Caspian Basin Alert   Oil & Gas Economics By  Sarah Smith and Nathan Somers
CASPIAN BASIN OIL/GAS PAGES Home Environment impacts Human impacts Industry overview Physical environment Countries Economics    Pipeline politics Corporations Fossil fuel use     Map gallery Photo gallery   A class project by students in International Environmental Problems & Policy (Geography 378, Fall 2002, University of Wisconsin-Eau Claire, USA)   Assistant Professor of Geography   Zoltan Grossman grossmzc@uwec.edu (715) 836-4471 P.O. Box 4004, Eau Claire, WI 54702 USA	Economic Aspects of Caspian Basin Oil and Gas Development Russian gas and oil industrialists want to play a key economic role in the Caspian pipeline without necessarily reasserting sovereignty over former Soviet territory.  The business elite, which support key political groups operating in Russia, are perfectly willing to exploit the fact that the Caspian pipeline infrastructure is largely oriented toward the markets of the former Soviet Union.  For Russian Industrialists, this pre-existing condition has been greatly beneficial, and has granted them leverage over potential competitors.  Russian energy moguls want to ensure stable export markets for their oil and gas, which is a vital source of scarce foreign exchange earnings and tax revenues for the Russian state and windfall profits for them. Russia has been accused of provoking ethnic disputes in countries, like Azerbaijan, which have refused to co-operate with Russia on an assortment of economic and strategic issues.  World oil prices will remain a critical variable in Caspian economic development. From January to December 1998, global crude prices fell to around $11 a barrel.  Azerbaijan has been producing oil for over 100 years, its recoverable reserves in fields is only 2.6 billion barrels. Recent exploration has turned up more gas than oil.  The rise of the price of oil to $22 a barrel has forced investors to reassess prospects for the region.  Yet while prices may be high today, potential investors are unlikely to forget the recent free-fall of oil prices and now will proceed with greater caution in the Caspian.  It often makes more sense to continue investments in geographically favored states with proven oil reserves, such as Saudi Arabia, than risk developing production and distribution facilities in a region with supply and political uncertainties. Saudi Arabia is pursuing a policy to discourage investment in the Caspian, so that it may retain its guarded place as the world's first supplier of petroleum. Many Caspian states want pipeline grids that will give them options other than exporting through the Russian system. Relying on the Russian pipeline system has not been a rewarding experience. Russian officials see Caspian states as potential competitors to its leading energy firms, which are critical to state financing. The problem for the Russians is that the blunt use of its infrastructural leverage is actually encouraging the construction of alternative pipelines.  These will decrease Russia’s leverage and its status of remaining a player. The above map shows the current oil and gas fields in Caspian Sea Region.  Oil and gas are the exports with the greatest potential for Kazakstan.  Currently, there are 18 - 35 billion barrels of proven oil reserves for the Caspian region, 10 - 17.6 for Kazakstan alone.  At current oil barrel prices $20.50 there is a potential of $369 billion net income for the Caspian Sea's surrounding countries.  This figure is determined over a period of 73 years at the predicted production rate of 1.3 million barrels per day.  It comes to $5 billion a year.  But that does not include the additional 235 billion barrels that the Caspian region could possibly yield, but has not yet been proven.  If these reserves prove to exist in this multitude, $33.5 billion would be the new net income per year   U.S. Average Gasoline Prices  Year Cents Per Gallon/Includes Taxes 2000 156.3 1999 122.1 1998 111.5 1997 129.1 1996 123.1 1995 124.2 1994 121.2 1993 120.5 1992 119.0 1991 119.6 1990 105.9          The following two charts displays the fluctuation of gas and oil prices for the consumer in the United States.  The oil and gas industry in the Caspian Region could potentially affect the gas prices here.  With more gas available and less conflict prices could drop.                                      Source: http://www.lmoga.com/gasoline.htm   Historical and Projected Crude Oil Prices (per barrel)   FY WTI ANS Wellhead ANS West Coast   nominal real2002 nominal real2002 nominal real2002 1990 20.06 28.77 11.90 17.06 17.22 24.70 1991 24.95 34.19 15.38  21.08 21.57 29.56 1992 20.69 27.08 11.21 14.67 16.64 21.78 1993 20.69 26.27 12.81 16.26 17.83 22.64 1994 16.69 20.57 9.57 11.80 14.05 17.32 1995 18.54 22.30 11.51 13.84 16.77 20.17 1996 19.20 22.41 12.60 14.71 17.74 20.71 1997 22.54 25.60 16.40 18.63 20.90 23.74 1998 18.03 20.03 11.91 13.22 15.86 17.61 1999 14.09 15.39 8.47 9.25 12.73 13.90 2000 24.82 26.58 18.82 20.16 23.27 24.92 2001 30.41 31.40 20.06 20.71 27.85 28.75 2002 23.38 23.38 16.39 16.39 21.50 21.50 2003 22.50 21.87 15.27 14.84 20.50 19.92 2004 21.50 20.31 14.31 13.51 19.50 18.42 2005 21.50 19.73 14.15 12.98 19.50 17.90 2006 20.50 18.28 12.99 11.59 18.50 16.50 2007 19.50 16.90 11.85 10.27 17.50 15.17 2008 19.50 16.43 11.75 9.90 17.50 14.74 2009 19.50 15.96 11.67 9.55 17.50 14.32 2010 19.50 15.51 11.57 9.21 17.50 13.92 Source: http://www.tax.state.ak.us/SourcesBook/2002SpringSources/Appendix%20G.pdf   Recent Development A recent development in the Caspian Oil project is with the oil company ChevronTexaco and Kazakstan.  ChevronTexaco has put a halt on a productivity expansion of 271,000 to 430,000 barrels of oil extraction per day because "partners have not yet been able to agree on a funding plan."  The article on www.Eurasianet.org  seems to be hinting that Kazakstan in out of it's league in dealing with the large oil company.  Kazakhstan’s uncertainty with legal and business matters are trying ChevronTexaco's patience and have thus suspended current negotiations for expansion.  For more information click here to read the full article.   Economic Overview of Kazakstan Market Exchange Rate (7/12/2002): US $1=153.1 Tenge (KZT) Nominal Gross Domestic Product (GDP) (2001E): $21.4 billion; (2002E): $22.9 billion Real GDP Growth Rate (2001E): 13.2%; (2002E): 7.0% Inflation Rate (Change in Consumer Prices, Dec. 2000-Dec. 2001E): 6.6%; (2002E): 5.6% Official Unemployment Rate (2001E): 3.3% Current Account Balance (2001E): -$1.35 billion; (2002E): -$1.75 billion Major Trading Partners (1999): Russia, U.S., Uzbekistan, China, Turkey, U.K., Germany, Ukraine, South Korea Merchandise Exports (2001E): $9.7 billion; (2002E): $9.8 billion Merchandise Imports (2001E): $8.7 billion; (2002E): $9.3 billion Merchandise Trade Balance (2001E): $1.0 billion; (2002E): $0.5 billion Major Exports: oil, ferrous and nonferrous metals, machinery, chemicals, grain, wool, meat, coal Major Imports: machinery and parts, industrial materials, oil and gas, vehicles External Debt (12/01E): $13.8 billion                                                         Source: http://www.eia.doe.gov/emeu/cabs/kazak.html   The following is one of many projects being implemented to help with the Caspian conflicts Project Title: Formulation of a Transboundary Diagnostic Analysis and a Strategic Action Programfor the Caspian Sea GEF Allocation: US$12,585,096 Co financing: US$8,555,500 US$5,831,500 (European Union/TACIS) US$1,964,000 (World Bank) US$560,000 (United Nations Environment Program) US$100,000 (United Nations Development Program) US$100,000 (other) Total Financing: US$21,140,596 Dates: June, 1999, to May, 2003 To learn more about this project go to this website: Project (must have Acrobat Reader)   Links for More Oil Company Information State Oil Companies Azerbaijan Oil Company KAZAKHOIL NIOC Turkish Petroleum Corporation   Oil Companies BG Group BPAmoco ChevronTexaco Dragon Oil Eni Exxon Inpex Phillips Petroleum Shell Statoil TotalFinaElf