Mehmet Tutuncu (sota@euronet.nl)
Sun, 15 Jun 1997 21:50:04 +0200
<<>><<>><<>><<>><<>><<>><<>>-----------<<>><<>><<>><<>><<>><<>><<>><<>>>
<<>><<>><<>>.....TURKISTAN
NEWSLETTER...ISSN:--1386-6265....<<>><<>><<>>
<<>><<>><<>>--------------------------------------------<<>><<>><<>><<>>
<<>><<>><<>>........Editor/Manager:
Mehmet Tutuncu......<<>><<>><<>><<>>
<<>><<>><<>>......Business:
H.Savas, S.Bogut............<<>><<>><<>><<>>
<<>><<>><<>>...Features: I.
Noyan-Izmirli,Y. Puersuen...<<>><<>><<>><<>>
<<>><<>><<>>......Technical:
T. Ates, K. Cagiltay.......<<>><<>><<>><<>>
<<>><<>>......Associate Editors: A.Baguirov,
A. Eren,Z.Kadir....<<>><<>>
<<>>........Editorial Board:Dr.T.Kocaoglu,Dr.N.Sariahmetoglu........<<>>
<<>>...........Dr. M. Hubey, Dr. Robert M. Cutler...................<<>>
<<>><<>>--------------------------------------------------------<<>><<>>
<<>><<>><<>><<>>.....Volume:97-1:10---16--Jun--1997.....<<>><<>><<>><<>>
<<>><<>><<>><<>><<>>-----------------------------<<><<>><<>><<>><<>><<>>
Uze Tengri basmasar asra yer telinmeser, Turuk bodun ilining torugin
kem
artati, udaci erti. (From Bilge Kagan runic inscriptions. (7th.
century)
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*** CASPIAN OIL PERSPECTIVES ***
.......1. CASPIAN OIL PERSPECTIVES (Analytical Essay by -- Sukru
Bogut)
.......2. 4 Questions of H.M. Hubey to Sukru Bogut
.......3. Answers of Sukru Bogut to these Questions
.......4. VISIT OF THE PRESIDENT HEYDAR ALIYEV TO KAZAKSTAN: ANALYTICAL
REVIEW
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#1
CASPIAN OIL PERSPECTIVES
Sukru Bogut (Sükrü Bögüt)
The oil in the Caspian Region has twice changed the course of
the world
energy scene, about 100 years ago and in a 20 year period and
silenced
until 1992. Will there be a new change in the world scene again
and
prosperity for the region ?
This article will cover the following four perspectives:
A. Historical
B. Technological
C. Economical
This article is intended to provide an historical upperhand to
signify the
importance of the region and an analysis of the current situation,
after
the collapse of the Soviet Union ("SU"). After the collapse,
I have been
fortunate enough to travel the region and contact with the local
specialists. My travels included the Russian Far East (Sakhalin
Region),
Siberian Region (Khanty Mansisyk), Volga Region, Western Kazakstan
Region
and Baku, Azerbaijan. The activities included from initial meetings,
visits, feasibilities to contract negotiations.
The opinions represented here are solely personal and not by any
means
related to the corporate views. Objective is to give a personal
overview of
the subject which may differ from one person to another, as the
subject has
equal weights of economical and political aspects.
Since the existing system is intermixed, time to time Russian
system will
also be studied.
A. HISTORICAL PERSPECTIVE
The subject area is the Caspian Region, which covers onshore and
offshore
areas surrounding the Caspian Sea. Namely, the area covers Azerbaijan,
Turkmenistan, Kazakstan, and Russia. Iranian sector has been so
far
insignificant in terms of resources. The region which is a geological
basin, and has oil bearing (source) sedimentary rocks and good
structures
to trap the migrating hydrocarbons from these source rocks. Relatively
low
to non volcanic activity helped to preserve these traps or reservoirs
for
the exploitation of the humans at the beginning of the Century.
Another significance of the region is the accumulation of trapped
hydrocarbons in mostly larger reservoirs and in geographically
smaller size
area. This concentrated resource pool is somewhat very similar
to the
Middle East Region. The distance between the two is also quite
small.
The Caspian is making its rebut in world oil markets once again
and this
time by potentially becoming another non-OPEC source, similar
to North Sea
Oil and the world users are trying to accommodate this new participant
with
new ties from export pipelines to security agreements. The world
has
learned the lesson from the Middle East that the dependence to
any new
source will only be established when its free flow to the world
markets are
unconditionally secured. The host countries of the region are
also very
pleased from this process that this will not only bring prosperity
to their
lands, but also a shear independence from the previous Soviet
rule.
Obstacles are underway from those that loosing their grips and
from those
that trying to gain personal benefits. As always, ego and greed
go hand in
hand, but at the end, when all arrangements are made the world
will gain a
new supply source, and the peoples of the region will benefit
from their
this natural resource. Unfortunately, as of 1997, this process
is not
complete and the game is still at preparation phase, both players
and the
stage are not ready and complete.
Initially, the eternal pillar of fire by the Zoroastrians from
the mud
volcanoes in Baku impressed just a few travelling foreigners other
than the
locals. Marco Polo was one of them, reporting this oil that was
coming from
springs and good for burning and the cleaning of the mange of
camels. Even
the first commercial use of oil in Baku was well after the first
American
Rockefeller' s Standard Oil made kerosene reached the Russian
city of St.
Petersburg in 1862. In early to mid 1800' s hundreds a few hand
dug pits
were producing a little amount of oil under the Czarist rule of
Russian
Empire. It was when the 1870' s that the private investments were
allowed
to this part of the Empire. Before the arrival of well known chemist
Robert
Nobel, there were a good number of mechanically drilled wells
and small
refineries in the Baku region. Nobel's initial investment of a
small
refinery purchase proved to be a good investment by time and made
him the
one of the first oil kings. However, the regional development
reached a
bottleneck on the way to become an international significance,
which is a
ironic fact of also in 1997, that is the transportation problem.
For this
product to gain international coverage, Baku had to break the
Standard
Oil's world monopoly. The capitalist Standard oil machine was
everywhere in
the world and was protecting their territory by all means of power
shows.
However, the part of the capitalist system was also present. That
was
competition and ingenuity of the human mind, when it was allowed
to
compete. The mastering of the subject involved the discovery of
oil by
tankers, Rothschild family and Baku-Batum Railroad link, opening
of the
Suez Canal and it was Marcus Samuel that put all the ingredients
together
and created so called " the coup of 1892". When it was
over, specially
built tankers were passing through the British controlled Suez
canal and
delivering kerosene to the clients of Standard oil in China.
By the 1917 Bolshevik Revolution in Russia, the Baku Oil was producing
major part of oil world oil supply and the usage had already expanded
into
motor vehicles and diesel engines of the naval vessels. It was
an important
commodity to the industrial countries of the world.
The Russian Revolution benefitted significantly from the wealth
of Baku
oil. The initial supply of hard cash for the foreign purchases
came from
the oil sales. Importance of Baku also compounded by the formation
of
Russian oil technology and industry. The region included education
facilities for engineers and scientists. Several factories were
built to
produce the necessary equipment.
The importance of Baku diminished when much of the easy, shallow
onshore
and offshore oil had been produced and when the large and "easy"
reserves
of Siberian Region was discovered. After this time, much of the
Soviet oil
capital was redirected towards Siberia.
The SU produced the largest amount of crude oil in the world and
maintained
the production for a long period of time. In order to undertake
such large
scale activity, the SU Oil Industry has invented several technologies,
produced necessary equipment and personnel. However something
went wrong in
the late 1980' s and early 1990's that completely reversed the
production
figures and export revenues.
The first departure from Baku oil to Siberian oil was more market
driven,
economics based decision. The Soviets were a lot better off to
make their
investments to the places where the returns are higher for their
capitals.
Since much of the low cost easy oil had been produced in Azerbaijan
and
Siberia offered low cost "easy" oil, it was more of
a business decision.
However, the second departure was a little complicated and had
two arms,
one economic and one political. Two factors worked independently
and once
merged together, both oil industry and political system in SU
collapsed.
In the process of oil exploration, SU had sufficient, but may
be not enough
technology in seismic prospecting and identified several shallow
exploration prospects properly. Their technology lacked resolution
in
identifying deeper pays and in some isolated lithological environments.
However, the geoscientists, both geologists and geophysicists
were very
competent and able the point the right targets at the producible
depths.
The Soviet system made its first error after the drilling of exploratory
drilling. Once the discovery is made, the exploration departments
kept
drilling and made the reservoir rock extent definition by means
of actual
drilling and abandoned each and every well, not allowed for future
production. After the exploratory drilling is done and the field
is
defined, only after the reserve calculations are done and approved
by the
central committees, they allowed the production departments to
take the
fields and re-drill and develop for the regular production. The
process,
while fool proof for the reserves, is too expensive for the oil
industry.
The difference between the exploratory and production departments
were such
that even the equipment and parts used were incompatible. Effectiveness
and
efficiency was not of concern. For example, the West Kazakstan
wells, such
as in the Tengiz field, took 3-4 years to complete. A normal western
period
for such a well may be 2-4 months. The difference is adequate
supply of
materials and faster drilling techniques. The Soviet system was
more
employment related rather efficient usage of time and money. Therefore,
in
real terms, Soviet development was too expensive than the world
averages.
Oil production is not complete after the drilling of the wells.
Subsequent
well service is a requirement for an effective and efficient production
life. The most efficient production methods need continuous monitoring
and
servicing of the wells by means of logging, testing, re- perforating,
sand
controlling, chemical treatments, etc. The concept of "service"
was a very
weak point in the communist doctrine. It was kept in the same
category as
the luxury items and unfortunately, almost all of the Soviet era
wells are
now subject to some type of service work and rehabilation. In
Western
standard of field operations, capital costs (mostly initial discovery
and
development) and operating expenses are almost equal in money
terms. The
Soviet system had very high capital costs and very low operating
costs, in
real terms. Much of the operating costs, other then the personnel
expenses,
which were also too high on a per unit oil production basis, was
for the
items other than the oil production, such as, a nearby hospital,
school or
a police station.
Therefore the Soviet oil was too expensive to develop and too
expensive to
maintain. However it was the major source of foreign currency,
arm sales,
gold and diamond being the other revenue sources.
The tumble of oil prices from $ 35 per barrel to $ 10 per barrel
in late
1980' s paved the way of the great collapse. The export revenues
dropped
astronomically and the investments dropped even faster. A system
that
needed a lot of money to maintain lost its source of funding and
showed the
greatest amount of decline in a shortest period of time. When
the process
combined together, in a short period of time caused the entire
Soviet
system to become financially bankrupt. This was the situation
at the time
of the disintegration of the SU.
How much of credit is due to the Western Governments, the U.S.
Governmnent
is a subject of the historians. The disintegration is however
was the
victory of the post war Western policy and the emergence of new
republics
and a new great game of oil. New source of raw materials, natural
resources
and new consumer markets are once again available for the world
and for the
host countries.
Before the new sources are approved and used widely, there will
be a
transition period in which these sources need to be secured in
their
respective host countries (by political and legal infrastructures)
and
their supply to the world markets need to be secured for the continuity.
The latter may even involve the inclusion of these areas by the
common
defense systems. So there is a lot work to be done, but luckily
they are
underway in the right direction, despite a few interruptions,
such as the
manipulated regional conflicts.
B. TECHNOLOGICAL PERSPECTIVES:
We can classify the business opportunities in Russia and Former
Soviet
Union ("FSU") in two groups:
a. Projects that need Western Technology
The first group is relatively low cost items and available from
the Western
technology sources on lease or sale basis. One of the much needed
items are
for the exploratory phase is deeper seismic technology for penetration,
processing and new interpretation techniques and three dimensional
(3-D)
seismic technology. Since these technologies were not available
at the SU
times, there are several good prospects at higher depths (5,000
meters and
deeper) in the Caspian area. 3-D can reveal more reservoir extensions
and
make additions to the reserves.
The cement technology is also weak for the proper isolation of
wellbores
from the protective casings. The SU produced single type of cement
and not
versatile cement placement technology to produce non-isolated
sections of
wellbore behind the casings that later caused the cross flows
and
production losses.
Certain drilling technology is also needed in faster and safer
operations.
Mud systems are not versatile and due to the lack of better mud
types,
especially in the high pressure areas, the formations were damaged
with the
heavy and improper drilling muds. Heavy weight drilling and well
completion
fluids are needed. Some previous damages are irreversible, and
therefore
the rehabilitation of some wells may no longer possible. Almost
all wells
are drilled in overbalanced mud condition against the formation
pressure,
and hence subject of formation damage.
Pressure control equipment and safety during the drilling process
are very
insufficient. Much of the new discoveries are a result of well
blow-outs.
In the case of sour production, for example the hydrogen sulphur
of the
Tengiz area, there is a significant safety problem.
Perforating techniques are again not versatile, the SU procedure
only
allows a few (perhaps) open perforations in casings of every meter
of
productive zone. The Western procedure uses 10-15 times more holes
with
much effective perforating guns and techniques.
Sand control is a major problem. There was almost no available
technology.
The SU system missed this item completely and luckily to the new
republics,
this error left a lot of remaining shallow production.
The drilling technology also lost their edge over the years. Although
it
was first discovered by the SU oil industry, the horizontal drilling
was
improved significantly and become one of the critical technology
of the
Western Oil Industry. This technology offer now more oil from
the existing
fields.
These projects needs proper identification with feasibility studies.
The
business forms may be direct equipment sale, joint venture service
company,
joint venture specific oil field production or on a field wide
production
sharing agreement.
One issue deserves attention about the technological cooperation
area.
Usually it is very non- productive process simply to work on a
technological feasibility work with the FSU specialists. The common
understanding in the FSU specialists is that they only need the
equipment
and financial sources. The technical and operational knowledge
are not
needed. This results in the purchase of unnecessary or wrong equipment
for
the specific application and later wrong operational procedure
and failure
of the projects. This is again some remnant effect of the Soviet
attitude.
the success of the application in the Western companies are a
combination
of good equipment and experienced personnel.
The World Bank and U.S. Exim-Bank opened large amounts of credits,
especially for the Russian Production Associations ("PA").
Last few years
Russian PA' s opened several international tenders for the specialized
equipment. However some of these loans were rejected by the PA'
s
themselves, simply because they can not pay the loan back with
their cash
flows that produce no profits with the existing fiscal regimes
in Russia.
The current tax regime in Russian Federation is simply against
the PA' a
profitability. Still Russia depends on oil exports and taxes the
PA' s to a
point that these PA' s can no longer maintain even their current
levels of
production.
In any case, this type of opportunity is not lucrative for large
scale oil
companies. Since the operations are smaller in scale and does
not produce
large amounts of oil. However, these constitute the larger part
of the
projects in these countries. It is also the area that all FSU
needs most to
be modernized and re-engineered. The bulk of their petroleum work
force is
in this area and only with the profitable operations can keep
their jobs
and improve their life standards. The larger Mega field projects,
such as
the Caspian Offshore developments will require a much lesser amount
and a
new brand of skilled labor.
b. Projects that need Capital and Technology
There are the main targets of the multinationals. These projects
initiated
by the SU Petroleum Industry, by detailed geological and geophysical
prospecting, initial exploratory drilling and final full scale
of
exploratory drilling. Usually they are almost risk free since
the reserve
verification is by means of actual well drilling. As mentioned
above, this
is a very expensive process in the Western practice.
There are a few problems here, though. Such as the case of data
files. They
are all kept very secret and still are not easily available, which
is
another SU practice. In the Western Oil World, the host countries,
or lease
owners, almost provided these free, at the designated data rooms
to all
prospective buyers, developers, in order to stimulate the competition.
More
data for a good prospect will draw more competition.
With the initial surge of interest in early 1990' s, almost all
of
multinationals recognized this emerging business area and opened
their
offices in the Caspian.
C. ECONOMICAL PROSPECTS:
The economics has been the clear failure of SU Petroleum Industry.
Employment (an expense item) driven industry did not focus on
the total
cost item. The cost of per barrel has not been a concern for the
administrators. Since all other commodities, raw and finished
products
worked on the same principle, this would not had become a major
problem,
until the oil exports became the major source of hard currency
source for
the SU economy.
We all observed the 1970 Arab oil embargo and 1980 collapse of
oil prices.
The reasons of these movements are outside the scope this report.
For any oil project, the first step is to construct en economic
model with
all available and projected data. One of the end product is a
table showing
all expenses and revenues per each future contract year. At the
bottom of
each year is the net cash flow, starting from a negative value,
due to
initial investment, and going through the positive values as the
project
matures. An economic term IRR (Internal Rate of Revenue) which
is based on
the net cash flow and NPV (net present values at different discount
rates)
are the basic initial factors that any investor does for any new
venture.
The investors can then rates and ranks projects with these and
some other
criteria. The projects (and the host countries, as the lease owners)
are in
competition for the same investment capitals (multinational companies,
or
contractors). There is always tight competition for the capital,
the world
has so far never been tight place for the new projects. Geographical
location is not very big concern to the oil industry. As a recent
excerpt
of an oil CEO "oil does not grow in the beaches of the French
Riviera, they
are very accustomed to the hostile and remote areas of the world",
as long
as their parameters are met.
Basic items of the economic analysis are the following. For the
cost
figures, there are capital costs and operating costs. While the
operating
costs are all allowed for immediate credit for recovery, the capital
costs
may only be allowed for a fix percentage of credit for each year.
The cost
of transportation, including the fees for the pipelines, are all
cost
items. Therefore the pipeline issue for the Caspian are real cost
concerns
for both the contractor and the host country. The bulk point figures
for
international average are, on a per barrel base, $ 3-4 for the
capital
cost, $ 2-4 for operating cost and $ 2-3 for the transportation
cost. The
total cost therefore may be $ 7 to $ 11 per barrel. The remaining
portion
goes to a split between the host country and the contractor, as
per the PSA
(production sharing agreement).
The PSA split, other than the skills of successful negotiation,
is directly
related to the economic attractiveness of the area. A stable geographical
area, such as Indonesia can earn the Indonesian Government entity
about 85
% share interest in the PSA and a new, unstable area, such as
the Caspian
may earn Azerbaijan Government Entity about 50 % interest of the
PSA, with
all costs are being financed by the Contractor. The host country
may also
contribute to the costs of finance and can earn additional percentages
from
the Contractor' s share.
The basic risks for the petroleum productions projects are the
amount of
producible reserves and future oil prices. Contractor can exert
some means
of control on reserves with their previous and current knowledge,
and can
update the figures during the course of the project; but, has
no control
over the future oil prices. How would the prices behave during
the term of
the contract ? The contract terms may be 20-30 years with the
rights of
future extensions. Historical, inflation adjusted oil prices are
around $
15 per barrel. For each project in a certain time, each company
uses a
certain figure for the economics. These figures are approved by
the company
management and are applied to all projects, from a simple and
single
well-workover to a larger scale field development project. The
current
expectation for the next 5 years may be around $ 16- $ 18 per
barrel range.
However, in the past these figures were as high at $ 42 and as
low as $ 9
per barrel, as the commodity markets dictates. This is the clear
gamble and
the "prize" part.
Coming back to the above example, with a 50 % PSA share and $
15 oil, the
contractor may earn about $ 2 to $ 4 per barrel, before the host
country
income tax. The tax may be between 25 % to 50 % range.
The technology, operating skills and management skills can differ
from one
company to another. Such as recovering an additional dollar from
the
operating cost or changing the capital costs with revised reserve
figures.
The bottom line is to provide a good return on the capital and
satisfy the
shareholders of the companies with good dividends and the stock
value
appreciation.
IRR is one of the single most important critical parameters of
the projects
and their attractiveness. If this number needs and index, or a
lowermost
figure, it is the most risk-free return on capital and this is
considered
the US Treasury Notes, which is just around the US inflation figures
and
around 3 % level. If someone does not want to take any risk, but
to
preserve the capital against the inflation, may choose these treasury
notes
and than this person is assumed to take no risk. So for any business
venture, one should take some risk and seek for a higher figure
of return.
Such numbers for the U.S. Oil Industry may be 10 to 15 % of IRR.
Outside
the U.S. and Western Hemisphere, then we add several other risks,
as
political risk being the number one. A project with 15 % IRR in
Indonesia
may be acceptable for the stability of the region and the infrastructure
pluses, but in the case of FSU projects, this figure perhaps should
be
around 25 % level. The additional risks of political stability,
fiscal and
leagl stability, infrastructure, military conflicts, distance
to sale
markets, etc may all total up and demand a figure like this, for
a company
to risk their capital.
There is also an upper limit of reality in this figure. Of course
very high
numbers, 100 - 200 % IRR are all possible and very desirable,
but then we
may pass over the other to the region, in the fair trading and
to as deep
as in corruption. Such news dominated the oil industry in the
early 1990'
s. "Too good to be true" deals came to lots of Western
companies and we
observed a big "oil rush". This invited not only the
professional oil
companies, such as Argentina' s Bridas to Turkmenistan, but also
a lot of
small entrepreneurs, individuals and opportunists to these countries.
Usually these types of agreements are either cancelled or are
revised later
on.
There are a few more issues that needs to be addressed:
a. Environmental Liability:
One issue for all projects, especially dor the onshore projects
and the
currently existing offshore production projects is the environmental
liability and the clean up costs. The SU oil industry unfortunately
has
left a very polluted environment during the development of these
resources.
The greenfield projects in new areas are not a problem, this item
is
included in the cost figures.
In the Western Oil Industry, there are clear regulations from
air emissions
to water disposal. The government agencies continuously monitor
and
regulate these items, to even an extent that due to these hidden
costs,
some projects may not be economical at all. Pollution is evident
in
belowground (damaged and leaking cement bonds between the wellbore
and the
formations) and aboveground (surface production equipment, surface
pipelines, processing plants, etc.) The leakage from Transneft
pipeline
system throughout the FSU are very common and a part of the normal
assumption. A speculation was even put this figure around at 1
Million
barrels a day level. Both loss of production and the pollution
of the
environment are real concerns. Billion barrel equivalent oil spills
in
Siberian region is not uncommon. A small leakage from an underground
gas
station tank is of great concern in the Western countries, due
to mixing of
underground water and accumulations for possible future gas explosions.
Therefore order of magnitudes of acceptable levels are enormous.
Safety concerns are also present in the current field operations
and
hostile production facilities, such as Janajol of Kazakstan. The
PSA all
have clauses for the future practices to be within the acceptable
levels of
Western Safety and Environmental regulations. But the host countries
do not
have regulations and enforcement. The present situation of the
pollution
and previous damage and clean-up are not addressed yet.
This liability alone may be sufficient for reputable Western oil
companies
not to get involve with the presently producing onshore or offshore
fields.
b. Petroleum Law:
In each of the oil producing countries, there is a national petroleum
law
that describes the duties of the contractor and the government,
tax
regimes, ownership, accounting, exchange control, valuation and
lifting of
oil, force majeure, arbitration, etc. Therefore, the PSA is quite
simple
and relates basically the minimum work requirement, bonuses and
a few more
items.
Since there is no petroleum law in these new republics and the
Russian
Federation, each PSA, itself becomes a new law, with all the above
items
negotiated and agreed by the parties. The final PSA then is presented
to
the Parliament of the host country for ratification. Once ratified
by the
Parliament, the PSA becomes a public law.
There are other business arrangements than PSA, such as Joint
Ventures.
There have been a good number of JV' s with local partners, some
successful, but mostly unsuccessful. Especially in the legal recourse
case,
there is no chance for the foreign partner. However, for the small
projects
of low financial exposures, the JV' s are good business instruments.
The
large scale projects does require for the contractor to secure
their
interest in the best manner with a PSA Litigation has been so
far low. The
historical evidence suggest even in the SU times, the governments
kept up
with their promises. The current case in Turkmenistan with Bridas
and
Unocal, and Turkmen Government though raises some serious concerns.
The
Turkmen Government here granted the same concession to both companies
for
an export pipeline to Pakistan through Afganistan . Turkmen Government
also
refuses to honor the arbitration ruling on a different Joint Venture
with
Bridas. All these are in a five year period of after the independence
and
after about $ 400 Million dollars of Bridas exposure. The Bridas-Unacal
case is now in Texas courts. The world oil indusrtry is watching
the
outcomes of both lagal actions with a very careful eye.
c. Corruption:
An address here also needs to be made for corruption. For any
place with
high amounts of money involved, human nature brings the greed
and
corruption. It is quite difficult to conduct a fair negotiation
for any
agreement between a "rich" foreign party and "very
poor" representatives of
the host country, who might or not received their past several
months'
salaries of $ 10 - $ 30 a month. Difficulty of negotiation multi
billion
dollars of investments, minimum work requirements, etc are all
evident.
There is also a good number of local and international agents
for the deal
making. The U.S. companies are clearly restricted by the Foreign
Corruption
Act, which prohibits the U.S. companies to offer bribes to the
foreign
government officials and their relatives. A violation may be a
sufficient
reason for a U.S. oil company officer to go to jail. Probably
a similar
approach for the other Western countries and the host countries
will hep to
control this factor.
CONCLUSIONS
So far studies have shown that there are great amounts of recoverable
and
"possible" oil in the Caspian Region. A recent Walt
Street Journal report
(April 30, 1997) puts the "possible" reserves around
178 Billion barrels.
The figure compares well with the "proven" reserves
of 100 Billion in Iraq
and 261 Billion barrels in Saudi Arabia. The development costs
are high due
to deep water offshore production in the Caspian Sea and due to
sour
components (hydrogen sulphur, mercaptan, etc.) in Western Kazakstan.
But
all are, within a reasonable development plan, economical and
attractive to
the potential investors and contractors.
There is a certain amount of infrastructure for the oil development.
Certain elements can be usable with re-furbishment, such as modifying
the
mud systems in the land rigs, re-furbishment of the offshore structures;
and certain new elements can be borough to the region, such as
new semi-
submersible rigs, horizontal drilling technology, etc.
Almost all the major oil players are present in the region with
one or more
interests in different projects. This also covers a good array
of national
company interests from Russia to Turkey and Iran.
The pipeline studies and actions are all underway. A two-tier
program is
being implemented for the Caspian. The first stage involves two
routes, one
to Russian and the other one to Georgian Black Sea ports and through
the
Turkish Bosphorus to the Mediterranean markets. The total daily
capacity
will be around 100,000 barrels per day. There are still considerations
for
the second stage, main pipeline route. The contenders are expanded
Russian
Black Sea outlet and the connection to Turkish Mediterranean Ceyhan
outlet.
Unfortunately not only the political but also physical limits
are pushing
the limits in the Bosphorus, which is even now around 1.4 Million
of
barrels of mostly Russian export oil. The main pipeline will be
required in
place before 2010, and the targeted peak period for the Caspian
and around
1 Million barrels a day. Additional one million barrels day connection
is
possible with the inclusion of Kazak oil. These 2 Million additional
barrels may just be enough to replace the declining North Sea
oil of then
increased world consumption, around 65 Million barrels a day now.
It is the benefit of the host countries not to rely on one separate
export
route, but have several routes to different markets. Since their
oil will
be in competition with the others in the market. There is no blend,
or
index oil yet. But current economic analyses use a discount under
North
Sea's Brent blend. There is also conflicting interests of surrounding
chantries for the oil routes. Therefore, it is safe to assume
a balanced
and compromised solution between these countries. Unfortunately,
due to US
sanctions, another route across the Iranian territory may be too
late for
the competition. However, oil swaps with Iran are real and possible.
Before the region exerts its share to the world markets, there
is another
issue to be addressed. This is the security of the exports and
supply of
the crude. There are discussions of NATO expansion to the region
and a
warfare between Armenia and Azerbaijan. This issues need to be
solved
before the dependence of this oil begins. But the issues are now
of
international concern, with interests of all Western countries
are tied in.
Environmental liability needs to be addressed properly and actions
should
be taken. The multinationals are more prone this liability with
their high
profiles. There may be a fund in the host country and or for a
regional
basis, such as the Caspian Sea, where both the contractors and
mostly the
host countries contribute, and with the backing of the International
Finance, such as the World Bank, a program of massive scale should
be
implemented before it gets even more expensive.
In conclusion, developments in the region are all in good and
in
progressive direction, indicating that this region once again
will come to
the world stage, provide a good supply of crude oil, not in dominating
percentages of 1800' s, but still in sufficient terms to become
significant
and hopefully will improve the living standards of its inhabitants.
<><><><><><><><><><><><><><><><><><><><
#2
Date: Fri, 13 Jun 1997 18:28:06 -0400 (EDT)
From: "H. M. Hubey" <hubey@amiga.montclair.edu>
To: turkistan-l@turkistan.org
Subject: Re: <Turkistan-L> CASPIAN OIL PERSPECTIVES
Sender: owner-turkistan-l@turkistan.org
Reply-To: turkistan-l@turkistan.org
Thanks for the info. I have some questions about oil and gas
transport.
1) Is natural gas transported in liquid form (via pipes also).
2) Would it be easy to clean out an oil pipeline by flushing
with lots of water?
3) What are the effects of gas in water on living things? I think
there is some lake in Germany which is high in methane and no
life exists. What concentrations are lethal?
4) If water is transported using a gas pipeline how much of the
gas can seep into the water (is it called immiscibility?)?
Thanks for those in the know?
Mark Hubey ---------------------------------------------------------
http://www.csam.montclair.edu/Faculty/Hubey.html
hubey@pegasus.montclair.edu hubeyh@alpha.montclair.edu
--------------------------------------------------------------------------
<><><><><><><><><><><><><><><><><><><><><><><>
#3
Date: Fri, 13 Jun 1997 18:21:17 -0500
X-Sender: sbogut@acadiacom.net
To: turkistan-l@turkistan.org
From: Sukru Bogut <sbogut@acadiacom.net>
Subject: Re: <Turkistan-L> CASPIAN OIL PERSPECTIVES
Sender: owner-turkistan-l@turkistan.org
Reply-To: turkistan-l@turkistan.org
Hello Mark;
Thanks for the interest. Answers to your questions:
>
>1) Is natural gas transported in liquid form (via pipes
also).
>
Yes. It is an expensive process and called LNG (Liquefaction Natural
Gas). The expense is for the liquefaction and transport. It requires
specially built (cryogenic) vessels. These ships may cost $ 200
to
$ 300 M and are dedicated to the contracts. Recently, the liquefaction
techniques became cheaper and the LNG market quite heated up.
Also the countries in the hot environment (Malaysia, Indonesia,
UAE, N. African C) all entered into this market.
The wildest project is in North Russia, Kara Sea. The vast gas
reserves of
this area will be all liquefied and then transported inside the
specially
build submarines, under the ice, Bering Strait and to the Russian
Far
East and then will be transferred to regular LNG ships to markets
of
China and Japan.
The pipeline transport of gas is a lot cheaper (same is oil),
but
in single phase. Three phase flow (oil, water, gas) is hard to
manage (turbulence, lamination, velocities,..)
It is better for the host country due to "net back",
as long
as the pipeline length is within the acceptable range. By far
this
is the most popular way of transport.
>2) Would it be easy to clean out an oil pipeline by flushing
>with lots of water?
>
Water and oil does not mix. There are specially built (plastic,
resin..)
materials ("pigs") that can be pumped from one station
and picked
up from the other one to clean the pipeline.
>3) What are the effects of gas in water on living things?
I think
>there is some lake in Germany which is high in methane
and no
>life exists. What concentrations are lethal?
>
Main useful part of natural gas is methane. This is not that harmful.
(Adil may remember the mud volcanoes, or eternal fires of Baku.)
The problem may be such gas components as CO2 and H2S.
Turkish Black Sea has CO2 and there is no sea life below a certain
depth.
Tengiz has 10-20 % CO2, Natuna (Indonesia) has 60 % CO2. For
H2S 15-20 ppm (parts per million) can kill a human being, very
lethal.
Tengiz may have 2-3 %. Russians/Kazaks never revealed the casualties.
Expense goes to not only protection but also higher grade steel.
>4) If water is transported using a gas pipeline how much
of the
>gas can seep into the water (is it called immiscibility?)?
>
They are immiscible. Several flow regimes may develop. Since
their densities are different, they will travel at different velocities.
Gas will travel at much higher velocity. When water joins the
action, there will shocks on the pumping stations or any
regulation points. This is quite dangerous and not desirable.
Regards,
Sukru Bogut
<><><><><><><><><><><><><><><><><><><><><><><>>>><><><><><><><>
#4
T U R A N NEWS AGENCY INFORMASIYA AGENTLIYI
14.06.97
ANALYTICAL REVIEW BY TURAN
ISSUE - 340
VISIT OF THE PRESIDENT HEYDAR ALIYEV TO KAZAKSTAN
The process of intensive rapprochement of the positions of Almaty
and
Baku on the number of strategical key problems for both countries
bas
been lasting for more than a year (particularly in the sphere
of
oil diplomacy, status of the Caspian, perspectives of
communication integration, etc.) In September 1996 first official
visit of
the president N. Nazarbayev to Azerbaijan (then he left for Georgia)
took place. Then main documents for the development of triple
partner
relations have been signed. Heads of the states obtained full
understanding
in choose of the route for transit of the Caspian oil to the
West, reasonability of further deepening and expansion of regional
cooperation.
In Baku and Tbilisi president Nazarbayev confirmed his intention
to
join the agreement on Transcaucasian Railway Main Road (project
of
Eurounion TRASECA) and offered Aliyev and Shewardnadze to join
the Central
Asian cooperation. President of Kazakhstan stressed in Baku common
culture, history, language, spiritual heritage and identity of
economy, as
well
as great reserves of hydrocarbon resources in both countries.
President
of Azerbaijan underlined presence of a single position on almost
all strategical questions. He emphasized the importance of the
Treaty on
basis of relations between the countries and joint statement of
the status
of the Caspian sea.
However, geopolitical situation of the Caucasus and Central Asia
is changing so quickly that there is always necessity in
additional correction of the positions and strategical courses.
Such changes took place usually in all spheres, but the question
of
timely coordination of intentions and actions in the pipeline
diplomacy,
status of the Caspian and the communication always in the centre.
Present visit of Heydar Aliyev refers to the category of planned
meetings.
A large package of documents (17 instead of 15) was signed during
the visit. It again notes the preliminary agreement about close
coordination of steps in the spheres of mutual interest. It is
clear that the
questions of oil diplomacy were in the centre. On June 10 the
sides signed
the Memorandum on cooperation in which a special place will be
given to
the project of the pipeline Tengiz-Turkmenbash-Caspian-Baku-Grozny-Georgia
(length is 2500 kilometres) for the export of the Caspian oil
to
the international markets. N. Nazarbayev told at the final conference:
"By signing this agreement we gave signal to the world investors
that, probably, this pipeline will transport great amount of oil".
According
to preliminary agreement, the pipeline is intended for export
of
45-50 million tones of Kazakhstani oil, 30-40 million tons of
the Azeri and
5-10 million tons of Turkmen oil. Value of the pipeline is about
2.5
billion dollars. We can assume that the presidents confidentially
again
confirmed coincidence of positions in the status of the Caspian
which is
directly connected with the perspectives of the oil cooperation
of
the
two countries.
Just like before, in the sphere of oil cooperation of Baku and
Almati
common and growing pro-western tendency was observed, as if leaving
aside Moscow. At the same rime, Azerbaijan and Kazakhstan state
their
pragmatic interest in the economic cooperation with Moscow also
in the
transit
of the part of oil in the Russian route. But the Kremlin still
continues
on connection of the mechanisms of the economic cooperation with
its political claims. lately, some symptoms of readiness of Moscow
to agree
to equal-right economic cooperation, in particular in the oil
sphere
is observed. But it is still fact that the positions of Azerbaijan
and Kazakhstan are intensively approaching and this alliance (plus
Georgia, Ukraine and Uzbekistan) is directed towards the West.
Of course,
that causes indignation of Moscow which offers nothing pragmatically
reasonable but this indignation. Moscow is loosing its influence
in the
region
and cannot change destructive indignation to constructive pragmatism.
As
a result, Moscow and its southern neighbors lose.
This visit of Heydar Aliyev again confirmed the fact of strengthening
of partnership between the two countries - it is a step on the
way to
the broad regional cooperation with integration of the whole region
to
the world community. Still these processes are catalysed by the
factor of
oil and communication integration, but soon the mechanism of
regional partnership will appear. The visit to Kazakhstan (as
well as the
proposed visit of Heydar Aliyev to Tashkent and Ashgabad) are
very
interesting
in the plan of coming visit of the presidents if the US and Azerbaijan.
It
is not a secret that negotiations in Washington may play an important
role
in change of geopolitical climate not only in Azerbaijan but in
the
whole region (the Caucasus and Central Asia). By this regional
voyage
Heydar Aliyev will prepare ground for coming tour to the US: the
"ill points"
of bilateral relations are being investigated and some kind of
monitoring
of the strategical state of the region is carried out.
"EXPERT GROUP BY TURAN"
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