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Should the West Pursue the New Trans Caspian Energy Project? PDF Print E-mail
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Written by Vasili Rukhadze   
Saturday, 30 June 2007
There have been talks in Western political and economic circles about a new Trans Caspian Energy Project since the mid 1990’s. As conceived, two pipelines were to be built under the Caspian Sea, one transporting Turkmen gas the other Kazakh oil to Europe via the Caucasus and Turkey.  However, various political factors prevented the project from realization. After the death of the self-isolationist Turkmen President  Saparmurat Niyazov in December 2006, Western capitals revived the idea of the Trans Caspian Energy Project, hoping that under new leadership, Turkmenistan would open up to Western energy investments and would  permit the export of Turkmen gas, then to be followed by a full flow of Kazakh oil, to Europe. Several months of diplomatic wrangling and ambiguity, surrounding this project-idea, basically ended in May 2007.

 

Various political observers noted that the agreement reached on May 12th of 2007 between President Putin and the Kazakh and Turkmen Presidents ensured Russia’s unimpaired access to Turkmenistan’s rich gas resources.  According to the agreement Turkmen gas will be transported to Europe via Kazakhstan and Russia. In September 2007 all parties plan to sign a treaty to build a new pipeline. Additionally, the old Prikaspiisky pipeline, running along the coast of the Caspian Sea, will be rehabilitated. Russia, Kazakhstan and Turkmenistan along with Uzbekistan also agreed that two other gas pipelines will be reconstructed. After all these envisioned pipelines go into operation, Russia will become the sole importer of natural gas from the entire Central Asian region. 

 

In addition, in the same month, Russia and Kazakhstan announced their intention to increase the Caspian Pipeline Consortium (CPC) route from its current capacity of 23 million tons of oil to 40 million tons annually. Astana (capital of Kazakhstan) also agreed to supply 17 million tons of oil every year for the Moscow-controlled 280 kilometer (about 180 miles) pipeline that will run from Bulgaria’s Black Sea port Burgas to Alexandroupolis in Greece. In May Kazakh President Nazarbayev announced that Kazakhstan was committed to transporting large portion of its oil, if not all, via Russia. 

 

After May 12th, on several occasions, Kazakh and Turkmen presidents still said a few words about their prevailing interests in Trans Caspian Energy Project, but needless to say if all the energy agreements between Russia and Central Asian states are fulfilled they can effectively kill the new Trans Caspian Energy Project and with it Europe’s hopes to diversify its energy supplies. 

 

But wasn’t the new Trans-Caspian Pipeline project one of the most criticized projects by a variety of skeptics in the West? Indeed it was. Even well before May 12th many researchers questioned whether Turkmenistan and Kazakhstan had enough energy supplies to make it worthwhile to build a huge energy transportation infrastructure. Economists pointed to the stunning financial costs needed to construct new pipelines under the sea. Human rights advocates worried that building a new pipe line would only support Central Asian authoritarian governments and their dismal human rights records. Some analysts warned the West about the still undecided international status of Caspian Sea, and environmentalists feared that new gas and oil pipelines could potentially cause an ecological disaster under Caspian Sea. 

 

After all, they reasoned, is the Trans Caspian Energy project really worth pursuing? How beneficial and realistic could it be for the West and for the Central Asian region? 

 

Let’s begin by looking at the first argument-does Central Asia have enough energy reserves worth the building of a new transportation infrastructure? 

 

Turkmenistan has 2.01 trillion cubic meters (cm) of proved gas reserves. It produces 58.57 billion cm’s every year and after domestic consumption exports 42 billion cm’s. It also has proved reserves of 546 million barrels of oil, exporting 170,000 barrels a day or roughly 62 million barrels every year. 

 

Kazakhstan has 1.841 trillion cubic meters of proved natural gas reserves. It produces 20.49 billion cm’s every year and after domestic consumption exports 7 billion cm’s. It has 26 billion barrels of proved oil reserves and exports 1 million barrels a day or 365 million barrels a year. 

 

In addition to these, Uzbekistan has 1.875 trillion cm’s of proved natural gas reserves. It produces 62.6 billion every year and after domestic consumption exports 12.5 billion cm’s. It also has 600 million barrels of proved oil reserves which it entirely uses for domestic consumption. 

 

So, the region’s three energy rich states have 5.726 trillion cubic meters of proved natural gas reserves combined. To put this in percentages Central Asia has the 3.5% of the world’s total proved gas reserves. 

 

Regarding oil, the region has roughly 27 billion barrels of proved oil reserves which is about 2.5% of the world’s total. 

 

If we examine the percent of the world’s total share the numbers are not impressive but let’s consider how they match up with Europe’s energy needs. After all Europe would be the one receiving Central Asian energy commodities. 

 

Currently the European Union consumes about 500 billion cubic meters (bcm) of gas a year, of which about 268 bcm is imported. The three Central Asian countries combined export roughly 62 billion cubic meters of gas or 13% of what the EU consumes. In other words, Central Asia with its present production capacity could supply about 23% of the EU gas imports, a handsome percentage indeed! 

 

Now let’s look at Europe’s oil consumption figures. The EU consumes roughly 5.2 billion barrels of oil every year, 4 billion barrels are imported.   Kazakhstan and Turkmenistan are able to export a total of 400 million barrels of oil every year (current production capacity). Thus they could provide a full 10% of the EU’s oil imports. 

 

The prospect of the European Union being able to diversify the source of 23% of it’s gas needs and 10% of it’s oil supplies seems too good to be true. But what about the costs? 

 

The Trans-Caspian Gas Pipeline was planned with a capacity of 30 billion cubic meters (bcm) of gas or little less than half of what Turkmenistan, Kazakhstan and Uzbekistan combined produce annually. The pipeline would start from Turkmenistan’s coastal city Turkmenbashi and would run under Caspian Sea. In Baku it would be linked with the South Caucasus Pipeline (or Baku-Tbilisi-Erzurum pipeline) and through it to the Nabucco Pipeline (via Turkey, Bulgaria, Romania, Hungary, and Austria). The cost of the Trans-Caspian Gas Pipeline was estimated at $5 billion. If we hypothetically double the capacity of the pipeline from 30 bcm to 62 bcm (the amount of gas available currently) and add two other pipelines funneling Kazakh and Uzbek gas to the city of Turkmenbashi (where the Trans-Caspian gas Pipeline was designed to start) the total cost for construction of this network of gas pipelines might be roughly $10-$12 billion. 

 

The plan for the Trans-Caspian Oil Pipeline was that it would start at the Kashgan oilfield in Kazakhstan, run under Caspian Sea and connect in Baku with Baku-Tbilisi-Ceyhan oil pipeline. The total length of the Trans-Caspian Oil Pipeline would be 700 kilometers (400 miles) long with the potential capacity of carrying a little less than half of what Kazakhstan exports now. The total cost would be $4 billion. If we double the capacity of this oil pipeline to take advantage of Kazakhstan’s oil export capabilities then the cost hypothetically might be approximately $7-$8 billion. 

 

To sum up the costs, in case the West embarks on this endeavor, the construction of Trans-Caspian Gas pipeline would cost about $10-$12 (assuming it is transporting all of Central Asia’s gas resources). This pipeline would supply 23% of the European Union’s gas import needs.  

 

And the construction of the Trans-Caspian Oil pipeline (assuming it is transporting all of Central Asia’s oil exports to the EU) would cost about $7-$8 billion with the capacity to supply 10% of the EU’s oil import needs. $17-$20 billion is a staggering amount but its economic and political benefits for Europe and for Central Asia are huge and far reaching. First, the EU will diversify its gas and oil resources and would reduce its energy dependence on Russia by half. This would hugely increase Europe’s (and entire West’s) power vis-à-vis the increasingly authoritarian, assertive and anti-Western Russia. Second, Central Asia (particularly Turkmenistan, Kazakhstan and Uzbekistan) would benefit significantly by selling their energy commodities for fair international prices (for example Russia currently pays just $100 per thousand cubic meters of  Turkmen gas reselling it in Europe for $243). Third, the pipelines would directly link remote Central Asia with Europe proper, creating one long and solid space of economic (and political) cooperation that would certainly strengthen the peace and stability in  regions stretching from Eastern Europe to the Pamir Mountains in Central Asia. Fourth, close economic and energy cooperation with Europe would gradually open up Central Asia’s authoritarian and reclusive political systems, eventually causing democratic change through the persistent engagement with governments and local societies. This could be an excellent alternative as opposed to the West’s ostracism that leaves Central Asia’s governments exposed to huge political and economic pressure applied by totalitarian-authoritarian Russia, Iran and China. 

 

Conclusion 

 

Pursuing the Trans Caspian Energy Project is well worth the investment. A high financial cost of Trans Caspian Energy Project is definitely a matter of concern. However, political and economic gains for all sides are so big that expenses can be wisely divided through negotiations among the countries and the companies involved in the project. 

 

The concern that the undecided international status of the Caspian Sea can halt the process seems largely groundless. It’s true that after the collapse of the Soviet Union the littoral states around the Caspian never reached a formal agreement on whether it is a “sea” or “lake”. Russia and Iran seek to declare it as a sea (as opposed to lake) and this way gain veto power over any energy project running across the “neutral” Caspian. But according to the bilateral agreements among the Caspian Sea basin states (signed in the last decade) the sea is already divided into sectors, every Caspian country getting its share (although Iran doesn’t recognize these borders among the sectors).  In fact, no Caspian basin state, including Russia and Iran, possess veto power over any energy project route affecting the Caspian Sea. It can only be regulated by bilateral agreements among the states involved in the project. 

 

An ecological concern that oil and gas pipes on the Caspian seabed could cause an environmental catastrophe of regional scale is also greatly overestimated. Today’s high engineering capabilities can significantly reduce the risk of any ecological inefficiency, especially when such pipelines already exist and several are being built (for instance, Norway-UK gas pipeline under Northern Sea, North European Gas Pipeline between Russia and Germany under the Baltic Sea). 

 

The biggest obstacle remains-political hurdles.  Against the backdrop of Russia’s recent May 12th geopolitical victory, the Trans-Caspian oil and gas pipelines already seem unreal for many.  To counter the sense of defeat it should be pointed out that the Baku-Batumi-Ceyhan (BTC) pipeline (that currently runs and transports about 1 million barrels a day of Azerbaijan oil to the West) looked even more unreal and remote in recent past. Skeptics pointed to the extremely unstable political conditions in Georgia, Azerbaijan and in the Caucasus. And indeed in the 1990’s, Moscow (seeing Baku-Batumi-Ceyhan Oil pipeline coming), did its best (by staging pro-Moscow military coups in Georgia and Azerbaijan and supporting devastating pro-Russian separatist wars in Georgia and Azerbaijan’s Karabakh province in the early 1990’s.) to make the entire region “inhospitable” for such a pipeline. The Kremlin was trying to convince the West that “stable” Russia as compared to the turbulent Caucasus, would be the best alternative route for Azerbaijan’s abundant oil resources. However, despite all the odds the BTC is operational and has been followed by second giant Baku-Tbilisi-Erzurum Gas pipeline which transports Azerbaijan’s abundant gas resources to the West. 

 

Western governments should act quickly, consistently and intensively. They should reach out not only Turkmen and Kazakh governments but also Uzbek government and try to engage them in the new Trans-Caspian Energy Project. Inclusion of Uzbekistan’s energy supplies in the Trans Caspian Energy project can be mutually beneficial both for Europe and for Uzbekistan, from an economic and political perspective. Europe should do its best to direct all of Central Asia’s energy resources to the West, not just Kazakh oil and Turkmen gas as was originally envisaged by the Trans Caspian Energy project. This would not mean Europe’s hegemonic monopoly on the region’s gas and oil supplies. It simply would be the best guarantor of Central Asia’s economic development, democratic reformation and international cooperation. On the other hand Europe would be relieved of its tightening dependence on Russian energy. The Trans Caspian Energy Project is worth pursuing. So far, nothing is lost and it’s up to the West to act now. 

 

about Vasili Rukhadze

Last Updated ( Tuesday, 10 July 2007 )
 
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