Baku News

MOSCOW. (Igor Zonn for RIA Novosti) - The Caspian Sea is becoming a hub of the world's economy. Western corporations are increasingly tapping its oil and gas resources and pumping them to the rest of the world. They pump them not only through oil and gas pipelines running through Russia, but also via lines bypassing Russia: Baku-Tbilisi-Ceyhan, Baku-Supsa, and Baku-Tbilisi-Erzurum. This undermines Russia's monopoly on the transportation of hydrocarbons from this geostrategic area. But its attempts to build a parallel line next to the CPC (Caspian Pipeline Consortium) oil pipeline and a Caspian gas pipeline are mired in bureaucratic red tape. For the time being Moscow manages to keep ahead of its rivals by offering Black Sea and Caspian Sea countries good routes for oil and gas to Europe. Russia needs to pursue an active energy policy here because it expects to exploit rich resources from its northern Caspian section and from Kazakhstan and Azerbaijan. In the past year alone, several new oil and gas projects have been proposed to transport hydrocarbons from the Caspian region to the European market via Black Sea countries. Russia signed, for example, an agreement to build a 35 million ton Burgas-Alexandroupolis oil pipeline between Bulgaria and Greece, and announced plans to lay a South European gas pipeline under the Black Sea to Bulgaria with feeder branches to Austria, Slovenia and southern Italy. There is also a project to build a Burgas-Vlora trans-Balkan oil pipeline between Bulgaria and Albania. The AMBO (Albania-Macedonia-Bulgaria) project will handle 37 million tons of oil a year and connect the Black and Adriatic seas. Bucharest is drumming up support for a Constanta-Panchevo-Omisalj oil pipeline to run from Romania, through Serbia to Croatia. The United States, on the other hand, advocates pipelines that detour Russia. Among them are a pipeline under the Caspian Sea, the Nabucco gas pipeline, an Odessa-Brody oil pipeline and a Samsun-Ceyhan gas pipeline. Judging from these projects, some of the Caspian Sea and Black Sea countries will become key transporters of Caspian energy reserves. The only country standing to gain nothing is Ukraine, which has no slice of the Caspian pie. Countries looking to huge pumping profits and lucrative orders to build infrastructure feel optimistic, but their optimism derives mainly from the Caspian leaders comments, namely that they have tremendous and easily extractable oil and gas resources. This policy, now followed by Kazakhstan, Azerbaijan and Turkmenistan, was first suggested in the early 1990s by the U.S., which initiated an aggressive propaganda campaign called a new Great Game, after the old Great Game that described the Russian-British rivalry in Central Asia in the 19th century. Meanwhile, experts doubt that current Caspian output can fill all the operating pipelines, to say nothing of those to go on line in five to seven years. In recent years, Azerbaijan has been producing 30 million tons of oil a year, of which 22 million tons it exported. This oil is divided between the Baku-Supsa pipeline with a 10 million ton capacity, the Baku-Novorossiisk pipeline with a 5 million ton capacity, and the Baku-Tbilisi-Ceyhan pipeline designed with an annual capacity of 50 million tons. It appears that Azerbaijan's total export potential is 65 million tons. But in 2010, optimistic forecasts say Azerbaijan's AMOK oil company will produce only 45 million tons, not even enough to keep the Baku-Ceyhan line filled. It was clear from the beginning that Azeri oil alone would not be sufficient to fill it. Azerbaijan looked to Kazakhstan for oil, which it procured after much Kazakh maneuvering. However, this agreement is only on paper, in the shape of a law to promote the shipping of oil from Kazakhstan across the Caspian through the CPC pipeline to international markets. In 2006, Kazakhstan produced over 60 million tons of oil, of which it exported 52.3 million tons, with 42 million tons via Russia. In 2012, Kazakhstan is forecast to produce 170 to 180 million tons. The additional amounts will travel through the Russia-controlled Burgas-Alexandroupolis pipeline, which will be a continuation of the CPC line, carrying mainly Kazakh oil. Kazakhstan does not have extra volumes of gas available for export. In 2006, the nation produced 26 billion cubic meters of gas. By 2015, this figure could grow to 45 billion cubic meters. This quantity is not adequate to fill the new pipelines. There also remains Turkmenistan with gas reserves estimated at 2.8 to 3 billion cubic meters. As a result, the rationale for new gas and oil pipeline projects appears to be based on the hearsay of the Caspian countries who say they can increase production. But their reserves are virtual reserves and need to be extracted. It may well be that their output forecasts will be slashed, and drastically. This puts an interesting perspective on the situation in the Caspian and Black Sea area if Caspian production lags behind pipeline construction. So far, such a scenario has not been publicly aired in transit or terminal countries because it runs counter to their declared strategy of a "quantum energy leap." Meanwhile, such a scenario should not be ignored. Both political and economic factors affect oil and gas production. Ukraine's Odessa-Brody oil pipeline and the Blue Stream gas pipeline stretching from Russia to Turkey under the Black Sea are strong examples. The latter is still not functioning at full capacity because demand for gas in Turkey was overestimated. Experts say current plans to transport energy resources from the Caspian region run well ahead of its production potential. The problem of significantly increasing energy production is a critical issue for the Caspian countries today. Igor Zonn is a member of the Russian Academy of Natural Sciences and director general of the Soyuzvodproyekt Center.