Oil in the Caspian Region

Source: Dept. of Energy, Energy Information Administration.

The Caspian Sea region has become a central focal point for untapped oil and natural gas resources from the southern portion of the former Soviet Union. Beginning in May 2005, oil from the southern sections of the Caspian Sea began pumping through a new pipeline (built by a BP-led consortium) to the Turkish seaport of Ceyhan. The 8-year effort of Western capital, technology, and diplomacy had aimed to decrease reliance on Middle Eastern oil. Although oil reserve growth in the Caspian region has not met levels that had been expected in the 1990s, European countries are paying special attention to the natural gas resources that could lie beneath the Sea as a way to diversify their sources of gas imports.

The nations in the Caspian region—notably Azerbaijan, Kazakhstan, and Turkmenistan, and to a lesser degree Russia, Iran, and Uzbekistan—are believed to be sitting on what amounts to 10% of the earth's potential oil reserves. Proven reserves total approximately 17 billion–49 billion barrels of oil, with a possible additional 100–300 billion barrels not yet proven. Thanks to the Soviet Union's collapse, the world has gained the opportunity to share in one of the planet's greatest supplies of natural resources.

In 2006, Caspian oil production totaled about 2.3 million billion barrels a day (bbl/d), comparable to annual production from South America's second largest oil producer, Brazil. During 2007, the U.S. Energy Information Administration expected over 200,000 bbl/d of annual production growth, comprised mostly of growth from Azerbaijan. By 2010, EIA expects the countries of the Caspian Sea Region to produce between 2.9 and 3.8 million bbl/d, which would exceed annual production from South America's largest oil producer, Venezuela.

Sizeable oil production growth has come primarily from the north Caspian states of Kazakhstan and Azerbaijan. Development of the region's oil resources has been led by three major projects: Tengiz and Karachaganak (in Kazakhstan), and Azerbaijan's Azeri, Chirag, and deepwater Gunashl (ACG) field. Combined, these three projects produced an average of 693,000 bbl/d from Jan.-Sep. 2006, roughly 30% of the regional total. Development of these decade-old key projects gave rise to an influx of new investment and infrastructure development that constitutes the "second Caspian oil rush," the first having occurred in the late 1800s. Following these discoveries, major new finds were announced in Azerbaijan at Shah Deniz in 1999.

By comparison, other countries in the Caspian Sea region have not made substantial progress towards developing their hydrocarbon resources since independence. Proven oil reserves in Turkmenistan and Uzbekistan are considerably smaller than those in their neighboring states, and the political regimes in Ashgabat and Tashkent have received less favorable consideration by foreign investors. As a result, although multinational oil companies have initiated numerous large-scale projects in Azerbaijan and Kazakhstan, Turkmenistan and Uzbekistan have received only smaller-scale deals.

The Russian oil company, LUKoil, began exploration of the north Caspian in 1995 and is working to produce natural gas by 2008. Lukoil announced in early 2006 that it had found a large oil prospect at the V. Filanovskogo offshore field. The company plans to bring six fields in the Russian section of the Caspian Sea online with production starting at the Y. Korchagina field in 2008. Lukoil expects its six fields, which contain roughly 6.5 million barrels of hydrocarbons, to reach maximum output 140,000 b/d by 2016.

As increasing exploration and development in the Caspian Region leads to more production, the countries in the region will have large new quantities of oil and natural gas available for export. Earning hard currency from these resources is essential to regional development plans, as well as to recouping the huge investments made by multi-national oil companies. However, for these purposes, the infrastructure left after the collapse of the Soviet Union is inadequate. Numerous new pipelines and pipeline expansions in each direction have been proposed, and some have been constructed.

Four main pipelines, the BTC, the Baku-Novorossiysk, the Baku-Supsa, and the Caspian Pipeline Consortium (CPC) line carry or will carry the majority of the region’s oil and gas resources to the West to major markets in Turkey, Europe, and the Mediterranean. The Baku-Supsa, Baku-Novorossiysk and Baku-Batumi rail routes also transport oil and gas, but these may be phased out as the larger pipelines are expanded even further.

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