OTC: Caspian Sea region to become major non-OPEC oil supplier by 2025

By Paula Dittrick
Senior Staff Writer

HOUSTON, May 6 -- The Caspian Sea region is positioned to become a major contributor of non-OPEC oil supply growth in coming years although the region still has some obstacles to overcome, panelists said Monday at the Offshore Technology Conference.

A US Energy Information Administration spokesman said the Caspian region currently produces 1.5 million b/d of total liquids. Proved reserves under the Caspian Sea and in the surrounding coastal areas, excluding Russia and Iran, range from 17-33 billion bbl depending upon the source.

W. Calvin Kilgore, director of EIA's office of energy markets and end use, said his office predicts that Caspian production will reach 3.4-4 million b/d of total liquids by 2015.

EIA recently forecast that the Organization of Petroleum Exporting Countries will produce nearly 56 million b/d by 2025, compared with current production of 27 million b/d.

Meanwhile, Russia's oil production is expected to start falling off after 2015, while the Caspian Sea region is expected to show major incremental increases during 2020-25 in both oil and natural gas, Kilgore said.

US energy policy
Candy Green, international energy officer for the US State Department, said US energy policy regarding the Caspian Sea region during the 1990s focused on transportation issues. Progress has been made on pipeline route issues, she said, adding, "That does not mean that all the problems have gone away."

Regional challenges still include the need for respecting contracts, strengthening democracy, transparent management of oil and gas earnings, and the curtailment of corruption, Green said.

"We all win when transparency and free markets prevail," Green said, adding that development of the Caspian Sea region's reserves and infrastructure hinges upon financing. The region needs $10-12 billion in 3-5 years for oil field services alone, she said.

Regarding Russia, Green said the US government sees "merit in involving the private sector in Russian pipeline development." Russia is expected to issue a report regarding its pipeline development later this month, she noted.

"Russia will need to allow competition in gas transportation," Green said. "We continue to see room for improvement in the investment climate."

Overall, billions upon billions of dollars worth of investments are needed to tap into Russia and the Caspian Sea region's energy potential, said Amy Jaffe, senior energy advisor to the James A. Baker III Institute for Public Policy of Rice University.

"Companies that want to go to capital markets will have to exhibit transparency . . . . It's the need for capital that will drive the end of corruption," Jaffe predicted.

Corporate policy
Thomas Knudson, ConocoPhillips senior vice-president of government affairs and communications, said the world needs the Caspian's resources, and in turn, the Caspian region needs more private investment.

In the past 3-4 years, public oil and gas companies have shifted their primary focus from building production volumes to trying to ensure predictable earnings and quality returns for shareholders, Knudson said.

Oil and gas companies are looking to create legacy assets while seeking stable, predictable, and transparent fiscal and tax regimes. This is true regardless of whether the project is in the Caspian Sea, the North Sea, or the Gulf of Mexico, he said.

In its quest for legacy assets, ConocoPhillips also looks for market-driven development prospects having secure, dependable transportation options, he said. ConocoPhillips will not develop giant fields unless it also sees viable markets and a means of reaching those customers, he said.

ConocoPhillips has a stake in giant Kashagan oil field in the Caspian Sea. Kashagan is expected to begin producing in 3-4 years (OGJ, Mar. 17, 2003, p. 42).

Contact Paula Dittrick at paulad@ogjonline.com

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