Caspian dreams

Julia Nanay, a director of Petroleum Finance Co., Washington, D.C., says the reality of the Caspian region's potential is beginning to sink in. She told a Middle East Institute meeting that Kazakhstan is the most important country in the Caspian region to U.S. firms, since it probably has the greatest oil reserves. Kazakhstan has the largest U.S.-led foreign oil and gas investment in the Former Soviet Union (FSU), the onshore Tengiz joint venture.

Oct. 26, 1998

3 min read

Patrick Crow
Washington, D.C.
[email protected]

Julia Nanay, a director of Petroleum Finance Co., Washington, D.C., says the reality of the Caspian region's potential is beginning to sink in.

She told a Middle East Institute meeting that Kazakhstan is the most important country in the Caspian region to U.S. firms, since it probably has the greatest oil reserves. Kazakhstan has the largest U.S.-led foreign oil and gas investment in the Former Soviet Union (FSU), the onshore Tengiz joint venture.

She said Azerbaijan is the most important to the U.S. politically, because the U.S. is seeking to make it the hub for collecting Caspian oil and gas production and exporting it to Western markets via Georgia and Turkey.

Azerbaijan International Operating Co.'s (AIOC) three-field offshore development-comprising Azeri, Chirag, and Guneshli fields-involves the second largest production-sharing contract in the region.

"Between them, the Tengiz and AIOC projects hold upwards of 10 billion bbl of oil reserves and sizeable volumes of associated gas reserves," said Nanay.

Turkmenistan has the second largest gas reserves in the FSU after Russia. It has attracted less investment than Azerbaijan and Kazakh- stan but may have sizeable oil reserves.

In perspective

Nanay said, "All the hype about the Caspian, particularly since last summer, has distorted the commercial realities of this region."

She said many other regions have larger reserves than the Caspian's 20-30 billion bbl, and the Middle East has more than 20 times that.

She indicated that international oil companies should be more interested in the potential opening of Saudi Arabia, Kuwait, Iraq, and Iran to foreign investors.

"To put the Caspian in perspective, current production from Azerbaijan, Kazakhstan, and Turkmenistan is about 800,000 b/d, with two-thirds of this represented by Kazakhstan. Expected production by 2010 is in the range of 3-4 million b/d, if things go well.

"While this is substantial, it is half of what Saudi Arabia currently produces, less than Russia's production, and less than what the U.S. produces. Venezuela (alone) may be producing an additional 3 million b/d by 2007, equivalent to what is expected from the Caspian by 2010."

Politics

Nanay said, "It is politics that has created the hype about the Caspian, not the oil companies."

The U.S. issued "wildly inflated estimates" of 100-200 billion bbl of postulated Caspian oil resources in June 1997, she said, even though oil company estimates were a fraction of that.

The U.S. then began promoting major export pipelines that avoided both Russia and Iran.

"It has been a roller coaster ride ever since, with the political stakes now so great on all sides that the disappointed parties will have a hard time accepting defeat."

Meanwhile, few discoveries and falling oil prices have made the feasibility of large pipelines questionable.

Nanay said a new line is moving 75,000 b/d of oil for AIOC, a 100,000 b/d line will begin taking crude to the Black Sea port of Supsa this month, and a short pipeline is tranporting gas from western Turkmenistan to Iran.

"These less costly projects have succeeded and may be barometers for future successful developments."