Iran News ...


9/20/07

Caspian Sea energy and big powers

Source: Research Institute of the Islamic Consultative Assembly

 

The newly independent states of Azerbaijan, Turkmenistan, and Kazakhstan are located in Central Asia and Caucasus and enjoy rich oil and gas reserves.

 

 

After implosion of the former Soviet Union, efforts made by the said countries to promote their international standing, has paved the way for extraction of oil and gas resources of the Caspian Sea. Although the legal regime of the Caspian Sea has not been defined yet and negotiations among concerned states are going on, existence of remarkable energy sources in the region has turned it into a major field of rivalry among major regional and international powers during the past years.

Construction of oil and gas transit routes is the most important challenge faced by the said countries in promoting their status in the region as well as in global energy markets. Regional and international players are trying to find a more suitable position in the future by determining the most suitable energy transit route.

Between May 12 and May 15, Gurbanguly Berdimuhammedov, Vladimir Putin, and Nursultan Nazarbayev, presidents of Turkmenistan, Russia, and Kazakhstan have signed early agreements on construction of new pipeline to transfer Turkmenistan’s gas to Russia and Uzbekistan. They stressed the roles played by their respective countries in the world’s energy market during a press interview in Turkmenbashi port city in Turkmenistan. Total gas transfer through the joint pipeline will amount to 10 billion cu. m. per year and it is projected that the final contract for construction of the pipeline will be signed before July. Putin noted that construction of the pipeline will boost cooperation between Russia and the Commonwealth of Independent States. He added that according to the existing timetable, construction of a border pipeline for transfer of gas will start in the first half of 2008 and after completion in 2012; its capacity for gas transfer can be increased up to 12 billion cu. m. per year.

The pipeline, which is currently taking Turkmenistan’s gas to Europe through Russia and Kazakhstan, is capable of transferring 5 billion cu. m. gas per day. The question is what would be the impact of the new pipeline on the region and international relations among countries and which country’s standing in international energy markets will be bolstered by it. To answer this question, first we must have an overall look at regional resources and its status in supplying world energy. Major routes for transferring regional energy to global markets constitute the second issue. The consequences of choosing any of the said routes, especially, signing of a new contract for construction of a new gas pipeline by Russia, Turkmenistan, and Kazakhstan is another major topic to be discussed here. In conclusion, proposals will be offered on suitable policies to be adopted by the Islamic Republic of Iran.   There are various assessments about the exact amount of oil and gas reserves of the Caspian Sea. Some experts draw an analogy with the North Sea while others exaggerate and liken it to the Persian Gulf. The latter claim, however, cannot be held up by authentic figures.

Total proven oil reserves of the Caspian Sea stand between 203 billion and 235 billion barrels of which 132 billion barrels belongs to Kazakhstan, which accounts for the highest amount of oil reserves. Kazakhstan is followed by Turkmenistan, the Republic of Azerbaijan, Iran, Russia and Uzbekistan, which respectively account for 7.39 billion, 39 billion, 15 billion, 3.7 billion, and 59.2 billion barrels of the Caspian oil reserves.

Figures produced on gas reserves of the Caspian Sea are also different. Total proven gas reserves of the sea have been estimated at about 232 trillion cu. ft. while probable gas reserves have been estimated at 328 trillion ft. This figure is less than 10 percent of total world gas reserves. Iran’s gas reserves along are bigger than total gas reserves existing under the Caspian Sea. At the same time, the cost of exploration, production as well as export of oil and gas in the Caspian Sea is much higher than corresponding figures for the Persian Gulf and energy production in the sea requires a lot of time and effort. However, the situation of the Caspian Sea is such that it has been in focus of attention by big regional and international powers as well as transnational companies. Firstly, the Persian Gulf, which is the most important oil and gas hub of the world, is considered by major consumers of energy as being unstable. A recent research carried out by an international and strategic research center in Washington showed that countries which are facing major threats to their domestic stability would be producing 50 percent of total needed crude oil of the world by 2020. The same study has stipulated that 65.3 percent of total world oil reserves (6.683 billion barrels) are located in unstable and anti-American states of the Middle East. The U.S. policy, as one of the most important oil consumers is to diversify oil production and supply sources. From this viewpoint, the Caspian Sea region is of high importance to the Americans and can reduce their dependence on the Persian Gulf.

Secondly, apart from Iran and Russia, other littoral countries of the Caspian Sea are newly independent states which are good grounds for influence through political and economic investment. They are located in a region which is surrounded by second-rating big powers such as Russia, China, and the Europe, which are trying to boost their own influence in that region. Russia considers the region as a traditional field of its influence while European Union is a growing power which is seeking to boost its influence and improve its standing in Caspian Sea region both to assure sustainable supply of energy from the region and to prop up its international position. China, on the other hand, needs energy resources of the region. Its growing need to oil and gas, on the one side, and position of Central Asia as the sole region, which can supply energy to China via land, has greatly increased importance of the said countries for China.

Thirdly, oil and gas transfer from the Caspian Sea is basically possible through pipeline and via a number of countries, because the region has no access to free waters. Construction of new oil and gas pipelines will lead to structural developments in the region and will improve situation of countries where the pipelines would pass. Therefore, apart from having control over oil and gas resources, control over the route of relevant pipelines is of utmost importance because, from one angle, it would make both energy producing and consuming countries dependent on the country through whose soil, the pipelines pass. Therefore, the main rivalry is over oil and gas routes. The system chosen to transfer regional energy will be determined according to geographical, economic and geopolitical factors and is also a function of the power and interests of producing and consuming countries.

Routes taken to transfer Caspian Sea energy to international markets

One of the most important routes for transfer of Caspian Sea oil is through Baku–Tbilisi–Ceyhan (BTC) pipeline, which is greatly supported by the United States, Europe and Turkey.

The 1,776km pipeline starts on the western coast of the Caspian Sea and crosses the Republic of Azerbaijan, Georgia and Turkey before reaching the Mediterranean coast en route to international markets.

The main contractor for this pipeline was British Petroleum (BP) and it was scheduled to be inaugurated in May 2006 as the world’s second longest pipeline. When fully launched, it will decrease dependence of the European countries on the Middle East oil as well as on oil pipelines crossing Russia.

Trans-Caspian pipeline connects Aktau port of Kazakhstan to Baku port city in Azerbaijan. The proposed pipeline will be 700km long and after reaching Baku, it will be connected to Baku–Tbilisi–Ceyhan pipeline.

The pipeline is also supported by the west and while connecting the Caspian Sea to Europe, it will downplay the importance of Iran and Russia routes.

However, construction of the pipeline is bugged with a lot of environmental and legal problems and has been opposed by rival countries.

The French Total has practically taken preliminary steps to build the pipeline and the government of Kazakhstan has promised to feed the pipeline by supplying 150,000 barrels per day crude oil, which will be increased to 400,000 barrels per day.

The cost of the project has been estimated at 4 billion dollars and it is predicted to become operational by 2010.

While Russia is playing a game of monopolies in global energy market, especially with regard to gas exports to Europe and the United States is trying to deprive Iran of benefits of its superb regional and strategic position by building Baku–Tbilisi–Ceyhan pipeline, Turkmenistan is playing a balanced game and is trying not to confront any regional or global player such as Iran, Uzbekistan, Russia, China and the United States. Bilateral and multilateral cooperation with all involved countries is one of the main pillars of that country’s foreign policy.

It is according to that policy that Turkmenistan has tried to establish a regional and transregional system for exporting its energy resources and is trying through construction of various oil and gas pipelines via different routes to turn the existing limitations into opportunities.

In this way, the country’s policies will not be faced with serious opposition from other regional players and it will have their support and help in case of need.

According to current estimates, Turkmenistan has more than 102 trillion cu. ft. in gas reserves and is currently producing about 5.2 trillion cu. ft. of natural gas. As put by Turkmens, their country is exporting more than 3 trillion cu. ft. of gas per year.

The traditional route used for exporting Turkmenistan’s gas via Russia, exporting gas through pipeline from Turkmenistan to Iran’s Kord Kuy, exporting gas through Afghanistan (trans-Afghan), exporting gas through the Caspian Sea (trans-Caspian) as well as exporting gas through Turkmenistan – China pipeline are major routes that have been proposed for the export of Turkmen gas to global markets.

Despite the above modalities, at present, only the traditional route through Russia as well as the gas pipeline running from Turkmenistan to Iran are active and are used for exporting Turkmen gas.

At present, most gas exports from Turkmenistan are carried out through its traditional pipeline (which crossed the former Soviet Union) and Moscow has complete control over gas sent by Ashkhabad.

Apart from the traditional route, Turkmenistan is also exporting some oil through Iran route. The line, which is 200 km long, was opened by presidents of both countries on December 29, 1997 and Turkmens are using it to export 5-8 billion cu. m. of gas per year to Iran. The plan to export Turkmenistan gas to Pakistan via Afghanistan (trans-Afghan) whose negotiations are still underway is another proposed route for export of Turkmenistan’s gas. The plan was first proposed 12 years ago, but it has not been implemented yet.

The most important hurdle on the way of its implementation is the security in Afghanistan, doubts on the part of Pakistan about gas reserves of Turkmenistan as well as economic problems. The route taking Turkmenistan’s gas to China is the newest and, at the same time, the most important gas export plan considered by Turkmens.

Turkmenistan and China signed a cooperation contract on natural gas during Niyazov’s visit to Beijing in April 2006. According to that contract, Turkmenistan is expected to export 30 billion cu. m. natural gas per year to China.

Exports will begin in 2009 and will continue for 30 years. The two countries’ officials have also reached an agreement on construction of a gas pipeline from Turkmenistan to China.

Inaugurating construction operations of the new gas pipeline, which will cover Turkmenistan, Russia and Kazakhstan; the president of Turkmenistan stated that in view of the existence of huge oil and gas reserve in Turkmenistan, the country is considering plans to build Turkmenistan–Iran, Turkmenistan–China, as well as Turkmenistan-Afghanistan–Pakistan–India gas pipelines and is also planning to implement trans-Caspian gas pipeline plan.

Turkmenistan and China signed a cooperation contract on natural gas during Niyazov’s visit to Beijing in April 2006. According to that contract, Turkmenistan is expected to export 30 billion cu. m. of natural gas per year to China. Exports will begin in 2009 and will continue for 30 years. The two countries’ officials have also reached an agreement on construction of a gas pipeline from Turkmenistan to China.

Inaugurating construction operations of the new gas pipeline, which will cover Turkmenistan, Russia, and Kazakhstan, the president of Turkmenistan stated that in view of the existence of huge oil and gas reserves in Turkmenistan, the country is considering plans to build Turkmenistan–Iran, Turkmenistan–China, as well as Turkmenistan-Afghanistan–Pakistan–India gas pipelines and is also planning to implement trans-Caspian gas pipeline plan.

Outcome of building Russia-Turkmenistan-Kazakhstan gas line

Agreement about construction of Turkmenistan-Russia-Kazakhstan gas pipeline has many outcomes, which can be enumerated as follows.

Perhaps the first and the most important outcome of the plan is to bolster energy routes via Russia and improve its standing in the face of other rivaling countries.

Despite the fact that the plan is still rudimentary, news sources have called it “Russia’s gas victory over the United States.”

The United States had already launched a vast effort to take the pipeline to Europe without crossing Russia. Even the U.S. Vice President Dick Cheney visited the Central Asia in 2006 for this purpose.

Speaking on the sidelines of signing the contract, the Russian President Vladimir Putin warned the European Union and the United States against interfering in the internal affairs of Caspian Sea littoral countries.

Construction of the pipeline would be a great triumph for Moscow. By restricting all energy transfer routes to their soil, the Russians are willing to regain their traditional control over Central Asia countries.

The United States, as the most serious rival for Russia in the region, is advocating oil and gas export lines that would serve its long-term interests and is trying to prevent oil and gas pipelines from going through either Russia or Iran.

The United States had come up with a plan according to which Turkmenistan’s gas would have been taken to Europe in the absence of Russia. The U.S. plan sought to minimize role of Russia in supplying gas to Europe. Russia, however, has been able to thwart part of the U.S. plan for building a pipeline to transfer Central Asian gas by signing the new contract.

Secondly, construction of the new pipeline can make construction of other gas lines which cross the Caspian Sea from east to west, especially a trans-Caspian gas pipeline, practically economically infeasible. At the same time, the deal may lead to intensification of the existing rivalry in the region.

Thirdly, such agreements will harm the Islamic Republic of Iran in two ways: first, oil and gas pipelines built according to such plans bypass Iran and this means a loss of bargaining chips in the Caspian Sea. Second, such agreements have legal aspects. Trilateral agreements of this type are practically turned into procedures in which the legal regime of the Caspian Sea is drawn up against Iran’s interests. In fact, Iran is seeking a comprehensive solution based on agreement among all neighboring countries through bilateral or trilateral contracts.

Caspian Sea littoral states should consider Iran as a country that connects the Caspian Sea to the Persian Gulf. Iran plays a determining role in both regions. Therefore, Iran is able to play an effective role to promote cooperation in both regions.

However, construction of a gas line along the eastern coast of the Caspian Sea can be used as a good ground for creating a balance of power between Russia and Western countries and this can serve the interests of the Islamic Republic of Iran. On the whole, care should be taken to prevent such balance from ignoring Iran’s natural position and causing its national interests to be sacrificed.

Conclusion and proposals

Cooperation between Iran and Central Asia and Caucasus in oil and gas projects is the most logical and the most economic way for exporting Caspian Sea oil and gas. Using the existing network of pipelines and constructing new pipelines will facilitate oil swap deals among Iran, Azerbaijan, Turkmenistan, and Kazakhstan up to 700,000 barrels per day.

Studies carried out on global supply and demand of gas in the future show that the Middle East and Central Asia will be playing an important role in future natural gas deals that would take place in the Indian Subcontinent, China, Turkey, Armenia, Georgia, as well as parts of Europe and Asia.

In the long run, cooperation among major gas producing countries will assure the use of the most economic methods for developing gas resources and creating gas export networks. Iran, Turkmenistan, and Kazakhstan can cooperate on developing pipeline networks that would be able to carry gas from the said countries to international and regional markets.

While politics has always played a determining role in many regional issues, this reality should not be ignored that under the existing circumstances, economic factors are playing an equally important role in rivalry among regional countries. In reality, Iran is the most logical and the most economic route for exporting oil and gas from the Caspian Sea.

In fact, political hostility shown by the United States toward the Islamic Republic of Iran, has blocked the most economic route for exporting oil and gas from such Caspian Sea states as the Republic of Azerbaijan, Kazakhstan, and Turkmenistan. This will deprive the said countries of making the most of their oil and gas revenues and is also against the most basic principles of liberal markets, which is also supported by the United States.

Also, U.S. hostility against Iran has increased dependence of global energy markets on Russia and has dealt irreparable economic blows to Europe and even the United States. At the same time, such behavior and its consequences have lowered the United States’ standing in the eyes of the Iranian people in comparison to Russia.

The Islamic Republic of Iran should embark on a multilateral and balanced economic game in the Caspian Sea. Iran’s natural position will provide the country with a good opportunity to claim a leadership role in the region.

Cooperation, providing infrastructures, and suitable economic ground for secure and sustainable transfer of energy to major consuming countries can thwart or at least reduce the impact of U.S. measures. Any carelessness about defending Iran’s position and construction of pipelines along other routes will inflict historical and irreparable damages to neighboring countries. Naturally, judgment of next generations of Iranians about this issue would be tough.

At the same time, construction of pipelines through Iran will provide Iran with a structural and long-term opportunity and can boost its bargaining power in other fields and in the face of other regional and global players.

Iran should move in a direction that would make other regional countries in Caspian Sea area recognize its role as a link between the Caspian Sea and the Persian Gulf. Iran plays a decisive role in both regions and can continue its effective and positive role in promoting cooperation between the two regions.

Littoral countries of the Caspian Sea should cooperate with Tehran on the construction of a pipeline which would transfer the Caspian oil to Persian Gulf via Iran. At the same time, Persian Gulf countries can be actively present in developing infrastructures in Caspian Sea states by increasing their investments there.

By connecting two important energy hubs, the Islamic Republic of Iran can increase its own bargaining power in international energy, economic and political fields. No effort should be spared to provide suitable ground for the realization of this goal.

 

... Payvand News - 9/20/07 ... --



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