Here's 'the monkey in the wrench'.....'the fly in the ointment'.
Subject: Slowdown?
Date: Thu, Mar 12, 1998 23:16 EST
From: Benpub1
Message-id: <19980313041601.XAA15300@ladder01.news.aol.com>
March 13, 1998
Central Asian Oil Rush Is Slowed
By Pipeline Delays and Soft Prices
By HUGH POPE
Staff Reporter of THE WALL STREET JOURNAL
ASHGABAT, Turkmenistan -- The great Central Asian oil rush is being slowed by pipeline delays and soft energy prices.
Oil executives say their hot competition to obtain reserves in the Caspian Sea region is giving way to a new era in which transporting the energy is paramount. The winners, they say, will be wily operators who can finesse exports by rail and barge out of this remote ex-Soviet region ringed by wars, brittle regimes and geopolitical conflicts.
"The potential remains as great as five years ago," says Unocal Corp. Vice President Marty Miller, glumly noting that heralded projects led by Unocal to lay oil and gas export pipelines across Afghanistan are paralyzed. "But linking these reserves to world markets ... is critical. Until there is a form of government in Afghanistan that lenders have confidence in, ... we don't have a project."
Rifts Form Between Countries With Claims to Caspian Sea Oil (March 1)
National Rivalries
Unocal isn't giving up, but it isn't alone in its predicament. National rivalries have clouded another prospective route out of Central Asia, a pipeline from Kazakstan across Russia to the Black Sea. This is being promoted by the Caspian Pipeline Consortium, whose main U.S. backers are Chevron Corp. and Mobil Corp. The companies share a leading interest in the $20 billion development of Kazakstan's giant Tengiz oil field.
Mobil, keen to build its reserves and operating on a 30- to 40-year time frame, seems likely to sign a production-sharing agreement for a big field known as Zone 1 in western Turkmenistan when President Saparmurat Niyazov visits Washington next month.
Mobil officials declined to comment on the timing of any deal. Turkmenistan's external economic relations minister, Toily N. Kurbanov, says that an unspecified upcoming deal -- almost certainly Mobil's -- is "very big," and he suggested that the reserves in the field amount to about two billion barrels.
Yet transport remains key to this and other projects. "The world is waiting on pipelines," says Gregory Renwick, Mobil's general manager in Turkmenistan. "You have to take a strategic position; we have to be optimistic. But this is a regional affair and [the Caspian Pipeline Consortium] is a test."
Reserves Equal to the North Sea
An estimated 100 billion barrels of oil lie under Central Asia, giving the region reserves equal to the North Sea or Iraq. Less than half of those reserves have been proved, but because the region hasn't been properly studied, some estimates for its holdings range as high as 200 billion barrels. But some oil executives are growing pessimistic as governments demand higher bonus payments and tough conditions to develop fields with high margins.
"Governments here better hurry to tie down deals," says an executive of Texaco Inc. "If oil stays under $15 [a barrel] for another year or two, this could all come screeching to a halt."
Limited pipeline capacity through Russia and other countries in the region has already forced operators to innovate ways to ship crude out. The Tengiz field produces more oil than any other foreign project in Central Asia, pumping more than 160,000 barrels a day. The operator, Chevron, this month snapped up a disused stretch of old Georgian pipeline to increase capacity on the one way out that seems to work well, a route that includes the east-west
Caucasus railway through Georgia and Azerbaijan.
Pipeline to the Black Sea
That is roughly the same route being used by the Azerbaijan International Operating Co., a consortium owned 40% by U.S. oil companies. AIOC's new pipeline to the Black Sea from its $8 billion development off Azerbaijan's Caspian Sea coast should start pumping early next year.
Its first oil crossed into Russia by another pipeline on Feb. 28, giving the consortium some flexibility. Ultimately the two routes could carry 300,000 barrels a day; AIOC is still only producing 26,000 barrels a day from three wells drilled since November.
But Chief Operating Officer Bob Erickson, dispatched to AIOC from Amoco Corp., the chief American shareholder, is feeling pressure from the climate of low oil prices. "It has not deterred [the investors'] long-term enthusiasm," he says. "But there's some hard questioning as to what we're doing. ... It has heightened enthusiasm for cost management."
A decision is due in October on whether to build a main oil export pipeline; some shareholders wonder if the favorite candidate, an expensive route through Turkey to the Mediterranean, will be needed because rising demand for oil in the Black Sea region means AIOC might be able to sell much of the oil close to the source.
The new mood was evident this week at the Third Turkmen International Oil and Gas Exhibition in Ashgabat. Some 300 executives crowded the new hotels of Ashgabat, the orderly capital of Turkmenistan. Attendance doubled from last year, reflecting a general discovery of the country's potential, and a big recent push by Royal Dutch/Shell Group to circumvent U.S. objections and build a gas-export pipeline from Turkmenistan through Iran to Turkey and on to
Europe.
Continuing Talks
But the Turkmen government, which by some measures controls the world's fourth-largest gas reserves, was unable to announce any major new investments, other than continuing talks with Exxon Corp. and Unocal on oil and gas prospects near the Amu Darya River in northeastern Turkmenistan.
Oil companies are still awaiting the much-delayed announcement of a tender for the first round of Turkmenistan's Caspian offshore interests. This is a delicate deal, because Turkmenistan hasn't fully resolved territorial disputes over the Caspian Sea with neighboring Azerbaijan, and the new plan could involve Iranian oil companies, a move that might raise objections from the U.S. government.
"The number of companies ready to invest may be less, but those who remain feel that they need to keep a strategic position," says Mr. Kurbanov.
But for now, oil and gas output for the most part isn't rising. Because of a price and routing dispute over Turkmen shipments through Russia to Ukraine, Turkmenistan's gas exports slumped last year to nine million cubic feet a day, just one-ninth of its peak production when the republic was part of the Soviet Union.
"We're committed, but this oil becomes uneconomic before other parts of the world" because of the high transport costs, says Unocal's Mr. Miller. "The next phase is going to be pretty difficult."
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