Export options for Caspian oil and gas

The Caspian Sea is likely to prove as prolific as the North Sea, but will not be comparable with Saudi Arabia and the other major Persian Gulf producers.

This is the view of London's Centre for Global Energy Studies (CGES), which said that some estimates of potential Caspian Sea production have been misleading, although the region is likely to become an important source of oil.

This, in turn, will have a major bearing on which and how many pipelines will be involved in exporting any exportable surplus of Caspian-region oil and gas.

Exportable surplus estimates

"Unless the exploration effort by international oil companies in the Caspian Sea becomes more successful than it has been so far," said CGES, "the Caspian republics between them will be producing about 3.5 million b/d by the year 2010.

"Of course, exploration successes in the waters off Azerbaijan, Kazakhstan, or Turkmenistan could significantly increase this figure, but such successes have yet to materialize."

The analyst reckons that, even if oil demand in the Caspian republics grows at an average 4%/year until 2010, the region will still have an exportable surplus of about 2.5 million b/d of oil. Of this total, 1 million b/d is expected to come from Azerbaijan, while 1.5 million b/d will come from the Central Asian republics east of the Caspian.

The "early oil" pipelines from Baku to Novorossiisk and Baku to Supsa are expected to carry up to 500,000 b/d of oil to market, while crude oil swaps with Iran and other existing routes are expected to account for 250,000 b/d.

"More oil must be discovered," said CGES, "as a result of the exploration work currently being undertaken in the Caspian Sea, if more than one main export pipeline with capacity of more than 1 million b/d is to prove economically viable."

Proposed pipelines

A number of pipelines have been proposed, with a view to carrying oil from the region to the west, to Iran, and even to China and Pakistan (OGJ, Mar. 9, 1998, p. 27).

Most of the pipeline proposals put forward to carry Caspian Sea exports are routed westward: "This is a reflection of both the predominance of U.S. and European companies in the consortia developing the oil and gas resources of the region and of the continued antipathy on the part of the U.S. towards pipelines crossing Iran."

Most of the proposed pipelines also avoid crossing Russia, said CGES, reflecting the fact that Caspian republics wish to assert their independence from Russia, as well as the fact that offshore loading terminals can be built anywhere along the Black Sea coast.

CGES said the Caspian Pipeline Consortium (CPC) will go ahead and will carry oil from Tengiz field and condensate from Karachaganak field to Novorossiisk for export. It is also expected to carry oil from other fields around the northern shores of the Caspian.

"The project has been hampered by a series of delays," said CGES, "but does at last seem to be moving ahead. Even with low oil prices expected to persist for several years, projected output from Tengiz and Karachaganak should be sufficient to ensure that Phase I of the project, at least, is economically viable."

The CPC pipeline will ultimately have capacity to carry 1.34 million b/d of liquids, leaving a further 160,000 b/d that could easily be handled either by swap arrangements with Iran or exported through a variety of existing pipelines, as is the case now.

"This volume of oil is certainly not sufficient to justify the construction of a pipeline beneath the Caspian Sea," said CGES, "nor a pipeline across Kazakhstan to China."

A feasibility study under way for the proposed Kazakhstan-China pipeline is expected to show that capacity would have to be substantially higher than the 400,000 b/d currently envisioned.

"A throughput of close to 1 million b/d is likely to be needed to make the project viable," said CGES. "Kazakhstan is not likely to have sufficient production to support the Chinese pipelines at this level of throughput.

"The most obvious source of additional oil would be the Russian fields of Western Siberia that are already connected by pipeline to eastern Kazakhstan. It is far from clear, though, whether Russia will allow itself to become dependent on Kazakhstan for its eastern oil exports."

CGES said that, given the huge uncertainties surrounding the true potential of the Caspian region as an oil producer, Iran's phased approach to exports makes a great deal of sense.

"With most of the necessary infrastructure already in place," said the analyst, "albeit requiring flows to be reversed, Iran is in a position to expand its capacity to export Caspian crude quite cheaply as and when production levels become adequate.

"Fears that Iran, as a competitor in the oil market, might seek to restrict Caspian oil exports should be mitigated by the fact that Iran will become a significant user of Caspian oil in its northern, and possibly mid-country, refineries."