Caspian energy development -- the second phase

Jonathan ElkindJoint Global Change Research InstituteUniversity of Maryland

Progress to date Independent resource decisions Endless debates – how much and

when?Upstream

PSAs agreed Initial field explorations

Transportation is the key Multiple pipelines as a commercial need

Status of Caspian energy developmentRegion is “on the map”

A core part of the global energy sceneDiversification of global energy supplyPotential contributor for well-beingComplicated force

Source of stress as well as benefit for post-Soviet states and Turkey as well

The second phaseMulti-decade relationships

Challenges: Changing political landscapes Need to maintain contractual terms Prominent environmental considerations Concerns over societal benefit

Oil productionTengizchevroil– approx. 240K barrels/day in 2000

Producing as TCO since 1994Azeri-Chirag-Guneshli – 117K BBL/day in 5/01

AIOC producing since 1997 Moving now on Phase One – 470K BBL/day

Karachaganak – 80K BBL/day; twd. 230K

Recent export woes

Dry holesAbsheron

Work aheadAzerbaijan – Nakhicevan, Inam, Alov

Russia – Severniy block

Kazakhstan – Kashagan, Khvalinskaya

Oil production (continued)

Oil transportation Early oil pipelines

Baku-Novorossisk – approx. 100K barrels/day

Baku-Supsa – approx. 100K barrels/day

Caspian Pipeline Consortium – 560K barrels/day

Benefits for Russia How to interpret delayed start of operations

– Concerns over quality bank? More? Implications for Transneft?

Oil transportation (continued)

Baku-Tbilisi-Ceyhan – 1M BBL/day, projected for 2004

Sponsors Group participation BP leadership Non-AIOC additions -- Eni Question marks -- Chevron? Lukoil? Exxon-

Mobil? Detailed engineering & sanction decision –

summer 2002

Oil transportation (continued)

Implications for Turkish Straits Baseline of 1.2 million barrels / day New increments of Russian production CPC now on-line

Need for other routes out of Black Sea? Odessa-Brody line? Other “bypasses”?

Gas production Azerbaijan

Shah-Deniz – plus others?

Kazakhstan

Turkmenistan World’s third-largest reserves Strategic competitors Isolating itself

Gas transportation Western European gas demand growth Uncertain Turkish gas demand

EIA: 4.7% annual growth from 1999 to 2020

New sources of supply Blue Stream – 8 BCM to start, 16 later; on-stream 2002?

Baku-Erzurum – 7 BCM to start; on-stream 2004?

Trans-Caspian Gas Pipeline – not in our lifetimes Turkmen and Kazakh gas flow through Russian system

to Turkey and Central/Western Europe

The big questions aheadRussia’s role

Changes in Russian energy sector Active commercial role in Caspian?

Iran’s role Delimitation controversy

Oil export line after Baku-Ceyhan? Production volumes Direction

The big questions ahead (cont’d)

Environmental challenges Legitimate issues

Spill response capabilities Legislation and institutions

Misdirected concerns Other energy and industrial development “Blame the oil companies” Need for transparency, data, NGO dialogue

Contact information:

Jonathan Elkind

Senior Research Associate

Joint Global Change Research Institute

University of Maryland

8400 Baltimore Avenue

College Park, Maryland 20740

tel.: ++1-301-314-6738

fax: ++1-301-314-6741

e-mail: jelkind@umresearch.umd.edu

http://globalchange.umd.edu