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Caspian EandP risk management
Caspian oil /gas projects $ 50 bn in investment
Iran Claims share of the oil rich Caspian Sea - 50 %
Kazakhs give Caspian Tsentralnoye oilfield to Russia 
Kazakhstan, Russia to Set N. Caspian Sea Border by Mid-May
Caspian Sea Status Should Be Determined By All 5 States 
Vertical Migration of Oil in East of North Caspian Depression

For more information from EIA on the Caspian Sea Region, please see:

Caspian oil /gas projects $ 50 bn in investment
Source: Trend 07-06-06

So far, approximately $ 50 bn has been invested under the oil and gas projects in the Caspian, the president of the Russian oil company LUKoil, Vagit Alekperov stated at a conference on “Stable development of oil and gas operations in the Caspian basin”. The oil production in the Caspian increased twice, while gas -- 30 %.
“Expansion of the CPC and the completion of the construction of the Baku-Tbilisi-Ceyhan main export oil pipeline (BTC) provide an access to the Caspian energy resources,” he said.

At present LUKoil is exploring 10 perspectives in the Caspian, while it has succeeded to 6 fields with the estimated reserves of approximately 150 mm tons of oil and 700 bn cm of gas.
He noted that now the company is involved in the development of the northern part of the Caspian. It has experience in operating at low depth in the border of ice coverings. The similar project is carried out in the Baltic Sea, he underlined.

The development of the Central Caspian will be carried out a bit later due to small depth. Gas produced by companies will be delivered to internal markets of Russia for refining. The oil will be transported to world oil markets.
“The companies are in talks with Transneft, CPC, Azerbaijan and Iran in the issue of transportation of own oil,” he concluded.
Kazakhs to give Caspian Tsentralnoye oilfield to Russia - Kazakh agency 
BBC Monitoring International Reports April 09, 2002    Almaty, 8 April

Kazakhstan and the Russian Federation are drawing up an agreement on giving the Tsentralnoye oil field in the Caspian Sea to Russia, Kazakh Secretary of State and Foreign Minister Kasymzhomart Tokayev told a news conference in Almaty today. He said that the Tsentralnoye oilfield is "a new oil structure", about which "very little was known before". 

As was reported before, Kazakhstan and Russia are drawing up a modified median line on the sea bed in the North Caspian Sea in the area of this oilfield, also in the area of two other oilfields - Kurmangazy and Khvalynskoye. Tokayev said, according to the estimates provided by "very authoritative experts", the approximate hydrocarbon reserves in Kazakhstan's Kurmangazy oilfield "balances the reserves" of Tsentralnoye and Khvalynskoye oilfields, which are already being developed by the Russian LUKoil (company). Therefore, Tokayev thinks, the decision to develop the Tsentralnoye oilfield under Russia's jurisdiction "will be very correct". Incidentally, he noted, "if the provisions are made by Russians for some principles in relation to the Kurmangazy oilfield, then exactly the same provisions will be applied to the Tsentralnoye oilfield." (Passage to end omitted: Russia and Kazakhstan are working out the principles for the joint development of the oilfields) Copyright: Interfax-Kazakhstan news agency, Almaty, in Russian 1254 gmt 8 Apr 02 BBC Monitoring/ BBC

Vertical Migration of Oil in East of North Caspian Depression
Internet Geology News Letter No. 144, April 8, 2002

     There have been differences in opinion as to the source of the  hydrocarbons in sediments above the Lower Permian salt in the  south and east of the North Caspian depression.  Palynological  study was made of the oils over a great stratigraphic range in  both the sub-salt and supra-salt sediments of this region.  The  plant micro-fossils in these oils could have migrated only along  with the oils.  The study included oils from both clastic and  carbonate rocks from more than twenty fields.  

     Oils from Carboniferous carbonates contain a small quantity  of spores and acritarchs of Carboniferous age.  No significant  signs of vertical migration were noted in the areas studied; the  spore assemblage is the same age as the host rock.    

     The micro-fossil assemblage in oils of the Artinskian rocks  at Karatyube is mostly Permian, although 5-10 percent are  Carboniferous.  Oil from Kursay carries abundant Artinskian  forms and 8 percent Carboniferous forms.

     Oils from Kungurian sediments at Kenkiyak and Urikhtau  carry abundant forms; however, they indicate an origin in the  Artinskian.  The pools here formed by migration from the  Artinskian.    

     Two types of micro-fossil assemblage are found in oils  from the Permian-Triassic sediments. The first is from Upper  Permian sediments of Kenkiyak and Karatyube fields and  consists almost entirely of Lower Permian pollen or with some  spores from the host rock and individual Carboniferous and  Devonian forms.  This indicates that this oil was derived from  sub-salt source beds.  The second type is from Lower Triassic  oils of Kenkiyak, Karaganda, and Kokzhide.  The forms here are  up to 50 percent Triassic, indicating a more complex origin for  these pools.   

     The Jurassic oils carry 40-50 and in some places 90 percent  Jurassic spores and pollen but also migrated assemblages of  Permo-Triassic, Carboniferous, and even Devonian age.  All  the Jurassic oils contain 5-25 percent Paleozoic acritarchs and in some places up to 50 percent.    

     The Cretaceous oils carry migrated assemblages of Jurassic,   Triassic, Permian, and Carboniferous age.  The pools in the  Cretaceous are therefore secondary, formed by migration from  lower-occurring source beds.  The presence in all the Cretaceous  oils of light Paleozoic acritarchs carried by gas indicates  considerable transfer of hydrocarbons in the gas from deep   Paleozoic  source beds.   

     The palynological data thus indicate presence of oil in pools  above the Kungurian salt in the east of the North Caspian  depression that has been derived by vertical migration from  source beds below the salt.  Rupture by salt tectonics provided  avenues for this transfer.  (Now a comment from me: Since  hardly any Devonian forms are found, it seems likely that large  Devonian pools may yet be discovered.  - JC)   

    Taken from Medvedeva, Bulekbayev, and Dal'yan, 1993;  digested in Petroleum Geology, vol. 30, no. 3, one map.   Copyright 2002 James Clarke. You are encouraged to print out this  News Letter and to forward it to others.  Earlier News Letters are  available at:       http://geocities.com/internetgeology/     This News Letter is distributed without charge in the interest of our  science.  To be added to the mailing list please send your e-mail  address to:       jamesclarke@erols.com    For information on the journal Petroleum Geology please telephone  or FAX:   703 759-3754. There is a time for everything...a time to be silent and a time to  speak.   Ecclesiastes 3:1,7.

Iran Claims share of the oil rich Caspian Sea - 50 %
TEHRAN, April 10 AFP via energy24.com

An Iranian parliament member said Wednesday Iran's share of the oil rich Caspian Sea amounts to 50 percent, the official IRNA news agency reported. 

"Fifty percent of the Caspian Sea belongs to Iran and the other half was given to the formerSoviet Union, why should we pay the price of Soviet disintegration?" said Kazem Jalali, a member of the parliament's foreign policy and national security committee.  "The four other states bordering the Caspian Sea should share the other fifty percent among them", he added. 

Jalali warned that Iranian officials willing to compromise on the matter should have to "answer to the nation."  He said the issue touched on "Iran's right of sovereignty."  Iranian Foreign Minister Kamal Kharazi is due in Azerbaijan on Thursday for talks on the row between the two countries over oil rights in the Caspian, the an Azeri foreign ministry said on Wednesday.  Iran and the other states bordering the Caspian -- Turkmenistan, Azerbaijan, Kazakhstan and Russia -- are involved in a long-running dispute over how the sea's vast oil and gas reserves, believed possibly the world's third largest, are to be divided up. 

The Caspian is believed to cover fields containing 200 billion barrels of crude oil and 600,000 billion cubic meters of gas.  Leaders of the five Caspian Sea states are set to meet in Turkmenistan's capital Ashkhabad on April 23-24 to try to resolve the thorny question of how to share the sea's resources. 

Kazakhstan, Russia to Set N. Caspian Sea Border by Mid-May
By Zaure Kistauova and Leos Rousek ALMATY, April 9 (Dow Jones

Russia and Kazakhstan plan to sign a bilateral treaty to demarcate their northern Caspian Sea border by mid-May, in order to end disputes over offshore oil fields, Russian Deputy Prime Minister Viktor Khristenko said Tuesday. Last month, Russia and Kazakstan agreed to divide the Kurmangazy oil field in northern Caspian Sea. The remaining disputed fields are Khvalynskoye and Tsentralnoye, Khristenko said. 
countries bordering the Caspian - Russia, Kazakhstan, Iran, Turkmenistan and Azerbaijan - have been trying to forge a multilateral agreement to settle conflicting claims to the sea since the break up of the Soviet Union in 1991. 
 Leaders of the Caspian nations are scheduled to meet in Turkmenistan's capital  Ashgabad in late April to discuss the sea's status and border disputes. 

Kalyuzhny: Caspian Sea Status Should Be Determined By All Five Caspian Sea States 
Russian Economic News April 09, 2002  Copyright 2002 Ria-Novosti

Deputy Russian Foreign minister and special representative of the Russian President on matters of determination of the Caspian sea status Viktor Kalyuzhny stated in the Baku airport "Bina" that the status of the Caspian sea should be determined only in the "five" format (Russia, Kazakhstan, Iran, Azerbaijan, Turkmenia). The Caspian problem is the problem of the Caspian sea states and they are perfectly capable of settling the problem themselves. Nevertheless, according to him, "one might work on a bilateral basis without violating those basic principles which were included into the status of a consensus decision-making principle." Kalyuzhny reported that "they would like to hold a bilateral meeting of the Azeri-Russian commission on the Caspian sea". 

In addition to that Kalyuzhny stated that it would be appropriate to convene a meeting of representatives of Presidents of the Caspian sea states on the issue of determination of the status of the Caspian sea on the eve of the meeting of heads of those states in Ashkhabad , "sometime on 17-20 April." The special representative of the Russian President to determine the status of the Caspian sea arrived on Tuesday in Baku in the composition of the Russian delegation to take part in the meeting of the Russian-Azeri inter-governmental commission on trade and economic cooperation. 

Oil exports will not be used to pressure Iran on Caspian - Kazakh minister 
BBC MONITORING INTERNATIONAL REPORTS April 08, 2002    Almaty, 8 April: Kazakhstan and Iran will settle problems of the legal status of the Caspian Sea and export of hydrocarbons in a civilized way. If Astana chooses Iran for transporting its oil to world markets, it will not exert any pressure on Tehran as regards the definition of the Caspian's legal status, Kazakh State Secretary and Foreign Minister Kasymzhomart Tokayev told a news conference in Astana on Monday (8 April).    "We are not going to apply any mechanisms of pressure," Tokayev said, noting that "we are talking about a very large and self-sufficient state (Iran)". Kazakhstan is basically positive about the Iranian route for oil transportation and is conducting a feasibility study of this project at the moment, Tokayev said. Kazakhstan favours the option of having several pipelines for exporting its oil to world markets and will take into consideration political factors when making a decision regarding this or that direction of a pipeline, the minister emphasized... Source: Interfax news agency, Moscow, in English 1440 gmt 8 Apr 02 

Azerbaijan's Border Issues Remain Unsolved
Oxford Business Group 3 March 2002  http://www.oxfordbusinessgroup.com   Despite efforts in recent weeks to bring two of Azerbaijan's major border issues- that of the status of the Caspian Sea and that of the Nagorno-Karabakh enclave- to a close, progress has been slow. The five Caspian nations held a meeting in Moscow on February 27th and 28th to try and bring the discussion over the division of the Caspian, which has been a subject of debate for over ten years, to a mutually beneficial conclusion. After much debate in Azerbaijan over plans to hold presidential elections in the enclave in August 2002 and the arrival of officials from the OSCE's Minsk Group to the region in early March a solution does not seem any closer. 

An important step in stabilising relations between the five Caspian states, Azerbaijan, Russia, Turkmenistan, Kazakhstan and Iran, was taken in early March. On March 6th the United Nations said that the countries had made progress in protecting sturgeon stocks and preventing poaching and would be allowed to resume hunting the valuable fish. The five countries agreed on an annual caviar quota of 142 tonnes- some 10% lower than last year- with Iran to take just over half the catch. Iran had been exempted from the ban imposed in June 2001 as the UN believed its sturgeon management policies to be in line with protection schemes. At the time of the ban the legal caviar trade was estimated at over $100m per year, for the whole Caspian, but the illegal catch was thought to be 10 to 12 times that amount, largely in Russia. 

The other valuable natural resource in the Caspian is the oil, with petroleum analysts claiming the sea to have as much oil in reserve as the North Sea. An international conference on the status of the sea, some theories claim it is a lake rather than an inland sea- changing its legal status, was convened in Moscow on February 27th with the Russian delegation especially hopeful that the states could reach a conclusion. The debate has bee dragging on since the end of the Soviet Union, and the importance of the issue was indicated by the US involvement at the conference. 

Iran is in favour of the simplest solution, which sees the seabed divided equally between the five countries- each receiving 20%- in line with a Soviet agreement with Iran. The other states are fairly much aligned against Iran- although Turkmenistan wavers between both stools- and so far Russia, Azerbaijan and Kazakhstan have signed bilateral agreements, which they believe will help bring a comprehensive deal closer. Iran disagrees, and much of the problem between the two camps stems from its rivalry with Azerbaijan over off-shore oil fields. In the summer of 2001 Iran sent two gunboats to chase exploration ships leased by BP in Azerbaijan out of what Tehran believed to be its waters. 

Shortly before the Caspian conference the Iranian Oil Minister Bijan Zanganeh said that Iran would continue its oil and gas projects in the Caspian, even without a resolution of the sea's status, and would stop others exploiting its share. He repeated his stance on March 5th, claiming that Tehran would prevent any exploration activities in its 20% sector. The main operator in Azerbaijan BP has in any case suspended operations in the disputed areas- the Araz-Alov-Sarq fields- since the incident with its ships in July. It also has interests in Iran and cannot afford to be seen as taking sides. 

At the end of the conference no clear progress appeared to have been made, although Russia insisted the opposite saying that a summit would be held before the end of the year to clear the issue. One of the major problems in the discussions was that Turkmenistan, which has still not made its position clear, abruptly stayed away from the conference. US involvement in region has increased since September as has its interest in the division of the Caspian. Several foreign companies have reported dry wells and estimates of oil reserves in the sea have fallen since the mid-1990s from around 200bn barrels to nearer 90bn barrels, but the US is still concerned at what Iran may gain from its sector. 

The other major Azeri problem is that of the Nagorno-Karabakh enclave, which sees itself as independent but is largely occupied by Armenian forces. Baku considers the area to be part of Azerbaijan and talk in late February was of condemnation for presidential elections in the enclave planned for August 2002. The US also said that it would not recognise the results, although two such elections have already been held. 

The three co-chairmen of the OSCE's Minsk Group, from Russia, France and the US, returned to the region on March 7th in the hope of reinvigorating the staled peace talks between Armenia and Azerbaijan over the enclave. Both presidents have said that they are willing to push for peace, but opposition groups in both countries are quick to pounce on any signs of concessions by their respective governments. The chairmen said that they were bringing new proposals to the region- not yet made public- which are thought to involve Azeri recognition of the rights of the Armenian population in Nagorno-Karabakh in return for Armenian withdrawal from Azeri land- outside the enclave- that it currently occupies. 

Government officials in Baku have seen the plan as promising, although the Armenian military is dead against it. But the Minsk Group has also been accused of doing too little since its establishment in March 1992 to solve the problem. On March 10th officials from the Minsk Group stressed the importance of involving the population of Nagorno-Karabakh in any discussions after meeting the self-declared president Arkadiy Gukasyan, but Azeri officials have ruled this out. 

Caspian EandP risk management

July 2001
Updated February 2002
February 2006

 Caspian Sea Region

Parker Drilling Rig 257
The Caspian Sea region is important to world markets because it has large oil and gas reserves that are only now beginning to be fully developed. Developing these resources has resulted in competition both between companies to get the contracts to develop this potential, and between countries to determine the final export routes.

Information contained in this report is the best available as of July 2001 and is subject to change.

The Caspian Sea is located in northwest Asia, landlocked between Azerbaijan, Iran, Kazakhstan, Russia, and Turkmenistan. Since the breakup of the Soviet Union in 1991, the Caspian Sea--as well as the region surrounding it--has became the focus of much international attention due to its huge oil and gas reserves. The Sea, which is 700 miles long, contains six separate hydrocarbon basins, and most of the oil and gas reserves in the Caspian Sea region have not been developed yet. Although the littoral states of the Caspian Sea already are major energy producers, many areas of the Sea and the surrounding area remain unexplored.

The prospect of potentially enormous hydrocarbon reserves is part of the allure of the Caspian region (includes Azerbaijan, Kazakhstan, Turkmenistan, Uzbekistan, and the regions of Iran and Russia that are near the Caspian Sea). Besides the 18-34 billion barrels currently proven, the region's possible oil reserves could yield another 235 billion barrels of oil. This is roughly equivalent to a quarter of the Middle East's total proven reserves (however, the Middle East also has its own vast possible reserves). Possible gas reserves in the Caspian region, including Uzbekistan, are as large as the region's proven gas reserves, and could yield another 328 trillion cubic feet (Tcf) of gas if proven.

Most of Azerbaijan's oil resources (proven as well as possible reserves) are located offshore, and perhaps 30%-40% of the total oil resources of Kazakhstan and Turkmenistan are offshore as well. Proven oil reserves for the entire Caspian Sea region (total country reserves, not just for the Caspian Sea itself) are estimated at 18-34 billion barrels, comparable to those in the United States (22 billion barrels) and the North Sea (17 billion barrels). Natural gas reserves are even larger, accounting for almost two-thirds of the hydrocarbon reserves (proved plus possible) in the Caspian Sea region. Based upon proven reserves, Kazakhstan, Turkmenistan, and Uzbekistan each rank among the world's 20 largest natural gas countries. Overall, proven gas reserves in the Caspian region are estimated at 243-248 Tcf, comparable to North American reserves of 300 Tcf.

Since they became independent in 1991, Azerbaijan, Kazakhstan, Turkmenistan, and Uzbekistan have sought to develop their national oil and gas industries further. Although the Soviet Union attempted to exploit each of the republic's oil and gas reserves, a lack of investment, deteriorating infrastructure, and out-dated technology resulted in declining rates of production at the time of the Soviet Union's collapse in 1991. In the last 10 years, however, Azerbaijan and Kazakhstan, especially, have experienced rapidly increasing levels of foreign investment in their oil and gas sectors. With additional investment, the application of Western technology, and the development of new export outlets, oil and natural gas production in the Caspian region could multiply.

Caspian Legal Status Remains Unresolved
In order for the Caspian Sea region to realize its full oil and gas potential, however, the littoral states must first agree on the legal status of the Sea. Prior to 1991, only two countries--the Soviet Union and Iran--bordered the Caspian Sea, and the legal status of the Sea was governed by 1921 and 1940 bilateral treaties. With the collapse of the Soviet Union and the emergence of Kazakhstan, Turkmenistan, and Azerbaijan as independent states, ownership and development rights in the Sea have been called into question. Currently, there is no agreed-upon convention that delineates the littoral states' ownership of the Sea's resources or their development rights, with the environmental risks and potential oil and gas wealth heightening the stakes for each country.

As a result, several conflicts have arisen over mutual claims to different regions of the Sea. Turkmenistan and Azerbaijan remain locked in a dispute over the Serdar/Kyapaz field, while Azerbaijan has objected to Iran's decision to award Royal Dutch/Shell and Lasmo a license to conduct seismic surveys in a region that Azerbaijan considers to fall in its territory. In addition, Turkmenistan claims that portions of the Azeri and Chirag fields--which Ashgabat calls Khazar and Osman, respectively--lie within its territorial waters rather than Azerbaijan's. Turkmenistan has insisted that work at the Azeri and Chirag fields, which is being carried out by the Azerbaijan International Operating Company (AIOC), be stopped.

The continuing unresolved status of the Caspian Sea has hindered further development of the Sea's oil and gas resources, as well as the construction of potential export pipelines from the region. Negotiations between the littoral states have made slow progress in ironing out differences between the countries: while Russia, Azerbaijan, and Kazakhstan have agreed on dividing the Sea by a "modified median" principle, Iran insists on an equal division of the Sea, and Turkmenistan's position is continuing to evolve. A proposed summit of the heads of states of the Caspian countries was postponed twice in the spring of 2001. On July 5, 2001, Turkmenistan's President Saparmurad Niyazov announced that he had invited the heads of state of the five Caspian littoral states to a summit in Ashgabat on October 26-27, 2001, for a "more final definition of the status of the Caspian."

Several countries are undertaking active exploration and development programs in what is generally considered to be their sector of the Caspian Sea. In particular, Azerbaijan and Kazakhstan have made progress in developing their offshore oil reserves. Azerbaijan has signed a number of production-sharing agreements--both onshore and offshore--in order to develop its oil and gas industries. A significant percentage of Azerbaijan's oil production comes from the shallow-water section of the Gunashli field, located 60 miles off the Azeri coast. Although the country's oil production fell after 1991 to just 180,000 bbl/d in 1997, with the help of international investment in the sector, Azerbaijan's oil production rebounded to 280,000 bbl/d in 2000. In the first three months of 2001, the Azerbaijani State Statistics Committee reported that the country produced 294,000 bbl/d of oil.

Likewise, Kazakhstan has opened its resources to development by foreign companies. International oil projects in Kazakhstan have taken the form of joint ventures, production-sharing agreements, and exploration/field concessions. After Russia, Kazakhstan was the largest oil-producing republic in the Soviet Union, but after independence, Kazakhstan's oil production dropped more than 115,000 bbl/d to just 414,000 bbl/d in 1995. Boosted by foreign investment in its oil sector, Kazakhstan's oil production has increased steadily since then, with output of 693,000 bbl/d in 2000, almost half of which came from three large onshore fields (Tengiz, Uzen, and Karachaganak). In addition, preliminary drilling in Kazakhstan's offshore sector of the Caspian has turned up spectacular results, raising hopes that Kazakhstan may become one of the world's largest oil producers.

Overall, oil production in the Caspian Sea region totaled 1.3 million bbl/d in 2000. Production in the region is projected to increase severalfold, led by three major projects currently under development in Azerbaijan and Kazakhstan:

Unlike with oil, the Caspian region's natural gas resources were extensively developed under the Soviet Union. Caspian region production in 1990, including substantial production from Uzbekistan, was 5.4 Tcf, but the collapse of the Soviet Union led to downturns across the region. After 1991, Caspian region natural gas, mostly from Turkmenistan and Uzbekistan, became a competitor with Gazprom, the Russian state natural gas company. Since Gazprom owned all the pipelines and export routes for Caspian natural gas were routed through Russia, Caspian natural gas was squeezed out of the market.

As a result, Turkmenistan's incentives for producing its natural gas disappeared. The country's output dropped throughout the 1990s, plummeting from 2.02 Tcf in 1992 to just 466 billion cubic feet (Bcf) in 1998, when the country was locked in a pricing dispute with Russia over the export of Turkmen gas. With high world gas prices and a Turkmen-Russian agreement on Turkmen gas exports in place, the country's gas production rebounded to 788 Bcf in 1999, then skyrocketed to 1.66 Tcf in 2000. Turkmenistan plans to boost gas output to 2.47 Tcf in 2001, although the country's gas production totaled only 660 Bcf through the first four months of the year.

Uzbekistan is the third largest natural gas producer in the Commonwealth of Independent States and one of the top ten gas-producing countries in the world. Since becoming independent, Uzbekistan has ramped up its gas production nearly 30%, from 1.51 Tcf in 1992 to 1.96 Tcf in 2000.The country's gas reserves are estimated at 66.2 Tcf, with the richest gas district in the Uzbek section of the Ustyurt Region. In order to offset declining production at some older fields such as Uchkir and Yangikazen, Uzbekistan is speeding up development at existing fields such as the Kandym and Garbi fields, as well as planning to explore for new reserves.
With the emphasis on Azerbaijan's oil potential, the country's gas sector often has been overlooked. In the past, Azerbaijan has imported natural gas from Russia, Turkmenistan, and Iran to meet domestic needs, but consumption has been on the wane since the collapse of the Soviet Union, and in 1999, Azerbaijan's natural gas consumption and production were roughly equivalent at 212 Bcf. Azerbaijan is continuing to import natural gas, but the 1999 discovery of the Shah Deniz field will soon change that. The Shah Deniz field, which is thought to be the world's largest gas discovery since 1978, is estimated to contain between 25 Tcf and 39 Tcf of natural gas. Development of the field, which will cost upwards of $2.5 billion including related infrastructure, should produce the first gas by 2004, making Azerbaijan a significant net gas exporter.
Overall, natural gas production in the Caspian Sea region (including Uzbekistan) reached 4.3 Tcf in 2000. Projects currently underway could help boost Caspian Sea region production to over 8 Tcf by 2010, and the enactment of laws barring the flaring of gas may increase the region's total gas production. In 1999, Azerbaijan enacted a law requiring that each oil and gas production project in the country include a plan to develop its natural gas potential, while Kazakhstan is requiring OKIOC to capture and use all the associated gas from the Kashagan block. Previously, gas has been flared off in both countries instead of being piped to consumers because of a lack of a developed infrastructure to deliver gas from offshore fields.
As increasing exploration and development in the Caspian Sea region leads to increased production, the countries of the region will have additional oil and gas supplies available for export. Already, in 2000, net oil exports in Kazakhstan totaled 452,000 bbl/d while Azerbaijan had 155,000 bbl/d. Overall, Caspian Sea region oil exports in 2000 amounted to about 800,000 bbl/d (of the 1.3 million bbl/d produced). With numerous oil projects in the region slated to boost production in the coming years, the region's net exports could increase to over 3 million bbl/d in 2010, and possibly another 2 million bbl/d on top of that by 2020.

With regard to natural gas, Turkmenistan had net exports of 1.2 Tcf in 2000, while Uzbekistan tallied 0.5 Tcf in net gas exports in 1999. Overall, Caspian Sea region natural gas exports reached 1.3 Tcf in 2000 (of 4.3 Tcf produced). With Azerbaijan's Shah Deniz field in development, along with increased investment to develop infrastructure and markets for the region's natural gas, Caspian natural gas exports could increase by another 2-3 Tcf by 2020.

However, in order to boost oil and gas exports from the Caspian Sea region, a number of issues will need to be addressed first. All of the oil and gas pipelines in the Caspian Sea region (aside from those in northen Iran) that were completed prior to 1997 were designed to link the Soviet Union internally and were routed through Russia. With the collapse of the Soviet Union in 1991, the republics that had been customers for Caspian gas often have been unable to pay world market prices for gas supplies due to the economic transition process. In addition, gas exports to other Newly Independent States (NIS) have been limited because the pipelines pass through Russia and require agreements with Gazprom, the Russian gas company which owns the pipelines and which has been a competitor with Caspian gas in the past.

Thus, with a lack of export options, in order to export any gas at all, the region's gas producers have had two options: either sell their gas to Russia at below market prices or pay Gazprom a transit fee, then export the gas to ex-Soviet states that cannot pay fully in cash or are tardy with payments for supplies already received. Turkmenistan's economy, which is concentrated mainly in oil and gas, experienced a huge 25.9% drop in GDP in 1997 when Gazprom denied Turkmenistan access to its pipeline network over a payment dispute. Although Gazprom and Turkmenistan resolved the dispute in 1998, in order to reach its full gas export potential, Turkmenistan and other Caspian region gas producers must solve the problem of getting their gas to consumers and getting paid in hard currency.
Similarly, prior to 1997, exporters of Caspian oil had only one major pipeline option available to them, the 210,000-bbl/d Atyrau-Samara pipeline from Kazakhstan to Russia. In addition, smaller amounts of oil were shipped by rail and barge through Russia, as well as by a second, small pipeline from Kazakhstan to Russia. The Caspian region's relative isolation from world markets, as well as the lack of export options, has thus far stifled exports outside of the former Soviet republics. Of the 800,000 bbl/d exported from the region in 2000, only about 300,000 was exported outside of the former Soviet Union.
In order to bring much-needed hard currency into their economies, Caspian region oil and gas producers are seeking to diversify their export options to reach new markets. With new production coming online as well, new transportation routes will be necessary to carry Caspian oil and gas to world markets. To handle all the region's oil that is slated for export, a number of Caspian region oil export pipelines are being developed or are under consideration. Likewsise, there are several Caspian region gas export pipelines that have been proposed. Although there is no lack of export option proposals, questions remain as to where all these exports should go.
The TRACECA Program (Transport System Europe-Caucasus-Asia, informally known as the Great Silk Road) was launched at a European Union (EU) conference in 1993. The EU conference brought together trade and transport ministers from the Central Asian and Caucasian republics to initiate a transport corridor on an West-East axis from Europe, across the Black Sea, through the Caucasus and the Caspian Sea to Central Asia. In September 1998, twelve countries (including Azerbaijan, Bulgaria, Kazakhstan, Romania, Turkey, and Uzbekistan) signed a multilateral agreement known as the Baku Declaration to develop the transport corridor through closer economic integration of member countries, rehabilitation and development of new transportation infrastructure, and by fostering stability and trust in the region. In addition, the EU has sponsored the INOGATE program, which appraises oil and gas exports routes from Central Asia and the Caspian, and routes for shipping energy to Europe. INOGATE is run through the EU's TACIS program.
However, there is some question as to whether Europe is the right destination for Caspian oil and gas. Oil demand over the next 10-15 years in Europe is expected to grow by little more than 1 million bbl/d. Oil exports eastward, on the other hand, could serve Asian markets, where demand for oil is expected to grow by 10 million bbl/d over the next 10-15 years. To feed this Asian demand, though, would necessitate building the world's longest pipelines. Geographical considerations would force these pipelines to head north of the impassable mountains of Kyrgyzstan and Tajikistan across the vast, desolate Kazakh steppe, thereby adding even more length (and cost) to any eastward pipelines.

An additional way for Caspian region exporters to supply Asian demand would be to pipe oil and gas south. This would mean sending oil and gas through either Afghanistan or Iran. The Afghanistan option, which Turkmenistan has been promoting, would entail building oil and gas pipelines across war-torn Afghan territory to reach markets in Pakistan and possibly India. The Iranian route for gas would pipe Caspian region gas (from Azerbaijan, Uzbekistan, and Turkmenistan) to Iran's southern coast, then eastward to Pakistan, while the oil route would take oil to the Persian Gulf, then load it onto tankers for further trans-shipment. However, any significant investment in Iran would be problematic under the Iran and Libya Sanctions Act, which imposes sanctions on non-U.S. companies investing in the Iranian oil and gas sectors. U.S. companies already are prohibited from conducting business with Iran under U.S. law.
North or Northwest?
For its part, Russia itself has proposed multiple pipeline routes that utilize Russian export pipelines that transport oil to new export outlets being developed on the Baltic and Mediterranean Seas. Russia is set to complete its Baltic Sea port at Primorsk later this year, and the country is working with Croatia to connect the Adria pipeline with the southern Druzhba pipeline. Reversing the flows in the Adria pipeline and tying it to the southern Druzhba route would allow oil exports from the Caspian to run via Russia's pipeline system, across Ukraine and Hungary, and then terminate at the Croatian deep-sea Adriatic port of Omisalj. In addition, Russia already has the most extensive natural gas network in the region, and the system's capacity could be increased to allow for additional Caspian region gas exports via Russia.
However, there are political and security questions as to whether the newly independent states of the former Soviet Union should rely on Russia (or any other country) as their sole export outlet, and Caspian region producers have expressed their desire to diversify their export options. In addition, most of the existing Russian oil export pipelines terminate at the Russian Black Sea port of Novorossiisk, requiring tankers to transit the Black Sea and pass through the Bosporus Straits in order to gain access to the Mediterranean and world markets. Turkey has raised concerns about the ability of the Bosporus Straits, already a major chokepoint for oil tankers, to handle additional tanker traffic. Already, Turkey has stated its environmental concerns about a possible collision (and ensuing oil spill) in the Straits as a result of increased tanker traffic from the launch of the Caspian Pipeline Consortium's (CPC) Tengiz-Novorossiisk pipeline in March 2001. The first tanker with CPC oil is not scheduled to be loaded at Novorossiisk until August 6, 2001, but already there are a number of options under consideration for oil transiting the Black Sea to bypass the Bosporus Straits.
Regional Conflict
In almost any direction, Caspian region export pipelines may be subject to regional conflict, an additional complication in determining final routes. The Uzbek government is dealing with the threat of rising Islamic fundamentalism in Uzbekistan, Afghanistan remains scarred by over 20 years of war, the Azerbaijan-Armenia war over the Armenian-populated Nagorno-Karabakh enclave in Azerbaijan has yet to be resolved, separatist conflicts in Abkhazia and Ossetia in Georgia flared in the mid-1990's, and Russia's war with Chechnya has devastated the region around Grozny in southern Russia.

Nevertheless, several export pipelines from the Caspian region already are completed or under construction, and Caspian region exports are already transiting the Caucasus. While the hope is that export pipelines will provide an economic boost to the region, thereby bringing peace and prosperity to the troubled Caucasus and Caspian regions in the long run, the fear is that in the short-term, the fierce competition over pipeline routes and export options will lead to greater instability.
Sources for this report include: Caspian Business Report; CIA World Factbook 2000; Economist Intelligence Unit ViewsWire; Interfax; Oil and Gas Journal; PlanEcon; Petroleum Economist; Radio Free Europe/Radio Liberty; Reuters; Russia Caspian Energy Watch; U.S. Department of Commerce's Business Information Service for the Newly Independent States (BISNIS); U.S. Energy Information Administration; U.S. Trade and Development Agency; WEFA Eurasia Economic Outlook; press reports.
For more information from EIA on the Caspian Sea Region, please see:
EIA: Country Information on Azerbaijan
EIA: Country Information on Iran
EIA: Country Information on Kazakhstan
EIA: Country Information on Russia
EIA: Country Information on Turkmenistan
EIA: Country Information on Uzbekistan
Links to other U.S. government sites:
U.S. Department of Commerce, Business Information Service for the Newly Independent States (BISNIS)
U.S. Department of Commerce, Country Commercial Guides
U.S. Department of Commerce Trade Compliance Center: Market Access Information
2000 CIA World Factbook
U.S. Department of Energy, Office of Fossil Energy: International Affairs
U.S. International Trade Administration, Energy Division
U.S. Iran-Libya Sanctions Act
Library of Congress Country Study on Iran
Library of Congress Country Study on the former Soviet Union
U.S. Embassy, Baku
U.S. Embassy, Almaty, Kazakhstan
U.S. Embassy in Turkmenistan
U.S. Embassy in Tashkent, Uzbekistan
Radio Free Europe/Radio Liberty
RFE/RL: Energy Politics in the Caspian and Russia
U.S. Department of State, International Information Programs U.S. Department of State, Background Notes
U.S. Treasury Department's Office of Foreign Assets Control

The following links are provided solely as a service to our customers, and therefore should not be construed as advocating or reflecting any position of the Energy Information Administration (EIA) or the United States Government. In addition, EIA does not guarantee the content or accuracy of any information presented in linked sites.

Azerbaijan International
Central Asia-Caucasus Institute
Azerbaijan Internet Links
President Aliyev's Home Page
U.S.-Azerbaijan Council
The Center for Middle Eastern Studies (University of Texas at Austin) - Iran
Iran Online
Interests Section of the Islamic Republic of Iran in Washington, DC (in the Pakistani Embassy)
Permanent Mission of the Islamic Republic of Iran to the United Nations
Gulf Wire
Iranian Trade
National Petrochemical Company of Iran
MENA Petroleum Bulletin
Salam Iran Home Page
Iran Daily, Morning English Newspaper
Iran Weekly Press Digest
Iran Press Service
Central Eurasia Project: Kazakhstan
Chevron: Kazakhstan and the Caspian Sea Region
Kazakhstan Information
Kazakhstan, Official Site of the President
Offshore Kazakhstan International Operating Company (OKIOC)
Take a Look at Kazakhstan
World Bank
Embassy of the Russian Federation in the United States
Energy Russia: website of the Centre for Energy Policy in Moscow, Russia
United Nations Framework Convention on Climate Change and the Kyoto Protocol
Interfax News Agency
Russia Today
The Washington Post, World Section
University of Texas: Russian and East European Network Information Center
Columbia University: Russia Subject Index
Lonely Planet World Guide
Turkmenistan Information Center
Interfax News Agency
Interactive Central Asia Resource Project
EurasiaNet.org--News and Analysis from Central Asia and the Caucasus
Central Asia-Caucasus Institute
Cyber Uzbekistan
Embassy of the Republic of Uzbekistan in Washington, D.C.
Umid Presidential Scholarship Program: Uzbekistan
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File last modified: July 23, 2001
Contact: Lowell Feld Lowell.Feld@eia.doe.gov Phone: (202) 586-9502 Fax: (202) 586-9753 URL: http://www.eia.doe.gov/emeu/cabs/caspian.html