1. 12th SPF Issyk-Kul Forum Goa 5-7 November 2006
Stanislav Zhukov, IMEMO, Moscow Energy Resources of Central Asia and South Caucasus
12th SPF Issyk-Kul Forum
Goa 5-7 November 2006

2. The Great Oil Game

3. Local and regional factors:
Global factors:
- last frontier region for oil industry untapped by global actors;
- increasing global competition for energy resources;
- diversification of energy supplies.
Local and regional factors:
- curtailment of internal demand due to the shock therapy transition;
- lack of financial resources;
- lack of indigenous technical expertise for keeping industry afloat (esp. shelf exploration);
- establishing of national oil and gas industry

5. Caspian Oil Exporters: Oil output, mln barrels/day
Kazakhstan
Azerbaijan
Caspian-4
1995
0,412
0,185
0,839
1996
0,462
0,183
0,886
1997
0,518
0,968
1998
0,520
0,229
1,040
1999
0,604
0,277
1,183
2000
0,709
0,283
1,287
2001
0,805
0,299
1,413
2002
0,948
0,303
1,595
2003
1,032
0,309
1,693
2004
1,193
0,312
1,840
2005
1,208
0,446
1,954
2006
1,331
0,603
2,226

6. Share in incremental world oil supply, %
2003
2004
2005
OPEC
69,3
68,8
118,1
37,4
Former Soviet Union
35,4
28,2
63,5
65,5
Russia
31,2
23,5
37,7
52,2
Caspian-4
4,0
4,7
26,6
13,0
Kazakhstan
3,2
5,1
8,1
9,9
Azerbaijan
0,1
22,5
3,0
Turkmenistan
0,7
-0,3
0,8
Uzbekistan
0,0
-3,8
-0,7
Other
-4,7
-81,6
-2,8
including
Angola
6,1
2,8
9,8
7,0
Sudan
2,2
8,8
3,6

7. Caspian-4 in world oil supply in 2005
Rank
Share, %
Saudi Arabia 1
13,5
Russia 2
12,1
USA 3
8,0
Iran 4
5,1
Mexico 5
4,8
Kazakhstan 18
1,6
Azerbaijan 31
0,6
Turkmenistan 41
0,2
Uzbekistan 45
0,1

8. Caspian-4 in world oil reserves, %
Сhange in reserves
Rank
Current reserves 2005
World
100,0
OPEC
70,7
75,2
Former Soviet Union
25,5
10,2
Russia
14,3 2
6,2 7
Kazakhstan
11,2 3
3,3 8
Azerbaijan
0,0
0,6 20
Turkmenistan 46
Uzbekistan 45
Iran
33,6 1
11,5
Nigeria
10,3 4
3,0 10
Qatar
8,8 5
1,3 14
Libya
7,4 6 9
Sudan
4,7
0,5 21
Angola
3,8
0,8 19

9. Reserves to production ratio, years
1998
2000
2002
2004
2005
USA 10 11 12
Azerbaijan 83 67 62 61 42
Kazakhstan
128 92
107 84 80
Norway 9 8
Russian Federation 25 24 21
Turkmenistan
United Kingdom 5 6
Uzbekistan 13
Iran 71
105 89 93
Iraq
145
119
155
157
173
Saudi Arabia 75 76 68 66
Algeria 20 18 17
Angola 15 22 27
Sudan 60 54 46
China
OPEC 73

10. Recent oil sector failures in Kazakhstan
1. Kashagan offshore deposits - recoverable reserves at 7-9 bln barrels/1-1,2 bln tons - drops out of Kazakhstan energy equation (until 2010 at least)
(PSA signed 1997 until 2036, initially exploration planned for 2005; in 2004 exploration shifted to 2008; in 2006 exploration shifted to 2009/2010)
2. June 2005 “dry well” at Tyub-Karagan offshore deposit (developed by KazMunaiGaz (Kazakhstan) and Lukoil (Russia))
3. May 2006 “dry well” at Kurmangazy offshore deposit – expected reserves at 1,8- 7,3 bln barrels/ mln ton - (developed by KazMunaiGaz (Kazakhstan) and Rosneft (Russia))

13. Azerbaijan: A country of one large deposit
Azerbaijan: A country of one large deposit? oil output by source in
mln ton
mln
barrels
per day
AIOC
Other
Total
1997
0,1 9
9,1
0,002
0,181
0,183
1998
2,4
11,4
0,048
0,229
2000
5,1
14,1
0,102
0,283
2002
6,1
8,94
15,04
0,123
0,180
0,302
2004
6,57
8,98
15,55
0,132
0,312
2005
13,23
8,97
22,2
0,266
0,446
2006
21,3
8,75
30,05
0,428
0,176
0,603
2007
33,4
42,15
0,671
0,846
2008
52,3
61,05
1,050
1,226
2009
52,5
8,65
61,15
1,054
0,174
1,228
2010
56,5
8,5 65
1,135
0,171
1,305

14. Azerbaijan – Georgia – Turkey Pipeline annual throughput capacity – 50 mln. ton Officially run in May and October 2005 First tanker with Azeri oil set sail on June 2, 2006

15. China: increasing dependence on oil import (share of import in apparent consumption, %)
2005
actual
(BP)
2010
2015
2020
World Energy Outlook , International Energy Administration US, 2005 (baseline) 51 60 65 70
OPEC 2003 53 67
Institute of Energy Economics, Japan, 2005 45 63
Institute of Econometrics and Techno-Economics, Chinese Academy of Social Sciences, 2004
32-38
45-59
Author, 2006
52-56
67-75

16. Exposure to the vulnerable Middle East & North Africa Risk Geographical structure of oil import in 2005, %
USA
Europe
China
Japan
import from
Canada 16
Mexico 12 2
South & Central America 21 3 8
Former Soviet Union 44 1
Middle East&North Africa 39 42 82
West Africa 14 5 17
Other Africa 4
Asia Pacific 18 10
All Other 7
TOTAL
100

17. Kazakhstan – North-West China Pipeline annual throughput capacity – 10 mln. ton (since 2011 – 20 mln. ton) Officially run on December 15, 2005 First oil filled in on May 25, 2006

19. Deficit of export capacity?

20. Pipelines in operation
Projection of oil production and export in Azerbaijan in , mln.ton
2005 (actual)
2010
2015
Pipelines in operation
Baku – Tbilisi - Ceyhan
0,556
up to 50
Baku - Supsa
6,9
8(up to10)
8(up to 10)
Baku - Novorossiysk
4,34
4(up to18)
2(up to 18)
Railway
via Georgia (Batumi)
2,2
3-4
Total potential export capacity
13,3
up to 66
up to 64
Production
22,2 61 65
Internal consumption*
8,9 10
12-15
Export 51
50-53
Deficit(-)/Excess(+) of export capacity
* - oil products are partially exported

21. Projections of oil production and export in
Kazakhstan in (mln. ton)
2005 (actual)
2010
2015
Oil pipelines in operation
Atyrau – Samara 15 20
Caspian Pipeline Consortium
24,5 48
48-67
Kazakhstan – China - 10
Railway and oil tankers
via Aktau (and Kuryk) sea ports
8,9 12
via Russia and to China by railway
6,2 6
Total potential export capacity
54,6 96
109 – 138
Production
61,9
70/90 /
Internal consumption*
7,3
10-15
Export
60/80
105/130
Deficit (-)/excess(+) of export capacity
+36/+16
+4-+33/(-21)-(-2)
New and possible pipelines
Aktau – Baku – Tbilisi – Ceyhan 7
Kazakhstan – Iran ?
Kazakhstan – Odessa - Brody
Deficit (-)/excess (+) of export capacity
+43/+23
/(-1) -+18
* - oil products are partially exported

22. Non-cooperative win-loose game
Next Rounds in the Great Oil Game: Sharpening competition over Kazakhstani oil
Excess of export capacities over oil output
Increasing competition of export routes
Sluggish demand for oil in Europe and rapidly increasing oil demand in China
Non-cooperative win-loose game
Iran remains a joker

24. The Great Gas Game

25. Caspian Gas in 2005 Russia 47,8 1 21,6 Iran 26,7 2 USA 19,0 Qatar 25,8
Share in
world
reserves, %
Rank
production, %
Russia
47,8 1
21,6
Iran
26,7 2
USA
19,0
Qatar
25,8 3
Canada
6,7
Saudi Arabia
6,9 4 UK
3,2
UAE
6,0 5
Algeria
Kazakhstan
3,0 11
Turkmenistan
2,1 12
2,9
Uzbekistan
2,0 13
1,9 19
0,9 25
Azerbaijan
1,4 24
0,2 44
Caspian-4
9,1
5,2

26. Caspian Gas Industry Comparatively less open to foreign capital
Turkmenistan and Uzbekistan: 100% state control (production and transportation)
Kazakhstan: 100% state control over transportation
Azerbaijan: one large oil deposit and export gas pipeline operated by foreign companies (since 2006)
More internal market oriented
Kazakhstan: associated gas (up to 70% at Tengiz, Karachaganak and Kashagan)
Large dependence on Gazprom export pipelines

30. Azerbaijan Shakh-Deniz gas deposit
Discovered in 1976, international consortium set up in 1996
Recoverable reserves – 625 bln cubic meters of gas and 101 mln ton of condensed gas
Operated by: British Petroleum (UK) – 25,5%
Statoil (Norway) – 25,5%
Azerbaijan Rep. State Oil Company - 10%
Lukoil (Russia) – 10%
TotalFinaElf (France) – 10%
OIEC () – 10%
TPAO (Turkey) – 9%
Export pipeline Baku (Azerbaijan)-Tbilisi (Georgia)-Erzurum (Turkey). Annual throughput capacity – 8,1 bln cubic meters until 2010
- up to 20 bln cubic meters since 2010

31. Next rounds in the Great Gas Game: sharpening competition over export gas pipelines
Export pipeline Turkmenistan – Afghanistan??
The Black Sea Region: New Gas Production Zone??
Export pipeline Turkmenistan – Europe??
Export pipeline: Turkmenistan – China??
Kazakhstan-China??

32. Export pipeline Turkmenistan – Afghanistan??
Goes on since the early 1990-ies.
In 2006 UAE proposed exploration of Yashlar gas deposit (reserves: up to bln cubic meters?) with further export via Afghanistan and Pakistan. Annual throughput capacity – 30 bcm.
Stability in Afghanistan??

33. The Black Sea Region: New Gas Production Zone??
US oil company Anadarko (Georgia): The Black Sea gas potential is larger compared to the Caspian (potential reserves of the Georgian shelf are put at 1,3 bln mtoe)

34. Export pipeline Turkmenistan – Europe??
Discussion goes on for years. In new schemes preliminary estimated at US$5 bln were proposed. New options provide for linking Baku-Tbilisi-Erzurum and/or Nabucco/GUEC with Turkmenistan and Kazakhstan:
- Kazakhstan and Turkmenistan – Azerbaijan – Georgia – Turkey – Europe
- Kazakhstan and Turkmenistan – Azerbaijan – Georgia – Ukraine - Europe
Huge investments into new explorations are required, especially after 2010
Turkmenistan gas output is contracted by Gazprom (until 2010) and since recently by China.
Results of international audit of Turkmenistan gas reserves are not publicly available
Legal Status of the Caspian Sea and Turkmenistan – Azerbaijan bilateral relations
Competition from
the Blue Stream II pipeline Russia-Turkey ??
the Nord Stream pipeline Russia-Europe??
+ Algeria??
+ Iran??
+ Norway??

35. Export pipeline Turkmenistan – China?? Kazakhstan – China??
April 2006 gas agreement Turkmenistan – PRC: Gas pipeline is to be run on January 1, China contracted up to 30 bcm of gas annually for 30 years
Selling prices were not set
Gas will be supplied from new (unexplored) deposits
China obliged to reach agreements with transit countries Uzbekistan and Kazakhstan
Kazakhstan - China talks opened in The first stage with annual throughput capacity of 10 bcm to be completed by By 2012 annual throughput capacity increase to 30 bcm
Is there a gas available?
Kashagan gas is out of the equation until 2010 (at least)
Karachganak gas is contracted by Gazprom

37. Ukraine: natural gas puzzle
Fundamental factors:
share of net import in gas consumption = 70%;
up to 2005 cheap gas from Russia and Turkmenistan (in 2005 buying price = about US$50 per 1000 cubic meters; for Europe selling price=US$ );
Transportation leg from Turkmenistan is shorter
payments for Russian gas were technical (=payments for Russian gas transit to Europe)
Outcomes
strong incentives to re-sell cheap gas at European markets (non- transparent gas schemes, stealing of Russian export gas)
inefficient economic structure (gas accounts for about 50% of primary energy supply; very high energy consumption per unit of GDP)
Challenges
who is to pay politically for the inevitable gas price increase (possibly 3-4 folds increase) with the consequent GDP drop??