CASPIAN REGION REQUIRES EUROPEAN INVESTORS' MORE FOCUSED ATTENTION

 

That uncertainty prevailing at the European gas market, which is concerned with attempts taken by the European Committee to introduce an agreed energy policy accompanying with a high degree of liberalization seems to be more strengthened. E. U. member-states consider energy as a priority of their national security and do not want to yield their sovereignty in the power engineering sector to the Pan-European energy security system. But in accordance with the European Union Treaty, Brussels has no right to take binding decisions on this issue.

 

Focusing their attention on domestic issues, European countries pay less attention to their activity on foreign markets. The sluggish activity of European countries in the issue of advancing transport projects of a Pan-European importance such as Nabucco, continuation of putting into commission new gas export branch lines from Turkmenistan, Azerbaijan, Georgia, and Turkey, lack of contracts on gas supplies with new Caspian gas-producing nations, as ell as low investment activity of large scale European oil and gas companies in searching for additional sources of raw materials particularly in the Caspian region rich in energy resources.

 

On the other hand, the growth of demand on electricity and threat to energy security due to monopoly aspirations in some producing countries, as well as turn to gas from coal and oil to gas have had an effect on the formation of the energy security as a political priority, not only economic need. 

E. U. seeks for efficient improvement in its energy security without any direct impact on it that names liberalization. Moving the liberalization forward, i. e. removing barriers to join the market and counterfeiting with nationalist claims and attempts to throw obstacles  in foreign owners' seizing energy companies, the Commission will assist the European energy sector to become more flexible and better prepared for depressions.

In accordance with the official letter sent by the Commission to the E. U. Parliament, which has been published early in the year, it will call everyone upon to follow more efficient legislation, division of electric-power and gas sectors, as well as to great investments into the energy infrastructure. The mentioned letter says that the amount of investments to be put by E. U. only to electricity generation is estimated at €900 bln. for the next 25 years.  In addition, it recommends increasing the level of use of renewable energy in E. U. general energy generation volume up to 20% by 2020. At the same time, the five European countries - Germany, France, Italy, the Netherlands, and U. K. keep on consuming over 70% of the gas consumed by E. U, and World's three giants - E. ON of Germany, EDF of France, and Enel of Italy (the forth one, Endesa SA of Spain has been merged by Group of Acciona of Spain and E. ON of Germany) keep on possessing both key gas and electric power assets in E. U. and beyond it (E.ON holds 6.5% out of the stocks of Russia's oil giant, Gazprom, in particular).   The market of U. K., which is considered to be the key adherent of this process in E. U., still remains a more liberalized one in Europe. 

 

E. U. taking timid attempts to demonopolize its market may turn out to be insufficient to solve the still progressive energy security issue. Since many rough sources do not have a direct infrastructure connection with the European market and require European investors' more focused attention like it was in 1990s.

 

Azerbaijan traditionally has a direct access (bypassing middlemen) to the European market, which is expected to pipe over 50 mln. tons of oil per year via the main export Heydar Aliyev Baku-Tbilisi-Ceyhan Pipeline the next year. Azerbaijani gas produced from the "Shah-Daniz" Deposit will be exported to the Turkish city of Erzurum via the South-Caspian Pipeline (SCP) in the current year. Despite the fact that the export infrastructure is intended for a concrete piping capacity - for the export of Azerbaijani resources, official Baku has always stated that Azerbaijan is open for negotiations and ready to present its infrastructure for the transit of energy resources from other Caspian countries. Last summer Azerbaijan and Kazakhstan signed a corresponding intergovernmental agreement on installation, operation, and maintenance of the Caspian transport corridor to export Kazakhstan oil via BTC, and the leading oil producing companies in Kazakhstan - ENI, Total, ConocoPhillips, Chevron, Itochu have been the BTC stockholders for a long time.

Kazakhstan's experience in cooperation with Azerbaijan may be not only repeated nowadays, but also multiplied by Turkmenistan, which has determined its oil and gas field as a priority.

The first consequent steps taken by Turkmenistan's President, Gurbanguly Berdymukhammedov immediately after his electing the head of the state proves all that.

During the extended sitting of the Cabinet of Ministers of Turkmenistan held at the end of March, 2007, the President announced the foundation of the State Agency for Governance and Use of Hydrocarbon  Resources under the President of Turkmenistan that speaks about the future strategic nature of initiatives displayed by this state agency.

Having appointed Bayrammyrat Myradov, Mr. Berdymukhammedov outlined a set of tasks to be implemented by him. These tasks included particularly the attraction of foreign capital and involvement of World's leading companies, which have relevant experience and up-to-date technologies in the field of exploration, production, refinery and processing of hydrocarbons.

The full-scale development of hydrocarbon resources of Turkmenistan's Caspian Sea sector, as well as its coastal areas has been determined as priority tasks as well. Then, the Prime-Minister of Turkmenistan, Tachberdy Tagyyev read out the programme on development of the fuel and energy complex for 2007. Some 80 bln. cubic meters of gas and 10.4 mln. tons of oil are to be produced in accordance within the mentioned programme. Thus, the gas production volumes will increase by 20%, with the oil production rising by 15%. By different intergovernmental agreements, some 58 bln. cubic meters of gas are expected to be exported this year. This figure exceeds the last year's indicator of fuel supply to foreign consumers by 25%. The total amount of investments put into the further development of the field will double and reach 17.7 trillion of manats (Turkmenistan national currency), Turkmenistan.ru reports.

In April, 2007, the President signed Enactment 28524 on Inter-office Commission of Turkmenistan for Issues with the Caspian Sea. About 20 representatives of different ministries, agencies, enterprises, and institutions entered the new state agency.

The commission is to unify proposals put by different ministries and agencies regarding use of hydrocarbon and other resources, take part in the preparation of Draft-Convention on the Legal Status of the Caspian Sea, as well as develop drifts-international agreements on cooperation and peace offshore, and settle many other tasks.

In accordance with the mentioned enactment, the commission "studies the international experience in of joint development of fields". It means that Turkmenistan was primordially keen on compromise settling troubles connected with sharing and using of disputed fields. Taking into consideration the closeness of Turkmenistan's offshore block of perspectives fields to Azerbaijan's offshore infrastructure, which is linked with the South-Caucasian Transport Corridor, such cooperation may have far-reaching and very interesting perspectives.

Turkmen geologists claim that 12 bln. tons of oil and 6 trillion cubic meters of gas are bedded in the bosoms of the Turkmen shelf of the Caspian Sea. To launch the development of these resources, the country needs considerable foreign investments worth of about $50 bln., but the international practice does not rule out any attraction of such a capital into a politically-undetermined project.

Solving this issue will open ways of implementation of the project on a trans-Caspian gas pipeline from Turkmenbashi to Baku. E. U. has granted €1.7 mln on the preparation of a feasibility study of this project. The consortium consisting of MottMcDonald Ltd of U. K., Kantor Management Consultants and KLC Law Firm of Greece, ASPI Consulting Engineers of Azerbaijan will prepare it by the midst of 2008. Until that moment, Ashgabat and Baku can entirely agree on sharing the offshore and reserves. A breakthrough in relations between the two countries is most likely to be reached during the forthcoming visit of Mr. Berdymukhammedov to Baku, who was invited to Azerbaijan by President Ilham Aliyev.

 

While Ashgabat and Baku are just on the way of establishing cooperation between each other and foreign investors rarely visit Turkmenistan aiming at the investment climate in Turkmenistan, Russia led by its President Vladimir Putin is obtaining a carte blanche for the maximally reachable opportunity to fortify its positions in Middle Asian countries.

On May 12, in the Turkmen town of Turkmenbashi the Presidents of Russia, Turkmenistan, and Kazakhstan signed Declaration on Construction the Caspian Gas Pipeline. The presidents commissioned the governments of the countries they led to prepare the final agreement on implementation to further sign it until September 1, 2007.

The future gas pipe is expected to be laid along with the Turkmen coast of the Caspian Sea and further jointed with the operating gas main of Middle Asia - Centre on the Kazakhstan-Russian border around the settlement of Aleksandrov Gay.

In addition, the very countries plus Uzbekistan has signed Declaration on Development of Gas and Transport Capacities in Central Asia. The parties pledged "to prepare Agreement on Cooperation among Four Countries on Reconstruction of the Operating Gas and Transport System and Installation of New Facilities for the Transportation of Gas Produced in the Central Asian Region and sign it until September 1, 2007. Moreover, the operating gas main, which was put into use as far back as in 1967, is expected to be modernized as well.

Russian President, Vladimir Putin stated that Russia was ready to put investments not only into the pipeline system but also into hydrocarbon production, by adding that there were corresponding agreements on attraction of such a capital between energy companies of the countries.

At the same time, Turkmenistan President, Gurbanguly Berdymukhammedov said that the project on laying a trans-Caspian pipeline, which might link Middle Asian countries with Turkey, was still under consideration.

The Turkmen leader added that diversification of gas distribution routes kept on going all over the World.

During the joint press-conference after the signing of the declarations, Mr. Berdymukhammedov and Kazakhstan President, Noursultan Nazarbayev stated once more that they still kept their interest toward the Trans-Caspian Gas Pipeline Project.

For its part, the Caspian Gas Pipeline Project is to be implemented in two stages. The first stage envisages the reconstruction of the Middle-Asia-Centre Pipeline form the western Turkmenistan with the capacity of 10 bln. cubic meters per year until 2010. In 2006, 0.4 bln. cubic meters of gas were piped via this pipe. A new line with the capacity of 20 bln. cubic meters may be laid until 2017 within the second stage. The Central Asian Project is targeted on increasing the capacity of the Middle-Asia-Centre System (Pipe Run 1, 2 and 4) from 60 bln. cubic meters to 75-80 bln. cubic meters after 2010.

 

Despite the resolution of Russian authorities, the economic component of the Caspian Gas Pipeline Project is considerably retarded from its political one. The expected expansion of the piping capacity will require great investments into the development of new fields.

In 2006, Turkmenistan produced about 65 bln. cubic meters of gas, with 45 bln. cubic meters out of them exported to Russia via the Middle-Asia-Centre System, and 7 bln. cubic meters - to Iran via the Korpedje-Kurt-Kui. The gas production and export are expected to increase by 15 bln. cubic meters starting from 2007.

Turkmenistan has intensions to increase gas sale to Gazprom of Russia from the current 50 bln. cubic meters to 90 bln. cubic meters of blue fuel per year, as well as launch the gas export to China at a rate of 30 bln. cubic meters per year after 2010. The duration of the supplies are 25 years. Other projects, including the project on laying a pipeline to India via the territory of Afghanistan, etc. will certainly require additional gas resources.

As a consequence of all that, Turkmenistan will need to increase its gas production from the current 80 bln. cubic meters per year minimum up to 150-160 bln. cubic meters after 2010. Taking into consideration the deposit life and pressure decrease coefficient, Turkmenistan's largest developed field of Dovlet-Denmez (the key source for the Middle-Asia-Centre Pipeline) with the remaining recoverable resources at about 1 trillion cubic meters of gas will allow increasing the production only by 4-6 bln. cubic meters per day to the current rate.

The commercial gas inflow with the daily gas production rate at 1.4 mln. cubic meters and at the depth of 4.500 meters have become available under the assistance of a Chinese service company, CNPC on a new gas field, Yuzhniy Iolotan'. It was revealed that the total bulk of gas-saturated productive subsalt carbonate complex (reservoir) had reached 570 meters.

The development of deep-seated pools of Jurassic subsalt deposits requires great investments, which were abandoned by Gazprom, which produce gas in Uzbekistan (400 bln. cubic meters of reserves - Usturt region) from persalt deposits. In addition, anyway Russian gas monopolist buys almost all gas volumes produced in the Middle Asia at a price of $100 per 1.000 cubic meters to further sale it at a much higher price in the European market. Taking into consideration the programme on full-scale development of fields of the continental shelf, initiated by the Russian President, and which Russia currently elaborates, where the matter concerns huge gas reserves, the strategy on development of Turkmen fields of difficult of access seems to Russians not so gratifying. According to the data of the mentioned project, as of July 1, 2003, the initial aggregate hydrocarbons resources of Russia's offshore periphery of Russia had reached 135.5 bln. tons of standard coal or about 100 bln. tons of recoverable resources, including more than 13.5 bln. tons of oil and about 79 trillion of cubic meters of gas.

The development of the Turkmen shelf by Russian companies also seems not so promising (perspective) since as far back as in 2001, the consortium of Russian oil and gas companies of Zarit led by Itera of Russia, which was targeted on operating on the Turkmen shelf, was established, but no real progress in the investment activity of this organization has been observed yet. During the visit of Mr. Putin to Turkmenistan, they announced the establishment of a new joint-venture (JV) between Russia's two largest oil and gas giants - Gazprom and LUKOIL to develop fields of Turkmenistan's Caspian sector. This is also unlikely since despite the announced strategic partnership between the two Russian giants, Gazprom does not fasten to permit gas belongs to LUKOIL to its gas export networks, and that is the key reason of such a slow advance of gas projects of Russia's largest oil company on the Russian shelf of the Caspian Sea.

Therefore, the pace of implementation of the Caspian Gas Pipeline will not so rapid as it was claimed at a high political level. It will most likely to be proportional to the activity of Russian investors in projects on exploration and development of fields in Turkmenistan. Russian (Gazprom-put) investments into the development usually make waiting for a long time if recollect a 14-year history of programme on development of the Russian continental shelf, as well as 10-year history of (LUKOIL-run) programme on development of the Caspian shelf of Russia.