NORTH CASPIAN PARITY AND EASTERN DISSONANCE

The beginning of 2005 was noted by active negotiation in high levels of the Caspian states. The president of Russia Vladimir Putin and the president of Kazakhstan Nursultan Nazarbayev changed by official visits, the president of Azerbaijan Ilham Aliyev and the president of Russia Vladimir Putin opened Azerbaijan Year in the Russian Federation. Russian Year-2004 has already completed in Kazakhstan.

Caspian problems were considered both in the North and East Caspian. Whole specter of geopolitics contradiction is in the center of attention, and from the stated parts of the Caspian depend the destiny of any economy project

There are great problems

One of the most important point of agenda of Vladimir Putin and Nursultan Nazarbayev within negotiation in Almaty became consideration of matters of commercial-economy cooperation in the field of energy. According to info of Kazakhstan president economy relations between two countries was prosperity last year: commodity turnover increased for 47% and reached $7 bn. that made a fourth of commodity turnover of the republic. Nazarbayev also thanked Putin for his first to Kazakhstan. As the president of Kazakhstan assured, "Russia is major foreign political priority to his country".

In advance conversation with the president of Russia, N. Nazarbayev made known, that Ministry of Energy and Mineral Resources of the Republic considers three largest projects by development of oil and gas fields, such as Kurmangazi, Central, Khvalinskoye. Regarding the latter two fields the documents have already been signed in Moscow later of March 14. Also " there is negotiation on project of Karachaganak's gas processing at Orenburg Gas Processing Plant", - said the president of the Republic of Kazakhstan.

"Serious operation that stopped" the president of Kazakhstan called the project of possibility enlarging of Caspian pipeline consortium's oil transportation from 28 mln. tons to 67 mln. tons per year. Realization of this project is "acceptable to both for Russia and Kazakhstan", - he said.

On his behalf, V. Putin offered to discuss CPC matter separately, so as there gathered a lot of problems. According to him, at the meeting has also been discussed the matter of cooperation in the field of energy-power of two countries.

The parties have come to an agreement in opinion that existing problems at this field are able to be solved, and developing cooperation is mutually advantageous and perspective. Hydrocarbon issue traditionally is one of the most important and subjectively not only in bilateral relations but also in the format of unite processes promoting by Russia and Kazakhstan.

Therefore during the meeting in Almaty it blended with problems connected with development of joint and regional organizations.

Shared but not all

Within the frame of cooperation between Russia and Kazakhstan (2004 - was announced as the Russian year in Kazakhstan) in the field of oil and gas the most important result can be called the agreement "KazMunayGaz" and "LUKOIL" on the base of "Dostik" (Friendship) project. This project includes joint development of Tub-Karagan and Atash areas in the Kazakhstan sector of Caspian Sea. Recoverable reserves estimation make 110 mln. tons of oil equivalent (t.o.e) and 130 mln. t.o.e accordingly.

PSA on "Dostik" project was signed on December 2003 that became positive on its perspective realization. Prospecting drilling on Atash area is planned to 2006-07, and the first well on Tub-Karagan will be drilled in 2005. There has already completed the engineering-geological pioneering at Tub-Karagan area in the Kazakhstan sector of the Caspian Sea. The operations were fulfilled by "GeoTeniz" (Kazakhstan) on the base of "Tub-Karagan Operating Company B.V." order which was company operator of established on the parity base "KazMunayGaz" and "LUKOIL Overseas". Operations' aims are taking up of necessary measures of safety within assembling of jack-up drilling rig (JDR) "Astra", its commissioning. The unit belongs to drilling contractor "LUKOIL-Shelf" (Astrakhan) invited to drilling operations at Tub-Karagan on the base of decision of Agency of the Republic of Kazakhstan on State purchasing.

In result of intergovernmental protocol signing between Russia and Kazakhstan to bilateral agreement of 1998 about differentiation of the North Caspian ground and in this case the boundary structure of Kurmangazi transformed under the jurisdiction of Kazakhstan, and Khvalinskoye field and Central structure which are under Russia.

At the same time the development of boundary fields should be fulfilled on the parity base for what on behalf of the government of both countries have appointed the plenipotentiary companies. Kazakhstan in all three projects represented by "associated" NC "KazMunayGaz" - Overseas Oil Company "KazMunaiTeniz", Russia-"Rosneft" (KazMunayGaz), "LUKOIL" (Khvalinskoye) and "LUKOIL" JV and "Gazprom" - "CentrCaspNeftgaz" LLC (Central).

Geology reserves of Central structure estimated in 1 bn tons, Khvalinskoye field - 260 bn tons, Kurmangazi structure - 6,2 bn tons, at the same time advance estimated of minerable reserves to 1 bn tons.

2005 was very profitable. "CentrCaspNeftgaz" JV signed with "KazMunayGaz" on March 14 Agreement about the principles of joint development of hydrocarbon resources at geology structure "Central" (Russian sector of the Caspian Sea). At that time LUKOIL signed with "KazMunayGaz" of constitutive documents "Caspian Oil and Gas Company" LLC JV founding for development of "Khvalinskoye" field, also transportation and selling of hydrocarbon resources including the production for its processing.

On August 2003 "Rosneft" and "KazMunayGaz" brought into consideration to the Ministry of Energy and Mineral Resources of Kazakhstan the project of PSA under development of Kurmangazi. Operations' beginning are planned to 2004 after PSA signing. But came into force the amendments to tax legislation of Kazakhstan on January 1, 2004 reduced the investment affinity of project. If previously the share of oil compensation is defined by each contract, then beginning from 2004 this figure set on the level 75% and after 50%.

In this connection Russia party declared about necessity in reconsideration of PSA project with purpose of development of compromise variant. "Rosneft" included its offers to consideration of Kazakhstan party, and expecting time of agreement signing was set till end of 2004. But as it was mentioned in OilCapital.ru, at the press-service of "Rosneft", PSA project is under consideration of Kazakhstan party thus far. So, beginning of works at Kurmangazi will be fulfilled later.

At the same time, during the negotiation between the president of Russia and Kazakhstan, which held on January 12, 2005, Nursultan Nazarbayev declared about preparation to PSA signing on Kurmangazi. "Rosneft" will have to wait the preparation of PSA "LUKOIL", and continuation of negotiation with Kazakhstan about safety of acceptable investments profitability of Kurmangazi project the cost of which is estimated at $1,5 bn.

Project's level of oil production at Kurmangazi was planned at 10 mln. per year. At the same time the structure prospecting and construction of field will take approx. 5 years, additionally will be necessary 5-6 years for annual volume of production to the project level.

On parity base

Last unsolved frontier problem between Russia and Kazakhstan is Imashev gas condensate field located in the west of Kazakhstan at border with Astrakhan region. It could be solved on the level of management of two countries. Probably, it became the main reason of brief meeting of Putin and Nazarbayev held on January 12 on the mountain ski resort Chimbulak under Almaty. They accepted "judgment worthy of Solomon" to bisection both the field and its territory.

On the base of agreement about state border between Russia and Kazakhstan achieved the agreements about "parity division of Imashev gas condensate field. It was declared by the president of Russia on completing of negotiation with the president of Kazakhstan. Vladimir Putin said that the governments of Russia and Kazakhstan were appointed to prepare intergovernmental agreement determining the principals of mutual works at this field, and also to set legal, taxes and customs regulations.

There was achieved the agreement that the field would launch mutually with Russia-Kazakhstan plant. There will be signed the agreement separately. Within launching of field will be signed additional document.

Russia and Kazakhstan are going to growth the cooperation in the space and fuel energy branches, said Vladimir Putin at the press conference at result of negotiation with the president of Kazakhstan Nursultan Nazarbayev. "The main perspectives are seen in strengthening of communications of BTC line", - said the president of Russia Federation.

N. Nazarbayev highly appreciated the completed of Russian Year in Kazakhstan. There are talked about development of economy, trade and cultural relations between neighbors regions of two countries. Meanwhile, according to Nazarbayev we should discuss careful the matters of Kazakhstan gas recovery in Russian gas recovery plants. The president of Kazakhstan discussed about increasing of Caspian Pipeline Consortium possibilities.

Legal event

The relations between Azerbaijan and Russia are in high level, and it was mentioned not once by the presidents of two countries Ilham Aliyev and Vladimir Putin. Despite to multi promising, unprecedented in the newest history positive, they are far from the highest level. The matter is fact that relations between two countries are specially actual in words of the National Leader of Azerbaijan Heydar Aliyev who said in 2001 that Nagorniy Karabakh issue for Azerbaijan is "the most important, but it is also important for mutual relations with Russia". Let's remind that Heydar Aliyev said, Azerbaijani community and personally "expects a lot from Russia, so as thinks that Moscow is able to enter decisive contribution and play the main role in settlement of Nagorniy Karabakh conflict".

The opening of Azerbaijan Year in the Russian Federation, the meeting of the president of Azerbaijan Ilham Aliyev and the president of Russia Vladimir Putin received the large resonance at the former Soviet area. If at the end of the last century Azerbaijan was thought seemingly as the major adversary of Moscow in Transcaucasia, then today its the major economy partner, strategy partner of Moscow in region. There is a wish to strengthen the political and economic communications between Azerbaijan and Russia. Majority Russian corporations would like to come to Azerbaijan and Russian management would like to providing of such kind of possibilities to them. Kazakhstan and Azerbaijan are two main countries in CIS, their "lost" would be mean CIS lost.

Acting (February 16) at official opening ceremony of Azerbaijan Year in Russia, the president of Azerbaijan Ilham Aliyev has emphasized, that between two countries there is a very active political dialogue, "we participate in regional questions, regional development, regional safety, economic communications very actively develop". "There is not casual that we qualify our relations with Russia as strategic partnership. We are partners and not only on words, not only in the applications, but also in practice, in real businesses. I wish that Azerbaijanis Year in Russia would be successful", - continued Ilham Aliyev, "but at the same time, I think that within 2005, we will also be preparing to fulfillment of the Russian Year in Azerbaijan, which will be held in 2006".

"The Initiative to carry out scale measures both in Russia, and in Azerbaijan was widely maintained both public, and creative collectives", - the president of Russia Vladimir Putin declared.

As he said, Russian Federation acts for the closest cooperation with Azerbaijan and feels same adjust on the part of Azerbaijan. "Once again I would like to wish to our peoples of the world well-being, and regarding Azerbaijan Year in Russia I would like to tell - welcome!", - the president of Russian Federation Vladimir Putin summarized.

Azerbaijan gives very large importance to realization of Azerbaijan Year in Russia. The president of Azerbaijan Ilham Aliyev methodically continues the strengthening of bilateral relations with Moscow in both economy and humanitarian sphere. The presidents of two expressed their satisfaction by increasing of turnover to the record figure up to 50% and reached almost a billion. "Anyway, we will soon reach billion, now goods turnover make about $ 800 mln". "Last year, we made such lath for 1 bn, that I am sure that in the nearest time we will be able to implement it", - emphasized the president of the Russia Federation V. Putin.

Within 1993-2003 Russian investments in Azerbaijan made up $350 million. The number of Russian companies desiring to operate in Azerbaijan is also widening. Presently there are 395 Russian companies in Azerbaijani market - including 176 JV, 95 with 100% Russian capital and 124 branches and representations.

The disputable issue remains singing of new tariff agreement implementing to Azerbaijani oil supplies via Baku-Novorossiysk. Russia offered to sign new agreement during visit of Azerbaijani president to Moscow. As it was mentioned to journalists the first deputy Prime Minister Abbas Abbasov the law about Azerbaijan oil export through Baku-Novorossiysk presented by Russian government with new terms and tariffs has not been accepted because of that the document don not meet to interests of Azerbaijan.

Let's note that according to agreement concluded with the government of Russia, thus far from Baku to Novorossiysk transported 2,5 million tons of crude oil, from the accounts per $15,67. The present conditions denude Azerbaijan from annually profit at $30-40 mln. Russia insists in signing of new agreement till 2010 and providing of state guarantees on concrete oil volume, which within these years will be transported through the current route. However, it is not acceptable for Azerbaijan. Therefore, the government of the republic declared its willingness again to begin negotiation with Russian side about the tariffs and conditions, which can be met to interests of our country. In 2005 Azerbaijan will be selling more than 2.5 million tons of oil to be shipped from Novorossiysk port. SOCAR has already sold 600,000 tons of crude since early of stated year.

Presence of problems in the

Caspian Sea

Today, taking into consideration the existence of bilateral and trilateral documents between Azerbaijan, Kazakhstan and Russia the Caspian problems are considered only in position of uncoordinated south part of the Caspian Sea.

It is interesting that next day after opening of Azerbaijan Year in Russian Federation there were accusations to Azerbaijan side from Russian officials. In February 17 was held "round table" dedicated to problems' realization of common international system of safety in the Caspian basin. There took part the representatives of the Ministry of Foreign Affairs of the Russian Federation, Russian Parliamentary and political scientists. An ambassador on the special instructions of the Ministry of Foreign Affairs of Russia, chief of working group in the Caspian sea Alexander Golovin declared that Russia position regarding the Caspian status consists that only Caspian countries have rights concerning the Caspian and its resources. He noted that there is some questions connected with division of area of water of the Caspian Sea within negotiation process within the bounds of created working group by determination of the Caspian status. In this connection they especially stated that USA declared the Caspian as an area of its interests. There is important for Russia do not let the permission the presence of military forces in the Caspian Sea that are not from the Caspian countries, - said V. Skvorcov.

However, according to results of last conference (January 28-29, 2005 in Ashghabad) the Special Working Group (SWG) on preparing of Convention regarding the Caspian Sea status was accepted the communique where noted that this congress was "in the spirit of constructive and mutual advantageous, chiefs of delegation stated the position of their countries regarding the Caspian status and different aspects of cooperation on the sea". There is said in the document that "the parties completed the discussion of the project of Convention concerning the Caspian status and arranged to determine of results and terms in continuation of works on matters' settlement that need of further decision".

Parties will apply the efforts

It would be better to remind that to SWG congress regarding the Caspian Sea in Ashghabad precedes the official visit of the president of Azerbaijan Ilham Aliyev to Iran. As it was mentioned the mutual declaration regarding the results of official visit of the president of Azerbaijan Ilham Aliyev signed on January 26 in Tehran between the presidents of two countries, "The Republic of Azerbaijan and Islamic Republic of Iran will apply efforts for becoming of the Caspian region as world zone, stability, neighbourliness and cooperation".

As it is mentioned in document: "The parties stated the necessity in continuation of constructive dialogue by Convention coordination regarding the Caspian status and at the same time expressed their wishes to make more active the mission of the Special Working Group at the level of Deputy Ministers of Foreign Affairs of the Caspian countries".

Meanwhile, there was stated in declaration the necessity of fast ratification and forcing into legal of signed in 2003, in Tehran by all Caspian countries of Framework convention about protection of sea environment of the Caspian Sea.

The parties are going to interact on bilateral and multiparty base "in purpose of strengthening of international policy, economy and order law, territorial integrity of all states" and other standards of international law.

New ballads about old

Against a background of constructive mutual relations of Azerbaijan, Russia and Kazakhstan frostily demonstrative distance of Iran the policy only of one country in the Caspian demonstrates disagreement to take into account the opinion of other "neighbors in the sea".

Ashghabad guess that it has a law to pretend to developing by Azerbaijan fields and appropriate the boundary Kapaz field which was opened by Azerbaijan geologists.

A number of loud requests regarding the problems of differentiation on the Caspian Sea have recently sounded. In particular, official Baku and official Ashghabad in next time have exchanged statements with claims on a disputable "Kapaz" field ("Serdar" in Turkish interpretation), and Teheran by speech of the official representative of foreign policy department Khamid Reza Assefy again has confirmed, that "Iran thinks that 20% of the Caspian Sea belongs to Iran and nobody will allow to carry out of any sort activity to the Iranian sector of the Caspian Sea".

After silence, this problem again was appeared by Turkmenistan side. Internet-publishing of Turkmenistan.ru placed the information that Canadian company "Buried Hill Energy" is going to take part in realization of projects of oil production in Turkmenistan sector of the Caspian sea, including gas recovery on the east of Turkmenistan. It was made known during the meeting with the president of Turkmenistan Saparmurat Niyazov director of "Buried Hill Energy" company Roger Hays.

According to information of State service of news of Turkmenistan, within negotiation were discussed the opportunities of fulfillment becoming interest for Canadian firm of the project of assimilation of one from perspectives Caspian blocks "Serdar" (in Azerbaijan interpretation "Kapaz"), also the creation with participant of "Buried Hill Energy" the processing of liquefied gas at "Takhtabazar" field located on Mariy vilayat.

"Turkmenistan greets the readiness of foreign companies to take part in development of hydrocarbon resources of Turkmenistan sector of the Caspian sea", - said during conversation Saparmurat Niyazov noted that "this is one of more perspective directions of development of fuel energy sector in the national economy, because there are major reserves of oil and approx. 25% of natural gas that Turkmenistan has".

Let's back to history. In 1970's, at the beginning of 1980's by Azerbaijan oil industry workers found 8 large fields of hydrocarbon, including "Chirag", "Azeri" and "Kapaz". In 1985 was found "Chirag" field. After 2 years after "Chirag" field's finding, on the south-eastern, there was found one more oil and gas field "Azeri". In 1988 was found "Kapaz" field. Turkmenistan particularly pretends to these Azerbaijan fields.

"Apple of discord" appeared when in the summer of 1997 Russian "LUKOIL" and "Rosneft" signed with SOCAR the agreement on activity at "Kapaz", that has caused the resolute protest from the party of Turkmenistan. Moscow has offered to cancel the agreement. In turn, Turkmenistan has tried to begin the development of "Serdar" mutually with Iran that has caused negative reaction of Azerbaijan.

2006 announced as Russian year in Azerbaijan that bring into new minds. Experts have not already excluded that under the Kremlin participation initiated this conflict in 1997 regarding "Kapaz" belonging this issue will find its soon solving.

Azerbaijan quietly concerns to conflict between Azerbaijan and Turkmenistan concerning the belonging of perspective structure "Kapaz", so as without Azerbaijan to develop the perspective structure "Kapaz" any serious oil company begins. It is connected, that developing this area mutually with Azerbaijan cheapest, than without it, taking into account an infrastructure available in the republic.

Azerbaijan repeatedly appealed to Turkmenistan with the purpose to forget for some time about central line and to create the joint company, thus in common to involve the investors for development of structure "Kapaz". However thus far Azerbaijan has not received any answer. But nevertheless, there is no anxiety in Azerbaijan regarding it. Azerbaijan has more than 20 signed contracts and one contract especially will not be reflected to oil industry of the republic.

Concerning the belonging of oil field "Kapaz" the chairman of committee on a geodesy and cartography of Azerbaijan Adil Sultanov previously declared that account of middle line was carried out by the experts of committee in view of islands of Baku archipelago.

Some years ago the group of American experts has presented to Azerbaijan a number of offers by definition of middle line on the Caspian Sea. So, studied the matter, the group has come to a conclusion that there are three variants of unit of the Caspian Sea between Turkmenistan and Azerbaijan.

One variant - is most favorable to Azerbaijan, second to Turkmenistan, third - meets to the interests of two parties. The American administration is seriously interested in the sanction of matter at issue by definition of the Caspian status, moreover it undertaken more concrete steps, carried out research work with connection of the companions, in attempt to define of the middle line.

Essence of the compromise offer consists in definition of a line, which are considered in the USA, is the most objective and can be a subject of negotiation between Caspian countries. However, in this case "disputable" "Kapaz" field - "leaves" to the territorial belongings of Turkmenistan. Azerbaijan disagrees with it. Basically, it is still the title of the further discussions.

Independent Azerbaijan concluded the contracts with consortiums of foreign companies in the middle of 90's regarding development of "Azeri-Chirag-Guneshli" fields. Turkmenistan declared that "Azeri" field locates in Turkmenistan sector of the Caspian Sea, and partly "Chirag". Azerbaijan thinks that these fields itself.

In spite of the fact that there are disputes between Azerbaijan and Turkmenistan both of them are interested in compromises and interaction. Today, the solving of this issue is more possible than it was in 2002, when Turkmenistan offshore projects were continued seesaw but Baku-Tbilisi-Ceyhan pipeline has just begun.

The representatives of the companies of Turkmenistan have already expressed their wishes in using of BTC: State Trade Corporation "Turkmenneftgaz" fulfills hydrocarbon export, "Dragon Oil" controlled by Emirates. "Petronas" Malaysian company and other oil operators of Turkmenistan shelf and onshore can join too.

BTC is the shortest route to European markets and probably the best for export for these companies. Because, at the present time approximately the half of whole Turkmenistan oil is shipped through the Caucasus direction.

The terms of Turkmenistan oil transportation through Baku-Tbilisi-Ceyhan oil pipeline depends of Azerbaijan authorities attitude. It means that official Ashghabad has the same stimulus to reach the compromise with Baku.

Peculiarity of Azerbaijan-Turkmenistan oil relations are acceptable, because of infrastructure geological production predisposition to unification. Nine of the largest opened oil fields of two countries placed almost on the equal line on the Cheleken-Livanov zone between Cheleken and Balu. Among them: "Azeri", "Chirag", "Guneshli", "Kapaz"/"Serdar", "Livanov" named after Zhdanov and LAM.

The distance between them makes from some km to some ten km that permit to create the system of underwater pipelines from Turkmenistan trade to BTC and Baku - Erzurum gas pipeline. Of course, charge of Turkmenistan project investors reduces, and selling possibilities, taxation payments will increase. "Petronas" has already used of neighborhoods' possibilities by rent in Azerbaijan "Transosean Sedko Forex" (USA) company's platform for drilling. So, if Azerbaijan-Turkmenistan will become soft or exhaust all, the countries began to cooperate in transit of hydrocarbon then profitability of the East Caspian shelf development will be more than the North Caspian. This tendency would assistance to growth of investments, service and credits request of participants of domestic offshore projects. When Turkmenistan do it is unknown.

However it will not prevent to stability development of oil and gas industry zone, as conditionally to the southwestern part as well as to North Caspian.