#19 - JRL 9107 - JRL Home
RIA Novosti
March 29, 2005
CASPIAN BASIN AND CENTRAL ASIA - OUTLOOK FOR RUSSIA

MOSCOW. (Igor Tomberg, Ph.D. (Econ.), leading research associate, Center for Foreign Economic Studies, Institute of International Economic and Political Studies, Russian Academy of Sciences, for RIA Novosti) --

The Caspian region today is a zone of the interests of various countries - the U.S., Russia, China, Japan and India, for it is a promising oil and gas province with resources exceeding those of the North Sea. Under the bottom of the Caspian Sea, which is the largest lake in the world, there is 4% of the world gas and oil reserves. U.S. experts estimate the recoverable oil resources there at 2.4-4.6 billion tons.

Most of the major oil companies, Chevron Texaco, ExxonMobil, British Petroleum and Halliburton among them, have invested impressive sums in that region. Over the past five years the U.S. investments in Central Asia and the Caspian region have increased from "insignificant sums" to $30 billion.

The reverse side of such investment is counteraction to laying a pipeline from Kazakhstan to China. There are fears in Washington that a considerable part of Caspian oil will run along Asian routes to China and India, which are greatly increasing the consumption of energy resources, becoming U.S. rivals (at least in oil consumption). In Kazakhstan it is believed that the talks on building an oil pipeline to China are dragged out because of the opposition by the U.S., which does not want an alternative to the Baku-Ceyhan route.

The EU policy in regard to that region was shaped also under the influence of the new geopolitical situation after the break-up of the USSR.

Europe's real interest, not politically motivated (like in the U.S.), in the energy resources of Central Asia and the Caspian Basin complicates the shaping of a clear-cut European policy in that area. Most likely Europe will focus on solving geopolitical problems by economic methods. Probably Europeans will be revising their policy in regard to Russia, making it tougherin the context of their own interests in Central Asia and the Caucasus.

At the same time, increased state regulation in the Russian fuel and energy sector, for all its minuses, will have a positive effect for strengthening Russia's energy positions abroad. And then Europe will have to adapt itself to Russia's interests and plans (which, however, are yet to be finally formulated).

China's interests in the Caspian region are quite understandable and predictable. The main threat to the country's remarkable development rate is the shortage of raw materials, primarily energy bearing resources, a problem that was spotlighted at the latest congress of the Communist Party of China. According to forecasts made by leading world experts, by 2010 China will import up to 120 mln tons of oil annually - twice as much as in 2002. By that time the Central Asian countries plan to increase oil production in the Caspian region. Meanwhile, the Persian Gulf zone, whence China imports most of its oil, is becoming increasingly unstable.

Nowadays China has been strengthening its positions in the region. The economic successes it has achieved over the past years allow it to back up its political interests by convincing economic and financial arguments. In this situation Russia's position appears to be somewhat ambiguous. On the one hand, Beijing is a Moscow's strategic partner, and on the other, it is a successful rival in the zone of its direct geopolitical and economic interests.

For the time being, maximum of what is possible is LUKoil's presence in Azerbaijan, Kazakhstan and Uzbekistan. LUKoil controls so big amounts of geological assets in the Caspian Sea that it has formed a kind of a "corporate shelf" extending to the water zones of a few countries. In fact, a sixth player has emerged among the five Caspian states, and its recoverable resources of hydrocarbons exceed, for instance, the Caspian resources of Iran. The company has estimated that the total amount ofits recoverable resources in the Russian sector of the Caspian is 4.5 billion tons in oil equivalent (32.9 bln barrels). To compare: the present amount of LUKoil's resources, as of April this year, was 2.75 billion tons in oil equivalent (20.1 bln barrels).

A significant part of the USSR's oil and gas legacy - the network of main gas pipelines - has been preserved. The bulk of hydrocarbon raw materials from the region reach the foreign market through Russian pipelines, though there have appeared a number of new oil and gas transportation projects, which are in a varying degree of preparedness.

After several months of cooperation with the new antiterrorist alliance in Central Asia, President of Russia Vladimir Putin announced a reappraisal of the U.S. large-scale military presence at the southwestern borders of his country. Russia, he said, needs its own Central Asian alliance. The Russian president had in mind not military cooperation but cooperation in the sphere of energy - the vast resources of natural gas in that part of the world. He called on Kazakhstan, Uzbekistan and Turkmenistan that are rich in energy resources to agree to Russia's control over "the amount and direction of gas export from Central Asia" and made it quite clear that from now on the gas issue is a priority at the highest state level.

As oil prices have been rising at a record-high pace of late, energy security has become a key issue of all significant international meetings and contacts. For instance, gas consumption in the U.S., according to the Department of Energy, will grow by 40% by 2025. So, U.S. dependence on this kind of fuel is growing. These circumstances may change the general tone of the U.S. political dialogue with Russia, which boasts the world's largest gas resources.

For the time being the Gas Exporting Countries Forum (GECF) does not correspond much to the OPEC configuration. Some experts believe, however, that precisely Russia will determine gas prices on a future integrated market.

Combining the efforts of Russia, Kazakhstan, Turkmenistan and Uzbekistan, which own immense gas resources, is an objective condition for creating a large regional gas alliance. Available sales markets, like India, Pakistan, China and some other countries, make this idea even more attractive.

Moreover, is has been forecasted that gas will account for up to 70% among the sources of generating electricity. The only problem is that the demand for gas, and the very emergence of the gas market, depend on an increase in the share of liquefied natural gas supplies. Though gas processing is expensive today, the future belongs to LNG. Having paid the price now (by launching a large-scale construction of gas processing plants), the Russian energy companies will be able to dictate the prices on the world market.

Though Russia has become notably more active in the Central Asian and Caspian region, the present efforts are clearly not enough to counterbalance the increase of U.S. influence there. The problem is that the leaders of the countries in the region do not go beyond the limits of the problems imposed on them by the Americans - development of democracy and human rights protection in the independent countries of Central Asia, combating terrorism, and so on - the problems traditionally used by Washington as an instrument of pursuing U.S. interests.

The situation could be changed by going over to solving the really important problem of the raising living standard, which is far more vital in Central Asia than democracy and human rights. The living standards in the region could be raised though effecting large-scale economic projects by major corporations, above all in the sphere of oil and gas production and transportation.