Russia is maneuvering into position to reap the benefits of future development of the Caspian Sea Region's bountiful oil and gas reserves.
Although the legal status of the Caspian and the division of its resources are major points of contention between the littoral states (Azerbaijan, Russia, Turkmenistan, Iran, and Kazakhstan), Russia is moving ahead with plans that ensure it receives its share of the wealth.
Legal Status of the Sea:
On the legal front, on November 9, 2000, Viktor Kalyuzhnyy, Russia's presidential envoy for Caspian issues and former fuel and energy minister, reported that Russia and Azerbaijan are narrowing their differences over the status of the Caspian Sea and that now both countries advocate dividing the seabed into national sectors.
Unlike Russia and Kazakhstan, which earlier agreed on dividing the seabed in the northern Caspian, Azerbaijan has been proposing that the parties divide both the seabed and the waters.
Azeri and Russian officials hoped to conclude a bilateral agreement on dividing the seabed in the near future.
Transit of Caspian Oil via Russia:
Although an agreement was signed between Turkey, Azerbaijan, and Georgia in November 1999 for the construction of a pipeline bypassing Russian territory, Russia continues to be a major player in Caspian Sea energy transit politics.
Russia is pushing for the main export pipeline of the Azerbaijan International Oil Consortium (AIOC) in Azerbaijan to be routed through Russia to the port of Novorossiisk instead of to Ceyhan or to the Black Sea port of Supsa, Georgia, where a 100,000-bbl/d pipeline already is in operation.
In the meantime, Russia is guaranteeing its inclusion in the Caspian region through the construction of a 980-mile pipeline by the Caspian Pipeline Consortium.
The pipeline, which is already under construction, will have the capacity to export 1.34 million bbl/d from the Tengiz field in western Kazakhstan to a terminal near the Black Sea port of Novorossiisk by 2015.
Meanwhile, Transneft is in the early stages of a Baku-Novorossiisk pipeline that would bypass Chechnya.
Despite an estimated cost of $250-$300 million, analysts say that the ongoing Chechen conflict may make completing the the bypass pipeline more attractive to Russia, and thereby more attrractive to Caspian oil transit.
Russian oil strategists also are considering the feasibility of reviving a discussed pipeline located in the Astrakhan salient to pump Kazakh oil to Black Sea terminals, with a small branch that could provide a link to the under-utilized Baku-Novorossiisk route.
Russian Exploration and Development:
Russia is not merely relying on other countries to produce oil from the Caspian, however. On October 25, 2000, for the first time in their short history, Russia's three biggest oil and gas companies--Gazprom, Lukoil and Yukos--agreed to team up, forming the Caspian Oil Company, which will explore and develop petroleum reserves both offshore and in the surrounding region.
By combining forces in the Caspian, Lukoil, Gazprom and Yukos will be better able to raise capital for expensive offshore projects.
Russian oil corporations have little offshore experience, but the Caspian Oil Company already has applied to the Ministry of Natural Resources for exploration rights on a block covering over 9,600-square miles offshore Russia in the northern Caspian. Reserves in the area could be in the order of 300 million metric tons (22 million barrels).
Until now, Lukoil has been the only Russian oil company active in the Caspian. Lukoil has been exploring in the north Caspian, where it won the Severny Block in 1997.
Earlier in 2000, the company reported an important discovery in the Khvalynskoye Block, the first commercial discovery in the Russian sector of the Caspian.
Both oil and gas were found at Khvalynskoye, and Lukoil outlined a tentative development plan for the field, a move that threatens the delicate balance of geopolitics governing exports of Caspian oil.
In addition, Lukoil plans to drill eight exploratory, appraisal, and delineation wells on the 4,800-square-mile Severny license area. Development drilling is expected to begin in 2001 and could ultimately total about 200 wells.
Production is projected to start up in 2002 and peak at 15 million tons/year (300,000 bbl/d) by 2005.
Lukoil also spudded a second Caspian Sea well at Shirotnaya in June 2000, and the company has begun drilling from the Astra rig, which Lukoil had modernized at the Krasnaya Barrikadnaya shipyard near Astrakhan.
Russian Transit of Caspian Region Gas:
After months of negotiations, Russian and Turkmenistan announced on November 11, 2000 that the countries had reached an agreement whereby Gazprom will buy up to 30 billion cubic meters (1.06 Tcf) of Turkmen gas in 2001.
Turkmenistan previously contracted to sell 1.06 Tcf to Russia in 2000, and the country already has a deal to supply 1 Tcf in 2001 to Ukraine.
Russia needs the Turkmen gas to supplement Gazprom's sagging domestic production and provide enough gas for Russia's Blue Stream pipeline supplying gas to Turkey.
In the battle to supply gas to Turkey's exploding gas market, Russia had already won a strategic advantage because the Blue Stream pipeline is further advanced than the Trans-Caspian pipeline, which is planned to run from Turkmenistan via Azerbaijan and Georgia to Turkey.
Construction has already begun on the 565-Bcf-capacity Blue Stream pipeline, which will link the Russian and Turkish coasts via pipeline under the Black Sea.
Russia's imports from Turkmenistan could rise to as much as 2.1 Tcf in future years, accounting for much of Turkmenistan's gas production.
Along with Turkmenistan's commitment to supply gas to Ukraine, Russia's deal with Turkmenistan is seen by many analysts as dealing a critical blow to the Trans-Caspian Pipeline, which has counted on Turkmenistan as a major gas supplier for the pipeline.
Source:United States Energy Information Administration.
© 2000 Mena Report (www.menareport.com)
