worlddemand. That is changing and will further change in the future.

(iii) Technological change. The history of technological change since the1850s has rendered access to fossil energy more, not less, importantfor the production of wealth and power.

The process of sequential industrialization of human groups increasesdemand. This process may be compared with more panda bears that werebeing on the move to the same bamboo � eld. The similarity is that bothspecies have to survive and prosper for the foreseeable time in one resource� eld only. Since their emergence in the 1850s, industrialized societies havespecialized in becoming dependent for their wealth and power on energyfrom fossil sources. Without energy, other resources cannot be mobilized orused. Technological innovation, governance, and households depend on it.Historically, wood and coal provided the resource base of industrialization.Today, most forests are gone. Coal came next in row. Oil and gas arereplacing coal.

Supply-induced scarcity is caused by the dwindling of the stock. In reality,demand and supply-induced scarcity interact. Extraction cost, re� neryand retail plus pro� t mark-ups determine offer price. The intersection ofdemand and supply determine consumer price. However, supply inducedscarcity should be studied in its own right. One reason is that the dwindlingof the stock is not translated by the price mechanism into gradual priceincreases. However, price volatility will increase as awareness spreads thatstocks are dwindling. Supply-induced scarcity, or its anticipation, may be


expected to provoke a process of competitive power projection by military-capable and import-dependent nations aiming at getting control over thestock, respectively, over territory in which stocks are located, by eitherinternally engineered regime change or by conquest of territory. Domesticregime strength and military capability determine the capacity of targetcountries to ward-off unwanted penetration by outsiders.

This brings us to the third type of scarcity, called structural scarcity. 2

Structural scarcity is supply-induced by deliberate action of a major power, bynon-state actors such as major oil companies, or by producer cartels suchas OPEC. A major power that manages to get control over conditionsof access by third parties to the stock has the option to induce scarcityfor selected outsiders. In the US post-war planning, maritime control wasdeemed capable to interrupt food and oil supplies to post-war Japan. 3

In the current unipolar military order, the US has the option to inducescarcity for allies, competitors, and enemies alike by interdicting maritimetransport of oil and gas. However, that option is available only after oiland gas have been brought to ship from the territory where it is extracted(see Chapter I on the geopolitical hypothesis). America, by creating anextension of the country’s defense perimeter into heartland of energy-supply, is equipping itself with the capacity to induce structural scarcityfor contenders by diverting � ows on land. This is the topic of pipelinediplomacy.

Have oil prices become more volatile over time? That is indeed the case.Historical price levels of a bbl of oil (expressed in 1999 US$) � uctuated inthe time period between the 1880s and early 1920s in the rather narrowband between US$10 and US$20 per bl. Between the 1920s and the late1960s oil price declined to around US$10 per bl. Power and wealth ofcountries that industrialized � rst is based on access to cheap oil. Since theearly 1970s, oil price per bl has been � uctuating wildly from the peak valueof just over US$70 per bl during the Iran Revolution, a bottom price ofUS$20 per bl after the defeat of Iraq in Kuwait War, to passing the US$30per bl level in 2000.

Between 1985 and 2000 the share of OPEC in the total global annualoil production increased from about 17 percent to over 30 percent. In2003, eleven OPEC members sit on 80.5 percent of the world’s stock ofoil. With the capital of OPEC in US and British hands and Iraqi territorycontaining the largest share of the world stock after Saudi Arabia, theoccupying powers have gained leverage over energy security of third actors

2 These distinctions are further developed and illustrated with several examples inHomer-Dixon and Blitt (1998).

3 For archive based research on this point, see Cumings (1984: 18).


by in� uence over price and ownership rights of oil and gas sources in thatcountry. Regime change, therefore, is not limited to the domain of politics.Iran found that out in the early 1950s.

The conclusion is that oil and gas are not just commodities tradedon international markets. Control over territory and its resources arestrategic assets. States as actors bring domestic-state society complexesto the international level (see Chapter I on the geo-political hypothesis).The world order is the level of interactions constituted by the processof selection among the diversity of state-society complexes. The Anglo-Saxons succeeded in a military take-over of Iraqi state territory and bythis act transferred the property of the portion of the world stock locatedthere. By controlling access to the portion of the oil stock, these actorsalso secured the resource niche in which state, enterprises, and householdsof domestic society subsist by creating trade and by diverting trade. Theoption to put in place barriers to entry gives these powers the capacity toinduce structural scarcity for contenders.

Global Oil and Gas Demand

Over the next two decades, oil is expected to remain the main fuel forindustries and households, accounting for about 40 percent of global energyconsumption. It is expected that global oil demand will increase annuallyby about 2.2 percent from 74.9 MMbbl/d in 1999, to 118.6 MMbbl/din 2020 (EIA 2002: 26). In the industrialized world, oil use grows moreslowly than the world average at only 1.3 percent per year. It is expectedthat total oil demand in the industrialized world will decline as gas useincreases (see Table 2.1).

Global Oil DemandAmong industrialized countries, the largest increase in oil demand isexpected in North America (US, Canada and Mexico). Petroleum productconsumption in North America is projected to increase between 1999 and2020 by 10.3 MMbbl/d at an average annual growth rate of 1.8 percent.

For Western Europe, oil is the largest energy source. However, itsprojected increase in demand is the lowest in the International Energy Outlookforecast (2002: 26). It is expected that oil consumption in Western Europewill increase by about 0.6 percent per year or from 13.9 MMbbl/d to15.8 MMbbl/d between 1999 and 2020. Its low growth in consumption ismainly due to increasing gas consumption (see Table 2.1). In industrializedAsia (Japan, South Korea, Taiwan, Australia, and New Zealand), oildemand is projected to increase in the same period by an average of0.9 percent per year from 6.9 MMbbl/d to more than 8.3 MMbbl/d.Japan imports all the oil that it needs, accounting for 81 percent of


Table 2.1

Projected Global Oil and Gas Consumption, 1999-2020

Region/Country Oil, MMbbl/d Gas, tcf

1999 2020 Annual 1999 2020 Annualaverage averagegrowth growth

1999-2020, 1999-2020,in percent in percent

North America 23.4 33.7 1.8 26.1 40.7 2.1US 19.5 26.7 1.5 21.7 33.8 2.1Western Europe 13.9 15.8 0.6 14.0 25.9 3.0Industrialized Asia 6.9 8.3 0.9 3.6 5.3 1.9Japan 5.6 6.4 0.7 2.6 3.8 1.7Former Soviet Union 3.7 8.0 3.7 22.5 36.4 2.3

and Eastern EuropeDeveloping Asia 13.3 28.8 3.7 6.0 20.9 6.1China 4.3 10.5 4.3 0.9 6.4 10.1India 1.9 4.9 4.6 0.8 2.6 6.1Central and South America 4.7 8.8 3.1 3.2 14.6 7.4Middle East 5.0 7.8 2.1 6.8 14.6 3.7Africa 2.5 5.3 3.6 2.0 3.5 7.4World Total 74.9 118.6 2.2 84.2 161.8 3.2

Source: based on EIA, International Energy Outlook 2002, on-line version.

the total oil demand in industrialized Asia. Since the disintegration ofthe Soviet Union, oil demand decreased steadily in Eastern Europe andthe former Soviet Union from 8.3 MMbbl/d to 3.7 MMbbl/d. Since2000, however, economic prospects for the region are good and expectedeconomic growth will lead to an increase in oil consumption with aprojected increase at an annual average of 3.7 percent between 1999,and 2020, reaching 8.0 MMbbl/d in 2020. This expected rate is still wellbelow the 9.0 MMbbl/d consumed in 1987.

The greatest increase in oil demand is expected for developing Asia. In1985 China imported less than 800.000 tons of oil and oil products. In1999 oil and oil product imports had increased to 43.81 million tons. Itis projected that in less than ten years China will become the largest oilconsumer in Asia, surpassing Japan, and becoming the second largest oilconsumer in the world behind the US. It is expected that in 2020 China’saggregate oil consumption may reach 46% of America’s consumption level.Projections are that China’s oil consumption will increase by 4.3 percentannually from 4.3 MMbbl/d in 1999, to 10.5 MMbbl/d in 2020 (for Japan6.4 MMbbl/d in 2020).


Between 1962 and the present, India’s per capita income growth lagsbehind growth in industrialized East Asia and industrializing China.In 2000, its population surpassed the 1 billion thresholds. Indian oilconsumption is expected to grow by 4.6 percent to almost 4.9 MMbbl/din 2020. India imports about two-thirds of its crude oil requirements. Forthe rest of developing Asia, oil demand will increase at a slower rate forthe projected period than during the 1990s. Central and South American,oil demand for the projected period will increase from 4.7 MMbbl/d to8.8 MMbbl/d. However, the share of oil in the total energy demand inthe region is declining due to substitutions of hydroelectric energy, naturalgas, and coal. In the Middle East, oil demand will grow between 1999and 2020 by an annual average of 2.1 percent from 5.0 MMbbl/d to 7.8MMbbl/d. In Africa oil currently comprises 44 percent of total energyneeds. It is projected that oil demand will increase from 2.5 MMbbl/d to5.3 MMbbl/d between 1999 and 2020 (EIA 2002: 26-31).

Global Gas DemandEstimated global demand for natural gas will almost double from 84 tcf to162 tcf between 1999 and 2020. The share of natural gas in total globalenergy consumption is expected to increase from 23 to 28 percent overthe same period. It is projected that global natural gas consumption willrise by an annual average of 3.2 percent in the forecast period. In thedeveloped countries gas demand will increase by an annual average of 2.4percent. In North America, it is projected to increase by 2.1 percent peryear, and in Western Europe by 3.0 percent. Western Europe, which holdsless than � ve percent of the world’s natural gas reserves, was responsiblefor 17 percent of the world’s total gas consumption in 1999.

Industrialized Asia will contribute to a global increase in gas demand of1.9 percent on average annually between 1999-2020. The increase is muchslower than between 1970 to 1999, when gas demand in industrialized Asiaincreased by 11.2 percent per year. In the former Soviet Union and EasternEurope, gas consumption will average a 2.3 percent annual increase in theforecasted period from 23 tcf to 36 tcf. Eastern Europe is expected tooutpace the former Soviet Union with an expected 4.7 percent averageincrease compared to the former Soviet Union increase of 1.9 percent.

Developing Asia will contribute 19 percent of the increase in globalgas demand in the projected period, with China alone accounting for a10.1 percent annual average increase. This will raise China’s natural gasshare in energy consumption to 9 percent by 2020. In Central and SouthAmerica, the average annual growth rate in gas demand will be as highas 7.4 percent between 1999 and 2020. The Middle Eastern countries alsoseek to develop their domestic gas markets where consumption is expectedto more than double in the projected period from 6.8 tcf to 14.6 tcf. Africa


accounts for about 5 percent of the world’s natural gas production but onlyconsumes 2 percent of the world’s demand. It is projected that African gasconsumption will increase by an annual average of 7.4 percent from 2.0 tcfto 3.5 tcf between 1999 and 2020 (EIA 2002: 46-66). Table 2.1 summarizesthe trends underway.

Global Oil and Gas Reserves

The total global oil stock at the end of 2001 was estimated at 1,050.0billion bbl proven oil reserves, 863.29 billion bbl in OPEC, and 242.12 bblin non-OPEC countries (BP 2002; EIA 2002: table 8). Fourteen countriesaccount for 90 percent of the total global proven oil reserves: Saudi Arabia,Iraq, the United Arab Emirates (UAE), Kuwait, Iran, Venezuela, Russia,Mexico, the US, Libya, China, Nigeria, Norway, and the UK. Only � vecountries (Saudi Arabia, Iraq, the UAE, Kuwait and Iran) hold almosttwo-thirds of the global proven oil reserves.

Global natural gas reserves at the end of 2001 were estimated to be5476.7 tcf. Almost 72 percent of global natural gas reserves are located inthe Middle East and the former Soviet Union. The proven gas reservesfor Azerbaijan, Iran, Kazakhstan, Russia and Turkmenistan are estimatedat 2688.3 tcf, which is more than the combined proven gas reserves ofEurope, the US and the Middle East (see Table 2.2).

Iran and Russia alone account for almost one-half of the global naturalgas reserves (see table 2.3). 4 Due to its huge oil and gas reserves post-SovietCEA has turned into one of the most important geopolitical areas in theworld.

The Role of Caspian Oil and Gas in Global Oil and Gas SupplyThe Caspian littoral states together hold one of the world’s largest oil andgas reserves, which make them very signi� cant in global markets. Theestimates of proven and possible oil and gas reserves in the Caspian regionvary. For example, according to the US Energy Information Administration(EIA) the total proven oil reserves of the three new Caspian littoral statesAzerbaijan, Kazakhstan and Turkmenistan are estimated at 7.2 billionbbl in 2002 and the total proven gas reserves at 170.4 tcf. The totalproven oil reserves according to the Statistical Review of World Energy (BP2002) is 15.5 billion bbl and the total proven gas reserves are 196 tcf.As has been estimated by energy consultant Wood Mackenzie, the � veCaspian littoral countries (including only the Caspian off-shore sector ofRussia and Iran) will have the potential to produce about 4 MMbbl/d

4 For a detailed analysis of the role of the Caspian region in the global oil and gasmarket, see Amineh (2003: ch. 3).


Table 2.2

Proven and Possible Oil and Gas Reserves in the Caspian Region, Europe,US, Middle East

Country Proven Oil Possible Oil Proven Gas Possible GasReserves Reserves* Reserves Reserves*

(billion bbl), (billion bbl)† (tcf)+ (tcf)†

2001+

Azerbaijan 7.0 32 30.0 35Iran 89.7 15** 812.3 11**Kazakhstan 8.0 92 65.0 88Russia 48.6 14** 1680.0 N/aTurkmenistan 0.5 80 101.0 159Total 153.8 233 2688.3 293

Europe 18.7 n/a 171.7 N/aUS 30.4 n/a 177.4 N/aMiddle East 685.6 n/a 1974.6 N/aTotal 734.7 n/a 2323.7 n/a

Sources: British Petroleum, BP Statistical Review of World Energy (2002); EIA, Caspian Sea Region:Reserves and Pipelines (July, 2002).

by 2014 (McCutcheon, December 24, 2001). If the various oil projectsboost production, then the Caspian region’s oil exports might rise to 3MMbbl/d in 2010 and an additional 2 MMbbl/d to 5 MMbbl/d in 2020(EIA, February, 2002). At today’s market prices, the potential oil reservesof the Caspian Sea zone have an estimated value of between US$2-US$4trillion. The availability of the Caspian energy supplies on world marketswill likewise enhance prospects for economic growth and political stabilityin the Caspian littoral countries (O’Connor, May 3, 1993).

Iran and Russia are the two main powers in terms of oil and gasreserves of the Caspian region and have the greatest energy reserves inthe world. Iran is the world’s second largest owner of proven natural gasreserves (estimated at 812.3 tcf) after Russia and ranking � fth in proven oilresources (8.5 percent, estimated at more than 89.7 billion bbl). In 2001,Iran produced 3.69 MMbbl/d. Russia’s proven oil reserves are estimated at48.6 billion bbl of oil (seventh largest in the world) and proven gas reservesat 1680.0 tcf (largest in the world). Russian oil production in 2001 wasestimated at 7.29 MMbbl/d. Russia ranks third in oil production amongthe oil producing countries. Its gas production in 2000 was 545.0 millioncubic meters (MMcm) of gas (BP 2002). Russia is currently the world’ssecond largest gas producer, after the US.

Azerbaijan has been an important oil resource for more than a century.Azerbaijan’s proven reserves of oil are estimated at 7 billion bbl and


Table 2.3

Top 20 in Estimated Oil and Gas Reserves, End 2001

Country and Region Proven Oil Reserves Proven Natural Gas Reservesa

Billion bbl Tcf of gas(share of total in percent) (share of total in percent)

Rank Rank

The CaspianCountries

Russia 48.6 (4.6) 7 1680.0 (30.7) 1Kazakhstan 8.0 (0.8) 15 65.0 (1.2) 15Azerbaijan 7.0 (0.7) 16 – –Turkmenistan – – 101.0 (1.8) 11Iran 89.7 (8.5) 5 812.3 (14.8) 2

Developed CountriesUnited States 30.4 (2.9) 8 177.4 (3.2) 6Norway 9.4 (0.9) 12 – –Canada 6.6 (0.6) 17 59.7 (1.1) 17The Netherlands – – 62.5 (1.1) 16

Developing CountriesSaudi Arabia 261.8 (24.9) 1 219.5 (4.0) 4Iraq 112.5 (10.7) 2 109.8 (2.0) 10United Arab Emirates 97.8 (9.3) 3 212.1 (3.9) 5Kuwait 96.5 (9.2) 4 52.7 (1.0) 18Uzbekistan – – 66.2 (1.2) 14Venezuela 77.7 (7.4) 6 147.6 (2.7) 8Libya 29.5 (2.8) 9 46.4 (0.8) 20Mexico 26.9 (2.6) 10 – –China 24.0 (2.3) 11 48.3 (0.9) 19Nigeria 24.0 (2.3) 11 124.0 (2.3) 9Algeria 9.2 (0.9) 13 159.7 (2.9) 7Brazil 8.5 (0.8) 14 – –Angola 5.4 (0.5) 19 – –Oman 5.5 (0.5) 18 – –Qatar – – 508.5 (9.3) 3Malaysia – – 75.0 (1.4) 13Indonesia – – 92.5 (1.7) 12

World Total 1,050.0 (100) 5476.7 (100)

Source: British Petroleum, BP Statistical Review of World Energy (2002), on-line version.

proven gas reserves at 30.0 tcf. After independence in 1991, Azerbaijan’soil production declined from 238,000 bbl/d to 180,000 bbl/d in 1997. Dueto very substantial foreign investments in Azerbaijan’s oil sector, this trendhas been reversed. As shown in Table 2.4 output rose in 2002 to 300,000bbl/d. Oil production has remained stable in 2002, averaging 310,200bbl/d through March. It is expected that oil exports could exceed oneMMbbl/d by 2010 and two MMbbl/d in 20 years. Azerbaijan’s natural


Table 2.4

Caspian Sea Region Oil Production and Exports (thousand barrelsper day [Mbbl/d])

Country Production Production Possible Net Net Possible Net(1991)+ (2001)+ Production Exports Exports Exports

(2010)† (1990)† (2001)† (2010)†

Azerbaijan 238 300 1, 200 77 175.2 1,000Kazakhstan 569 828 2, 000 109 631 1,700Iran 3,500 3, 688 0* 0* 0* 0*Russia 9, 326 7,056 300** 0** 7** 300**Turkmenistan 113 162 200 69 107 150Total 13,746 12,034 3700 255 920.2 3150

Source: British Petroleum, BP Statistical Review of World Energy (2002), EIA, Caspian Sea Region(February, 2002).Note: +based on BP (2002); †based on EIA; *only the regions near the Caspian areincluded; ** includes Astrakhan, Dagestan, and the North Caucasus region bordering theCaspian.

Table 2.5

Caspian Sea Region Gas Production and Exports (billion cubic feetper year)

Country Production Production Possible Net Net Possible Net(1990) (2000) Production Exports Exports Exports

(2010) (1990) (2000) (2010)

Azerbaijan 350 200 1,100 –272 0 500Kazakhstan 251 314.3 1100 –257 –176 350Iran 25.8*# 60.2* 0** 0** 0** 0**Russia 599.8*# 545.0* N/a*** N/a*** n/a*** n/a***Turkmenistan 3,100 1, 642 3,900 2,539 1,381 3,300Total 4326.6 2761.5 6100 2010 1205 4150

Source: based EIA, Caspian Sea Region (February, 2002).Notes: *billion cubic meters based on BP (2002); #data for 1991; **only the regions nearthe Caspian are included; ***includes Astrakhan, Dagestan, and the North Caucasus regionbordering the Caspian Sea.

gas production slipped by 5.6 percent to 200 billion cubic feet (bcf) in2000 (Table 2.5). This is especially due to the fact that Azerbaijan hasno developed infrastructure to deliver natural gas to markets. Given thenecessary infrastructure, it can be expected that Azerbaijan’s natural gasproduction could increase to as much as 1 tcf by 2010.

Kazakhstan has much larger reserves than were estimated during theSoviet period. Kazakhstan is considered, after Russia, to be the richest


of the former Soviet republics in oil resources, with proven oil reservesof 8 billion bbl and also an enormous natural gas reserve, estimated at65.0 tcf. Kazakhstan’s oil production dropped to 415,000 bbl/d duringthe � rst few years following the collapse of the Soviet Union. Foreigninvestments in Kazakhstan’s oil sector have helped the country boost its oilproduction to 828,000 bbl/d in 2001. Production is expected to reach 1.2MMbbl/d in 2005, two MMbbl/d by 2010, and as much as 2.5 MMbbl/dby 2015. Kazakhstan exported 631,000 bbl/d of oil in 2001. The country’sremoteness from world markets, along with its lack of export pipelines, hashindered faster growth of exports. In 2001, most of Kazakh oil exportswere shipped mainly via the Atyrau-Samara pipeline through Russia, withadditional supplies being shipped by rail and by barge across the CaspianSea.

Kazakhstan’s gas industry is signi� cantly under-developed and hamperedby a lack of infrastructure. In August 1999 the Kazakh government passeda law requiring TNOCs to include natural gas utilization projects intheir development plans. As a result, Kazakhstan increased its natural gasproduction to 314.3 bcf in 2000 the highest level in the past decade andto 324 bcf of natural gas in 2001. From January 2002 through May 2002,Kazakh natural gas production totaled 158.5 bcf, an increase of 2.1 percentover the same time period in 2001. If the domestic natural gas demandremains stable gas exports are expected to reach 1.2 tcf in 2015.

Turkmenistan has one of the world’s major natural gas reserves andalso signi� cant oil reserves. According to recent investigation, it is claimedthat the country’s possible gas reserves may be as high as 101.0 tcfand its proven oil reserves 0.5 billion bbl. After independence, oilproduction decreased to 81,000 bbl/d in 1995 and then almost doubled to156,400 bbl/d in 1999. In 2001, Turkmenistan produced 162,000 bbl/dwith an expected increase to 200,000 bbl/d in 2002. The expected oilproduction for 2020 is 251,000 bbl/d. During the � rst two months of2002, Turkmenistan had already produced 413 bcf of natural gas. In 1999,natural gas exports were 0.6 tcf increasing to 1.381 tcf in 2000 becauseof a major gas export deal with Russia and the resumption of suppliesto Ukraine. In 2002, Turkmenistan will sell 1.41 tcf of its natural gas toUkraine and 1.77 tcf in 2003 (BP 2002).

It is expected that without the Caspian exports, oil exports from thePersian Gulf to Europe would increase by 0.5 MMbbl/d in 2010. If theCaspian region fully participates in the market exports, oil from the PersianGulf to Europe will have decreased to 1.5 MMbbl/d by 2010 (Emerson2000: 178, 184).


Are Proven Reserves Able to Satisfy Demand?

Above we distinguished supply-induced shortage from demand-inducedscarcity. Supply-induced scarcity arrives from the moment the world stockbegins to decrease. Experts differ on the timing of arrival of supply-inducedscarcity, though not by very wide margins. In the mid-1990s analysts beganto take a serious look at the projection methods based on � tting data togrowth curves whose underlying generating mechanisms are well studied.Hubbert used these methods in the mid-1950s to anticipate US domestic oiloutput peak. Most experts hold the view that the peak in world productionwill arrive suddenly and somewhere in the end of this decade, early nextdecade. Demand for gas is expected to peak at the end of the century. Oilprices expressed in terms of the quantity of iol required to produce andtransport to consumers a barrel of oil multiplied between 1950 and mid1980’s from 3 letres to 20 letres.

According to estimates of the Energy Information Administration, world oilsupply in 2020 will exceed the 2000 level by 41 MMbbl/d. Productionincreases are expected for both OPEC and non-OPEC countries (EIA2002, 31). The rise in non-OPEC oil supply over the last two decades hasresulted in a substantial decline of OPEC’s market share, once at a historichigh of 52 percent in 1973. However, it is projected that by 2020 onlyabout one-third of the total oil production increase will come from non-OPEC areas. OPEC oil production is expected to reach 57.2 MMbbl/d in2020, with oil supply growing at an annual average rate of 3.3 percent. Itscapacity utilization will increase immensely after 2000, reaching 95 percentin 2015.

Momentarily, the OPEC sees itself in a dilemma, especially in regardwith the uncertainty concerning the future of Iraq within the organization.Iraq could be the world’s second largest supplier of crude after SaudiArabia. It has 112 billion bbl of crude oil in reserve and OPEC worriesthat the world market might demand more oil from Iraq. OPEC fearsthat a rise in Iraq oil supply could drown markets, forcing prices to slump.OPEC would like to see prices balanced between US$22 to US$28 per bbl(AGOC, May 15, 2003).

In 2000, the industrialized countries imported 15.8 MMbbl/d fromthe OPEC countries, 9.9 MMbbl/d of which came from the PersianGulf region. OPEC members exported 70 percent of their oil exports toindustrialized countries, of which almost two-thirds came from the PersianGulf region. It is expected that OPEC’s exports to industrialized countriesin 2020 will be about 6.2 MMbbl/d higher than in 2000. More than half ofthis increase will come from the Persian Gulf countries. However, despitethis growth, the share of OPEC total petroleum exports to industrializedcountries in 2020 will be 14 percent below the share in 2000. Persian


Gulf exports to industrialized countries will fall to about 40 percent. At thesame time OPEC oil exports to developing countries will increase by morethan 17.0 MMbbl/d between 2000 and 2020, half of which will go todeveloping Asia. China alone is expected to import about 7.2 MMbbl/dfrom OPEC by 2020, most of which will come from the Persian Gulfregion (EIA 2002: 31).

Non-OPEC oil supply is expected to increase steadily from 46.0MMbbl/d in 2000 to 61.1 MMbbl/d in 2020 (Emerson 2000:175-76). Forthe period 1998-2010, the three new Caspian littoral states Azerbaijan,Kazakhstan, Turkmenistan alone will account for 18 percent of the totalincrease in non-OPEC production. The North Sea will account for 4percent of the total increase, Latin America for 9 percent, and Africafor 14 percent (Emerson 2000: 174).

As the Middle East is politically unstable, alternative oil resources will beimportant for reducing dependence on this region. However, the shift inoil production from the Persian Gulf to other areas does not guarantee thatthe new sources will be more secure. Colombia and Nigeria have recentlyexperienced considerable internal violence, and Venezuela is undergoing adif� cult political transition (Klare 2001: 46). China has similar experiences.To protect its oil supplies, China has tightened its hold on the XinjiangUighur Autonomous Region (XUAR). Because of the high concentration ofan ethnic minority population, the Chinese leadership views the Xinjiangregion as particularly susceptible to foreign anti-Chinese in� uences. Itfears that the radical Islamic and separatist forces operating in CEAcould stir up separatist aspirations of minority groups in China. Xinjiangis important to China for various reasons. Instability in Xinjiang couldundermine China’s control of the region and thus threaten the integrity ofthe country as a whole. The region has vast open spaces and a relativelysmall population that makes it perfect for nuclear testing and large-scaleconventional military exercises of the People’s Liberation Army. Xinjiang isa signi� cant domestic source of oil and gas. 5 Bordering Mongolia, Russia,Kazakhstan, Kyrgyzstan, Tajikistan, Pakistan, and India makes the regionan important springboard for China to strengthen its in� uence on othercountries (Amineh 2003: ch. 5; see also Amineh 1999).

The central question is how con� icts and social struggle around theCaspian oil and gas resources will be articulated and who will gain theupper hand. Will multilevel con� icts and cooperation in the region becontrolled by the US as the dominant military actor in cooperation with

5 With estimated oil reserves of 20.9 billion tonnes and natural gas deposits of 10.3 trillioncubic meters, the Xinjiang region could develop into China’s second largest oil producingregion (Chan, J., January 3, 2001).


local governments? How will Russia and China respond to its policies? Willtransnational battles by non-state actors force the major powers involvedin the region to cooperate and collectively impose a local peace order totheir common advantage? One thing is sure, an increase in oil productionand export will be essential for economic prosperity and political stabilityin the Caspian region.

References

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Little� eld.EIA2002 International Energy Outlook 2002, on-line version. Retrieved August 20, 2002

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