Here is a nice article in today's New York Times:
August 6, 1997
Evolution of an Oil Rush
By DANIEL YERGIN and THANE GUSTAFSON
AMBRIDGE, Mass. -- The hottest spot in the oil industry? The
Caspian Sea region, where Europe, Central Asia and the Middle
East meet. The region's energy reserves are worth trillions of dollars;
developing them will cost an estimated $50 billion or more over the next
decade.
The stakes are huge. The Caspian Derby is a feverish amalgam of
competition, collaboration and political and economic wrangling. The
outcome will be critical to global economic growth in the next century --
and to the political consolidation of the independent states of the former
Soviet Union, relations between Russia and the West and the role of
Iran in the region's economy.
The Caspian may hold oil and gas reserves second only to those of the
Middle East. Conservative estimates run as high as 100 billion barrels or
more -- almost 10 times the reserves of Alaska. That amount could
increase as exploration moves into deeper waters.
By as early as 2010 the Caspian could produce as much oil as the
North Sea today, making it one of the world's main production centers.
This will take pressure off the global market; by that time, the world
could be consuming 30 percent more oil than it is today, with much of
the increase in demand coming from Asia. The Caspian region also
holds the potential of becoming a crucial supplier of the natural gas that
Asia badly needs to meet its growing electric power requirements.
Azerbaijan, Kazakstan and Turkmenistan look like the big winners --
Azerbaijan and Kazakstan with the lion's share of oil, Kazakstan and
Turkmenistan with well over half the gas. Russia and Iran appear to have
only minor reserves in their corners of the Caspian.
Chevron is already shipping oil by rail from Kazakstan through Russia
toward markets in Europe, and oil from Azerbaijan's new offshore fields
is expected to reach the shores of the Black Sea, via a pipeline through
Chechnya, for shipment to Europe later this year.
This treasure of the Caspian is a treasure rediscovered.
In 1873, Robert Nobel, brother of Alfred Nobel, the inventor of
dynamite and endower of the Nobel Prize, headed south from St.
Petersburg to what is today Azerbaijan. He was looking for walnut
trees, whose wood was used to make rifle stocks for the Czar's army.
Instead, in Baku, on the shores of the Caspian, he found that local
people had already established a primitive oil industry.
The Nobels built up the region's leading oil company; Robert Nobel's
brother Ludwig became known as the Oil King of Baku.
At the end of the 19th century, Baku was the world's number one
source of oil.
Until the middle of the 20th century it remained the largest European oil
supplier, and capturing Baku was Hitler's top strategic objective when
he invaded the Soviet Union in 1941. (The Nazis got close to it but ran
out of fuel before they could capture it.) After World War II, output
declined, and Soviet oil men turned their attention to the Urals and then
to West Siberia for the resources that made the Soviet Union the
world's largest oil producer, ahead of Saudi Arabia, by the 1980's.
As recently as the early 90's, many Western companies feared that
investment in the Caspian region was too risky. The new independent
countries of the former Soviet Union were shaky at best, and were ruled
by ex-Communists.
Russia might be back any day; there were numerous ethnic conflicts in
the region, particularly between Azerbaijan and neighboring Armenia.
The region is hardly stable now, but the situation has improved enough
to encourage investment. Russia is coming back but in a different way,
as Russian companies promote their interests in the Caspian area. There
are cease-fires in Chechnya and between Armenia and Azerbaijan. And
though former Communists are still in power around the region, a
number of them are, to one degree or another, embracing the free
market and trying to attract Western investment.
Azerbaijan's President, Heydar Aliyev, got a warm welcome in
Washington last week. Mr. Aliyev, the longtime Secretary of
Azerbaijan's Communist Party who was a hard-line opponent of Mikhail
S. Gorbachev in the Soviet Politburo, talked to American business
leaders about his conversion to free markets.
Mr. Aliyev has played a skillful hand, using oil to strengthen his country's
bargaining position against Russia by inviting two dozen foreign
companies and governments -- Russian, American, British, French and
Turkish, among others -- to develop the oil wealth off his country's
shores. President Nursultan Nazarbayev of Kazakstan, meanwhile, has
welcomed Chinese as well as Western investment in Kazakstan's oil
development.
Yet the risks to Caspian oil development remain considerable.
The key is transportation -- that is, pipelines.
At least half a dozen projects are under way or well along in the planning
stages.
Every single pipeline in the works must cross more than one country's
border, and every one involves a delicate geopolitical balance.
For example, there is intense rivalry between Russia and Turkey over
the route of the main pipeline that will carry Azerbaijani oil to world
markets.
If it cuts through Russia, to a Black Sea port for shipment by tankers
through the Bosporus Strait, the Russians will increase their leverage in
the Caspian region and Russian companies will profit.
If the pipeline crosses Georgia and then cuts south across Turkey to the
Mediterranean, it would be an economic boon to Turkey.
Yet the sources of instability that scared off oil companies in the early
1990's are still threats. The conflict between Armenia and Azerbaijan,
for example, remains unresolved; renewed fighting could jeopardize the
Azerbaijani pipeline projects.
And if fighting breaks out again in Chechnya, just north of Azerbaijan, an
important transportation route from the Caspian could be threatened.
There is also inherent tension between Azerbaijan and Iran. About as
many Azeris live in Iran as in Azerbaijan. Most Azerbaijanis are Shiite
Muslims, but Mr. Aliyev has reaffirmed the country's commitment to
secularism. That puts it directly at odds with Iran's Shiite
fundamentalists.
Russia casts a large shadow on the region. Some fear it may try to
reclaim control over the region. The legal status of the Caspian Sea is
still unsettled, and some Russian politicians see the Caspian area as part
of Russia's sphere. But the current Government in Moscow is showing
more interest in getting the best business deals than in geopolitical
hegemony.
In all this, the United States has sought to cast itself in what Deputy
Secretary of State Strobe Talbott recently called the role of the "honest
broker," helping to solve regional conflicts and building institutions of a
market economy, like tax codes.
The Caspian development is off to a much more promising start than
might have been expected even two or three years ago. Multinational
involvement in projects, including Russian and Turkish companies, will
be critical to stability, especially on the main pipeline that will transport
Azerbaijani oil. Already, Lukoil, the leading new Russian oil giant with
close ties to the Russian political leadership, is an important player in the
Caspian region, along with other Russian companies.
Other Russian companies are expected to follow.
Indeed, if there is any lesson so far from the Caspian Derby, it is that the
more players and the more oil and gas pipelines, the better.
This makes it less likely that political interests will overplay their hands.
Daniel Yergin is president and Thane Gustafson is director of
Cambridge Energy Research Associates, an oil research and
consulting firm. They are co-authors of "Russia 2010 and What It
Means for the World."
Home | Sections | Contents | Search | Forums | Help
Copyright 1997 The New York Times Company |
