#11
TimeEurope.com
January 14, 2002
Slick Operators
As their U.S. allies pursue a broader, more diverse energy market, the Russians are poised to deliver
BY MARYANN BIRD

It was all about oil, some critics of the Persian Gulf War argued more than a decade ago when U.S.-led forces mobilized to push the Iraqis out of Kuwait. If Kuwait had only sand, they said, the U.S. would not have bothered to take on Saddam Hussein.

Given the shattering events of Sept. 11, few opponents of the military strikes against Osama bin Laden's al-Qaeda terror network and its Taliban protectors have made a similar assertion regarding Afghanistan. While Kuwait indeed has considerable oil beneath its sand, Afghanistan produces and processes only a tiny quantity of crude oil and natural gas for in-country use.

Still, even Afghanistan may have an energy future. The country sits strategically between the oil- and gas-rich Caspian region and the Arabian Sea, from which fuel could -- if it were deemed necessary and economical -- be transported to Pakistan, India and beyond, to the energy-hungry Far East. Floated in the mid-1990s, the idea of Afghan energy pipelines is now discredited by many oil experts. But Afghans, eager to rebuild their country's economy, are hoping it gets reconsidered.

Afghanistan is just one of several countries eager for a role in what might be called the new world energy order, characterized by less reliance on Middle Eastern sources. Amid heightened concern over international terrorism and rising Islamic radicalism even in "friendly" countries of the Middle East, the U.S. -- which imports more than a quarter of its oil from the Persian Gulf -- wants to see leverage in the global energy market expanded beyond the 11-member Organization of Petroleum Exporting Countries (OPEC). Russia -- a non-OPEC member and the world's largest oil producer after Saudi Arabia -- is at the top of the alternative suppliers list.

"Russia is emerging as a separate nucleus of the energy equation," U.S. Energy Secretary Spencer Abraham said on a recent visit to Moscow, where he met with his Russian counterpart Igor Yusufov. "We treat the Russian role as a very important one . . . and we believe it will be an expanded role in the future." Of that there is no doubt. What has been growing in recent years, notes Ahmed Rashid, a Pakistani journalist and authority on the region, is a "battle for the vast oil and gas riches of landlocked Central Asia -- the last untapped reserves of energy in the world today." Equally important, Rashid writes in his timely best seller Taliban, has been "the intense competition between the regional states and Western oil companies as to who would build the lucrative pipelines which are needed to transport the energy to markets in Europe and Asia." This rivalry, he says, has become "a new Great Game," a throwback to the 19th century contest between Russia and Britain for control and domination in Central Asia and Afghanistan.

Encouraged by the collapse of the Taliban and the establishment of a friendlier interim government in Kabul, the U.S. and Russia appear keen to foster this new energy order. "Russia," President Vladimir Putin said on a September visit to Germany, "stands ready to increase its oil exports in case of world conflicts." Having just resolved -- at least temporarily -- a spat with OPEC, which wanted production cuts by non-OPEC countries to boost sagging oil prices, Russia seeks to increase its lucrative export role, particularly to Japan, China and Korea. It plans to remain heavily involved in transporting oil and gas from former Soviet Central Asian republics, notably Kazakhstan, as well as from Russian territory.

In late December, Putin opened phase one of an oil-loading facility at Primorsk, on the Gulf of Finland. The outlet for oil from the far-north Timan Pechora basin will bypass currently used ports in the former Soviet Baltic republics, particularly Latvia's Ventspils terminal.

The Caspian region is also becoming a more significant fuel exporting area, according to U.S. Energy Department analysts, and the troubled Caucasus is a "potentially major world oil transit center." Proven oil reserves for the entire Caspian region are estimated at 17.5 billion to 34 billion barrels, comparable to those of the U.S. (22 billion) and the North Sea (17 billion). Natural gas reserves are believed to be even greater. Consequently, new oil and gas pipelines are being considered, negotiated, constructed and opened, while some older lines are being extended.

Abraham's November visit to Russia, in fact, was arranged around the long-awaited official opening of a 1,580-km oil pipeline from western Kazakhstan's Tengiz oilfield to a Russian export terminal near Novorossiysk on the Black Sea. From there, the fuel goes by ship through the dangerously congested Bosporus and on to Europe. The Tengiz field is believed to be the world's sixth largest, sending nearly 600,000 barrels of oil a day through the pipeline in its initial stages, rising, perhaps, to about 1.5 million barrels in 2015. ChevronTexaco is the biggest customer of the $2.65 billion line. U.S. firms have invested more than $1 billion in the Caspian Pipeline Consortium (CPC) project, which includes Russia, Kazakhstan and Oman and companies like Royal Dutch/Shell, ExxonMobil and Arco.

Oil from other Kazakh and Russian fields is also expected to be shipped through the cpc line -- possibly amounting to a third of all Russia's petroleum exports. Projected at 4.74 million barrels a day this year, Russia's exports go to such countries as Britain, France, Italy, Germany and Spain, as well as to Central and Eastern Europe. While Russia provides only about 24% of Europe's natural gas needs, E.U. officials hope to double that. "With the cpc starting up, there is a surplus of capacity from Central Asia," says Laurent Ruseckas, London director for Caspian energy at Cambridge Energy Research Associates, a U.S. consulting firm.

That's bad news for Afghanistan. Notions of running pipelines through the country, he adds, "are dead, and they ain't coming back," because there is neither need nor economic justification. In the late 1990s, the U.S. energy company Unocal was a member of a consortium that briefly considered building a pipeline between Turkmenistan and Pakistan, crossing western Afghanistan. Given the civil war then raging, the Taliban's control of most of the country and a host of political and economic factors, Unocol withdrew -- and has no plans to return. Farhad Ahad, of the Institute for Afghan Studies, says a gas pipeline "would be one of the better things that could happen to Afghanistan" in the next two or three years.

In a changed world, where some of the ashes haven't yet cooled, the new energy order is taking shape. And if the U.S.-Russia romance cools? One of the pipelines on the drawing board is a 1,700-km line running from Baku, Azerbaijan, through Tbilisi, Georgia, to Ceyhan, Turkey. It could deliver 1 million barrels of crude oil a day beginning in 2004 -- independent of both Russia and the OPEC countries.