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© UHCBA Energy Institute 1 Developing Energy Resources in the Caspian: in the Caspian: Soviet and Independence Periods S. Gürcan Gülen, Ph.D. UNIVERSITY of HOUSTON BAUER COLLEGE of BUSINESS ENERGY INSTITUTE Second Joint University of Houston – Oxford University Conference April 19-21, 2001 www.uh.edu/energyinstitute
© UHCBA Energy Institute 2 Soviet Times In 1988, the U.S.S.R.In 1988, the U.S.S.R. –Was the world’s largest producer of oil (11.8 mb/d) –Was the second largest exporter of oil in the world (4.1 mb/d) –Was the world’s largest producer of natural gas (817 bcm a year) Russian Republic accounted for 91% of oil and 65% of gas production.Russian Republic accounted for 91% of oil and 65% of gas production. The Caspian countries accounted for 8% of oil and 12% of gas production.The Caspian countries accounted for 8% of oil and 12% of gas production.
© UHCBA Energy Institute 3 After the Collapse Along with many other industries, the oil & gas sector contracted.Along with many other industries, the oil & gas sector contracted. Caspian countries wanted to support their economic independence from Russia based on oil and gas export revenues.Caspian countries wanted to support their economic independence from Russia based on oil and gas export revenues. But, the interdependent Soviet economic network (especially in the oil & gas sector) posed challenges.But, the interdependent Soviet economic network (especially in the oil & gas sector) posed challenges. There are stories of relative success as well as of consistent disappointment in Caspian countries’ efforts.There are stories of relative success as well as of consistent disappointment in Caspian countries’ efforts.
© UHCBA Energy Institute 4 But, First… In order to have the right perspective on the issues faced by the Caspian countries, let us look into some numbersIn order to have the right perspective on the issues faced by the Caspian countries, let us look into some numbers –Reserves –Production –Consumption
© UHCBA Energy Institute 5 Reserves (end of 1999) Source: BP World Energy
© UHCBA Energy Institute 6 Reserves 1.6 percent of World’s Oil1.6 percent of World’s Oil 5.0 percent of World’s Gas5.0 percent of World’s Gas After 12-3 years of investment, more gas, but not much oil is found! (Kashagan pending)After 12-3 years of investment, more gas, but not much oil is found! (Kashagan pending)
© UHCBA Energy Institute 7 Reserves (end of 1999) Source: BP World Energy
© UHCBA Energy Institute 8 Production & Consumption of Oil Source: BP World Energy
© UHCBA Energy Institute 9 Production & Consumption of Gas Source: BP World Energy
© UHCBA Energy Institute 10 Production & Exports 1.7 percent of World’s Oil1.7 percent of World’s Oil Only about 150,000 b/d exported outside FSUOnly about 150,000 b/d exported outside FSU Saudi Arabia alone has more spare capacity!Saudi Arabia alone has more spare capacity! 3.2 percent of World’s Gas3.2 percent of World’s Gas Almost no exports outside FSUAlmost no exports outside FSU
© UHCBA Energy Institute 11 Now, challenges.. Oil & gas production fell significantly after the break-up becauseOil & gas production fell significantly after the break-up because –Centrally-managed production quota system of the Soviet times Failure to maintain equipment & fieldsFailure to maintain equipment & fields Poor reservoir managementPoor reservoir management Excessive drilling & floodingExcessive drilling & flooding No access to modern technologiesNo access to modern technologies –Persistent problems after the break-up No adequate management systemNo adequate management system Continued reliance on the administrative systemContinued reliance on the administrative system No incentivesNo incentives
© UHCBA Energy Institute 12 Index of Oil Production (1989=100) Source: BP World Energy
© UHCBA Energy Institute 13 Index of Gas Production (1989=100) Source: BP World Energy
© UHCBA Energy Institute 14..on the demand side Energy has been wasted and continues to be used wastefully:Energy has been wasted and continues to be used wastefully: –Subsidized pricing of energy. –Non-payments by users.
© UHCBA Energy Institute 15 Energy Intensity (Btus per $ of GDP) 1983199019921998 U.S.S.R.59,37864,013 Azerbaijan129,644102,020 Kazakhstan99,69177,062 Russia70,61674,198 Turkmenistan57,850111,709 Uzbekistan83,01788,906 73,47975,685 U.S.16,57714,64514,62813,410 France7,9657,3957,7377,390 Japan6,6866,2346,1846,552 Source: Energy Information Administration
© UHCBA Energy Institute 16 Per Capita Energy Consumption (MMBtus) 1983199019921998 U.S.S.R.184209 Azerbaijan13264 Kazakhstan203121 Russia235177 Turkmenistan7256 Uzbekistan7877 208153 U.S.313337335351 France144156164170 Japan121148155168 Source: Energy Information Administration
© UHCBA Energy Institute 17 Investment? Unattractive investment environment.Unattractive investment environment. –Concerns about rule of law. –Lack of world-class petroleum laws. –Lack of world-class regulatory frameworks, including an independent regulator. –Lack of tariff structures. In short, no clear and transparent process!In short, no clear and transparent process!
© UHCBA Energy Institute 18 Legal & Regulatory Environment AzerbaijanKazakhstanTurkmenistanUzbekistan Petroleum Law NOPARTIALYESNO RegulationsNONOYESNO Env’l Law YESYES One-stop Shop NONOYESNO Pipeline Law NONONONO Tariff Regs NOYESNONO
© UHCBA Energy Institute 19 Azerbaijan Remains dependent on Russian & Georgian pipeline and rail network for its exports!Remains dependent on Russian & Georgian pipeline and rail network for its exports! –Not enough oil to justify new non-Russian main export pipelines. Infrastructure from Soviet times crumbling.Infrastructure from Soviet times crumbling. Difficulty of getting equipment to Baku for offshore activities.Difficulty of getting equipment to Baku for offshore activities. Keeping Russia’s intentions in the region in check.Keeping Russia’s intentions in the region in check.
© UHCBA Energy Institute 20 Kazakhstan Remains almost fully dependent on Russian pipeline and rail network for exports.Remains almost fully dependent on Russian pipeline and rail network for exports. –Recently completed CPC pipeline appears dedicated to Tengiz, but runs through Russia. Cannot supply domestic refineries with domestic oil; needs to import Russian oil!Cannot supply domestic refineries with domestic oil; needs to import Russian oil! Refineries still use outdated Soviet technology that was designed as part of the whole Soviet system.Refineries still use outdated Soviet technology that was designed as part of the whole Soviet system. –Refineries cannot produce the products Kazakhstan needs today!
© UHCBA Energy Institute 21 Turkmenistan Turkmenistan is ready to export, but does not have a significant alternative to the Gazprom system.Turkmenistan is ready to export, but does not have a significant alternative to the Gazprom system. –Gazprom used to send its gas to hard currency markets, while sending Turkmen gas non-paying customers in Ukraine. Turkey, a key market, appears staurated.Turkey, a key market, appears staurated. Russia may need Turkmen gas!Russia may need Turkmen gas! After Shah Deniz...After Shah Deniz...
© UHCBA Energy Institute 22 Caspian Pipelines
© UHCBA Energy Institute 23 Happiness is Multiple Pipelines? PromotersLength(miles)Invest. ($ Bil.) Capacity (mb/d) Tariff ($/b) Market ChinaCNPC21201.50.30-0.403China DruzbhaRussia In use 0.243Europe CPCCPC940 Oct 01 0.56-1.342.8-3.4Medit. NovorossiyskRussia850 In use 0.162.12Medit. SupsaAIOC550 0.10-0.241.98Medit. Ceyhan11252.51.002.7Medit. KTI-GulfTotal15604.51.003.4-4.1Asia
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