Oh, dear...This was bound to come. Caspian Oil is in real trouble.
Journal of Commerce December 9, 1998, Wednesday
* Falling oil prices could shelve Caspian project
BY MICHAEL S. LELYVELD WASHINGTON
The gloom of low oil prices cast dark clouds over a meeting of Caspian
Sea oil experts and companies Tuesday as pipeline arguments gave way to
concerns about developing the resources themselves. Despite the Caspian
oil rush of the past four years, plunging prices are threatening to nip
development in the bud. Even before firms and governments resolve their
squabbles over a choice of export routes, new misgivings have surfaced
about the economics of continuing exploration as prices have plummeted
40 percent since last year. Speaking at the conference organized by
Cambridge Energy Research Associates and the U.S. Russia Business
Council, CERA Chairman Daniel Yergin estimated that oil companies have
invested $6 billion in the Caspian so far. Interest in the Caspian as a
strategic region is still running high, said Mr. Yergin. But energy
companies are starting to be concerned about the high costs at a time
when capital budgets are being slashed. ""Low oil prices are undeniably
having a major impact on all parts of their business,'' he said,
although companies will keep trying to take a long-term view of
investments. Mr. Yergin believes the pressure will spur efforts by the
countries in the region to reduce their production and transit costs in
order to keep development viable. Eugene Lawson, president of the
business council, was blunt in assessing the problems created by delays
in agreeing on a single westward pipeline route. If anything, the
differences between governments and companies over pipelines have
widened, he said. While the U.S. government has been pushing a
1,075-mile line from the Caspian to Turkey's Mediterranean Port of
Ceyhan, oil companies have balked at the cost, preferring existing
routes to Black Sea ports for their current limited volumes. Now that
oil prices have dropped, the burden of investing $2 billion to $4
billion in a main export pipeline has been magnified. Pipeline
decisions ""could be put on hold for an extended period,'' Mr. Lawson
said. The struggle for control of Caspian oil may continue for years.
But signs are rapidly increasing that the boom could turn to bust. In
the past week, Azerbaijan government officials have called for more aid
from the International Monetary Fund, despite $50 billion of projected
revenue from 15 oil contracts signed with foreign firms since 1994.
Azerbaijan's President Heydar Aliyev told IMF officials last week that
the country earned no profit this year from exporting 14.6 million
barrels of oil. The revenue was sufficient only to cover production
costs, he said. ""The IMF and World Bank's predictions, that Azerbaijan
would get rich from the beginning of the oil contracts and therefore
would need less financial assistance, were mistaken,'' Agence
France-Presse quoted Mr. Aliyev as saying. On Monday, Kazakhstan's
foreign minister, Kasymzhomart Tokayev, said his republic would be
forced to sell its shares in its own oil and gas industries if oil
prices continued to fall, Reuters reported. Kazakhstan was the first
of the former Soviet republics to reap Western investment with the
project of Chevron Corp. to develop its massive Tengiz field. The
Caspian Pipeline Consortium is also building a major link to Russia's
Black Sea Port of Novorossiisk to be completed in 2001. At the
conference Tuesday, Nourlan Kapparov, vice president of KazTransOil,
said the republic already has produced 198 million barrels of oil and
shipped 110 million barrels. Yet, the country is still in trouble,
according to other officials. ""It will be enough to keep the budget,''
Mr. Tokayev said. A call this week by Saudi Arabia for more production
cuts could spark a recovery in prices. But there is a prevailing
pessimism over whether discipline among producers will stick. If not
resolved, the continuing conflicts over Caspian access will make its
oil uncompetitive.
(Sorry, don't have URL; this came from a listserv.)
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