The Caspian energy hotspot

Posted in China , Russia , Asia , Iran , Energy Security , United States | 24-Apr-08 | Author: Ioannis Michaletos

The region surrounding the Caspian is one of the focal areas in Eurasia, mainly because of its immense energy potentials. Presently Kazakhstan exports over 1 million barrels of oil via the Caspian Pipeline Consortium pipeline (CPC), whilst Azerbaijan manages to export 800,000 barrels from the BTC pipeline, a number that will increase up to 50% over the coming months.

The CPC pipeline has a total length of 1,510 km and transfers hydrocarbon from the gigantic Tengiz oil field up to the Novorossiysk Russian port in the Black Sea. It is estimated that by 2010 over 1, 3 million barrels could be transferred on a daily basis. The projects up to date are facing several issues, the most interesting being the absence of a conclusive agreement between neighboring countries around the sovereignty in the Caspian Sea.

This is a great issue, since a country like Azerbaijan produces over 80% of its oil offshore and up to 60 miles from the coastline. Iran claims it has the right to exploit some 20% of the total Caspian surface (143,244 Sq. Km), whereas Russia, Kazakhstan and Azerbaijan diminish this percentage to 13% maximum.

For the moment the real strong partner in this region is Russia, since it effectively controls the pipeline networks and the export revenues of Kazakhstan, while the two main Russian rivers, Volga and Don are interconnected via a channel and in essence Moscow provides the ability to the Caspian states to connect to the Black Sea and the North Sea through its own territory.

On the other hand both Moscow and Teheran reject any plans regarding the creation of subwater pipelines beneath the Caspian surface that could connect Turkmenistan’s gas production to the Azeri Baku city and subsequently to the only pipeline not controlled by Russia, the BTC one.

During the meeting between the Heads of States of the Caspian countries in the 16th of October 2007, all of the above issues were discussed and the only conclusion was to reject the “Intervention of third parties in the Caspian” and meet during summer 2008 under the pretext of a economic Caspian conference and under the aegis of the Russian President. The next meeting will of the governmental heads will take place in Baku in October 2008.

The culminations regarding Caspian, are witnessing a gradual convergence between Iran and Russia in order to agree on a modus vivendi in the planned energy projects. In sort, reliable information relay that both countries will exercise pressure to Azerbaijan in order not to proceed in any pipeline agreements in the future, and in parallel divide their energy ambitions. The latter actually means that Moscow is going to secure it s market access in Europe and Iran in the Indian Subcontinent. China will be divided on both sides and a consensus will be reached that might find Iran securing a 15% share of the Caspian Sea.

Thus both states secure lucrative future contracts and end one of the few animosities between them. The time for such a move seems ideal for the energy planners of these countries. Washington has isolated Iran that is obliged to follow Russian policy if it wants to survive financially in the long-term. Moreover it seems that Central Asian countries cannot become autonomous on an energy level by Russia, therefore in a realistically driven political environment the Caspian becomes a Russian dominated lake with a significant Iranian influence.

For the moment a European country, Switzerland, has drafted initiatives in securing the transfer of Iranian oil to the West. More specifically the EGL company which is mainly owned by Swiss Cantons has made plans for the creation of the Trans Adriatic pipeline in which the Norwegian energy giant Statoil participates with a 22.55 stake. It will transfer Iranian natural gas via Turkey & Greece to Italy and possibly Albania. Also the Nabucco pipeline project will have to consider eventually the exportation of Iranian gas, since the Russian side has already gained a point by drafting the plans for the South Stream pipeline which is directly competitive to the aforementioned. In any other case the Nabucco project will not be able to meet the market’s needs and it will become financially unattractive because it will simply not have enough products to transfer.

In general Iran’s energy is back on the table, despite the fact that the nuclear ambitions of Iran are a major issue and a point of hostility between Israel, USA and Teheran. Eventually the complicated situation in the Caspian will have to be resolved, otherwise the markets may face a shortage of gas in the mid-term and the Russian companies will have achieved a near monopoly in the European market, judging by the fact that investments by Gazprom have already been planned in Africa (Nigeria, Algeria, and Libya).

A rough estimation is that Washington will initiate a dialogue behind the scenes with both Russia and Iran in the short-term in order to discuss their plans and how it could also accommodate its own. The Europeans –especially the French- already seem to be rather interested in securing Iranian imports and the whole world is entering a crucial stage of energy related discussions. On overall this delicate geoeconomic balance might become a temptation to any other power that will try to manipulate developments to its benefit or stall the already planned decisions by its antagonists.

Certainly Eurasia enters a crucial stage and the combination of USA elections and the rising commodity price index, increases the market angst for any radical upturns. It is more than certain that the summer of 2008 might prove to be very hot indeed, in the Middle East.

Ioannis Michaletos is WSN Editor South East Europe.