qdog, very interesting slant from todays LA Times article discussing the difficults of the region...hmmm didn't I hear you talk about this months ago? I guess now that it's in black and white, it will be hard to argue away (yeah, right).
Also to all, someone posted that the permabulls had all moved to the Yahoo board (greener pastures??)...well has anyone read that thread lately? Seems there's another "level of resistance" on that thread as well.
Tapping Into This Fortune Isn't for the Fainthearted
Petroleum: Decayed infrastructure and difficult access are a challenge
for those investing in ex-Soviet region.
By TYLER MARSHALL, Times Staff Writer
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AKU, Azerbaijan--Waiting to clear customs at Baku's international
airport, Texas-based courier Frank Woeste cradled a package of oil-drill
brake pads and seals he had packed into a battered paper bag and
hand-carried 9,500 miles from Houston--the only safe way to get the
badly needed parts here quickly.
ÿÿÿÿÿWelcome to the Caspian Sea, the world's largest landlocked body of
water, repository of some of the most plentiful deposits of crude oil
and natural gas on Earth. And, for those scrambling to recover those
resources, not much else.
ÿÿÿÿÿFar from the world's new industrial centers, removed from modern
trade routes and largely neglected during seven-plus decades of Soviet
rule, the newly independent states bordering the Caspian--Azerbaijan,
Kazakhstan and Turkmenistan--pose an unprecedented challenge to the
world's major oil companies and a dazzling array of camp followers
hoping to ride a trillion-plus wave of petrodollars.
ÿÿÿÿÿThis challenge is complicated by the two other countries bordering
the Caspian, Russia and Iran, both former imperial powers in the region
and neither especially accommodating to the needs of international oil
giants.
ÿÿÿÿÿHow international businesses now flocking into the region meet
these difficulties and how the Caspian nations themselves deal with
their sudden wealth will do much to determine the longer-term future of
countries expected to provide energy to the industrialized world for
much of the next century. It is a drama that especially affects
Americans as the United States--and other Western nations--develop
important new interests in the Caspian region.
ÿÿÿÿÿOften, the lack of modern equipment in the area, coupled with the
absence of any easy way to import it, makes for primitive working
conditions.
ÿÿÿÿÿ"We're using old Soviet technology that's in bad condition," said
Marko Filipi, a seasoned Croatian wellhead worker employed by the Larmac
& Dragon Oil Co. near Cheleken, Turkmenistan. "The platforms are in bad
shape--there's lots of leaking. I've never worked in conditions like
this before."
ÿÿÿÿÿNeither has British Petroleum executive Mike Shearman.
ÿÿÿÿÿAt a bustling quayside in Baku's harbor, Shearman pointed to a
nearby river barge laden with 800 tons of freshly fabricated steel that
he needed as part of a drilling rig refit he was supervising.
ÿÿÿÿÿThe barge had been underway for weeks, he said, slowly working its
way southward through Russia's inland waterways from a construction yard
on the Russo-Finnish border 1,800 miles northwest. An early Russian
winter would have trapped the cargo until spring.
ÿÿÿÿÿThe Pipeline Challenge
ÿÿÿÿÿBut the difficulty of extracting the Caspian's riches pales beside
the problems of getting them to the open seas and global markets beyond.
ÿÿÿÿÿNo one without billions of dollars and a gambler's nerve need apply
for the job of building the thousands of miles of pipeline that could
one day carry Caspian oil and gas through such inhospitable places as
Afghanistan, Chechnya and Iran.
ÿÿÿÿÿChina recently concluded a $9.5-billion agreement to develop
Kazakhstan's giant Uzen field in the northern Caspian and conduct a
feasibility study of a 2,000-mile pipeline to take the oil east into
China's Xinjiang region.
ÿÿÿÿÿ"If this area is going to fulfill its potential, it's going to need
four or five major export pipelines out to the West and maybe even more
than one to the East, because the Chinese market is growing so fast it's
starting to make sense to send it directly to China," said Iain Reid, a
research analyst at NatWest Markets, a London-based company that tracks
oil industry developments closely.
ÿÿÿÿÿBut accomplishing this feat will not be cheap. So far, an estimated
$20 billion in international capital has already been committed to the
task of getting Caspian oil to world markets, and some analysts estimate
that more than twice that will flow into the region over the next
decade.
ÿÿÿÿÿNor will it be easy. Consider BP's Shearman, whose real job is to
explore the large Shah Deniz field southeast of Baku on behalf of a
seven-nation consortium headed by BP and Norway's Statoil.
ÿÿÿÿÿNormally, he said, he would lease a rig from a contractor to drill
the two planned exploratory wells, but because Moscow conducted so
little deep-water drilling in the Caspian, there is no rig available and
there is no way to bring one in. So before he can even begin the
exploration work, he is supervising a $150-million, 18-month overhaul of
a derelict Soviet-era rig--one of only two in the entire region.
ÿÿÿÿÿIf the field brings in even half the high-end estimate of 3 billion
barrels of oil and 4 trillion cubic feet of natural gas, the investment
could yield as much as $35 billion at current market prices.
ÿÿÿÿÿThe lure of such profits makes it easier to overlook the Caspian's
potential pitfalls.
ÿÿÿÿÿWhile petroleum geologists believe that the risk of dry holes is
far less in the Caspian than elsewhere, that danger does exist. Reid
noted a Pennzoil-led consortium recently came up empty in its initial
exploration of an offshore field north of Baku. Shearman and others also
warn that the high costs of extracting and transporting Caspian oil make
it less profitable than most other oil--and thus the first target for
production cutbacks in a saturated market.
ÿÿÿÿÿRobert Ebel, an energy and national security specialist at the
Center for Strategic and International Studies in Washington, cautions
against "Caspian euphoria."
ÿÿÿÿÿ"The Caspian basin has considerable potential, but it won't replace
the Persian Gulf," he said. "It can't compete in levels of volume, in
cost of production or in access to markets. The political risks also
aren't any less, they're just different."
ÿÿÿÿÿOther dangers lurk. International energy companies can expect a
new, more local kind of trouble as the bureaucracies of the former
Soviet republics jockey for shares of the oil money.
ÿÿÿÿÿWestern diplomats are convinced that Azerbaijan is likely to become
as wealthy as the Persian Gulf region in the 21st century. But unlike in
the Gulf, where wealth has remained in the hands of tiny groups of
elites, Azerbaijan's Soviet legacy, they say, is dozens of big,
competing, unwieldy bureaucracies, each filled with officials running
tiny paper fiefdoms and eager to increase their own power and wealth at
the expense of the others.
ÿÿÿÿÿ"What oil companies like is a regime in which power is shared
between as few local officials as possible, giving fewer opportunities
for corruption," one diplomat said. "In fact, what they would really
need is stable dictatorships. That makes Azerbaijan far from ideal."
ÿÿÿÿÿA Taste for Profit
ÿÿÿÿÿIn the shallow northern portions of the Caspian, oil companies
encounter a touchy environmental problem in protecting schools of
sturgeon whose eggs are one of the world's most sought-after culinary
delicacies: caviar. Soviet-era pollution, overfishing and rampant
poaching in a part of the world where law enforcement is, at best,
haphazard have already combined to diminish the sturgeons' numbers.
ÿÿÿÿÿSo far, none of this has slowed an oil rush that has already drawn
some of the oil industry's biggest names, including American oil majors
Exxon, Amoco, Chevron, Unocal, Mobil, Arco and Pennzoil. It has also
attracted individuals such as Roger Tamraz, a Middle East-born
entrepreneur with an array of criminal charges hanging over his head in
other countries who traded U.S. election campaign contributions for
White House access and the chance to peddle a lucrative pipeline scheme.
ÿÿÿÿÿ"I am an American citizen trying to get Caspian Sea oil to Western
markets," Tamraz told a Senate hearing in September.
ÿÿÿÿÿEnergy specialist Ebel said, "There are hustlers in there now, and
when oil-derived revenue starts coming back, it's going to bring even
more hustlers."
ÿÿÿÿÿThe remoteness of the Caspian region and its lack of contact with
the outside world have created a lucrative opening for some of the
United States' most distinguished former diplomats and other former
public servants--who are among the few Americans who know the region's
leaders--to act on behalf of oil companies or other businesses hoping to
ride the bonanza.
ÿÿÿÿÿFormer National Security Advisor Zbigniew Brzezinski, for example,
is retained by Amoco, a major shareholder in two Azerbaijani oil
consortiums. Brzezinski has known Azerbaijani President Heydar A. Aliyev
since the Soviet era, when Aliyev was a Politburo member.
ÿÿÿÿÿ"It's not unusual to seek the advice of people who have experience
and know the key people," said Amoco's senior executive in the region,
Charles Pitman. The local pull of people such as Brzezinski is also
unmistakable.
ÿÿÿÿÿFamiliar Faces
ÿÿÿÿÿAliyev's most senior foreign policy advisor, Vafe Guluzade,
displays Brzezinski's books on a special shelf in his presidential
palace office and speaks of him proudly as "my good friend."
ÿÿÿÿÿ"He accepts our realities. He understands the role of the [Caspian
countries] and the role of Russia," Guluzade said. "I like him very
much."
ÿÿÿÿÿAmong other former senior U.S. officials now involved commercially
in the Caspian are Brent Scowcroft (former national security advisor,
retained by Pennzoil as a consultant); James A. Baker III (former
secretary of State, whose Houston law firm, Baker & Botts, represents
the largest international oil consortium operating in Azerbaijan);
Arthur Hartman (former U.S. ambassador to Moscow, chairman of a company
that buys oil from Turkmenistan and transports it across the Caspian to
a pipeline at Baku); and Richard Holbrooke (former assistant secretary
of State, employed by Credit Suisse First Boston, a potential
participant in pipeline financing).
ÿÿÿÿÿThe breadth of this involvement effectively removes some of the
most respected figures in American foreign affairs from the ranks of
detached observers at a time when the United States is moving swiftly
into dangerous and--for it at least--largely uncharted political waters.
ÿÿÿÿÿSuch activities are not restricted to American political figures.
Former British Cabinet members Malcolm Rifkind and Tim Eggar serve as
oil consultants.
ÿÿÿÿÿThe Caspian oil rush has also spawned a mini-industry of seminars,
conferences, high-priced think-tank reports and newsletters devoted
exclusively to pumping out information about the obscure region.
ÿÿÿÿÿA Los Angeles-based group called the Russian Petroleum Investor,
which began publishing a monthly intelligence report six years ago on
the Russian energy sector, branched out a year ago with a series of
special reports on the Caspian. Last September, it launched a 32-page
monthly newsletter titled the Caspian Investor.
ÿÿÿÿÿDespite an annual subscription rate of $1,495, marketing director
James Cullen claims that circulation is doubling monthly.
ÿÿÿÿÿ"There's a lot of excitement out there now," he said. "Things are
beginning to happen."
ÿÿÿÿÿMarshall was recently on assignment in Baku. Times staff writer
Vanora Bennett contributed to this report.
ÿÿÿÿÿ
* * *
ÿÿÿÿÿAbout This Series
ÿÿÿÿÿWhile the possibility of new, world-class oil strikes seems very
promising in the Caspian Sea region, the potential for political
headaches is rife.
ÿÿÿÿÿ* Monday--As the United States moves to the forefront of the
Caspian oil rush, the stakes--economic and political--are high.
ÿÿÿÿÿ* Tuesday--A portrait of the fiercely independent inhabitants of
this volatile region, one that has been racked by ethnic strife.
ÿÿÿÿÿ* Today--Oil companies face unprecedented challenges in
resource-rich territory neglected during decades of Soviet rule.
ÿÿÿÿÿ
* * *
ÿÿÿÿÿSea of Promise
ÿÿÿÿÿThousands of miles of pipeline will be needed to transport the
Caspian's riches to world markets. The routes will alter the delicate
political balance in an already unstable region by adding to the power
of the nations that control them.
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