Oil&Gas Journal, this weeks issue: Low oil prices squeeze Caspian Sea projects
Investment in Caspian Sea oil and gas projects is likely to be delayed by low oil prices, but the region is still set to become a significant producer. This was the message presented at a London conference on Feb. 18 by Robert Priddle, executive director of the International Energy Agency.
Priddle noted that, while recent disappointing Caspian Sea drilling results have inspired talk of downgrading reserves estimates for the region, "Keep in mind, however, that many dry holes were drilled in the North Sea."
IEA reserves estimates for the Caspian Sea region, defined as Azerbaijan, Kazakhstan, Turkmenistan, and Uzbekistan, are among the more conservative, and thus do not require lowering yet, he said. IEA estimates that the four countries have combined Caspian Sea oil reserves of 15-40 billion bbl and gas reserves of 235-325 tcf: "This represents about 2% and 6%, respectively, of world proven reserves; (hence) the Caspian could be another North Sea but not another Middle East."
If investments in the Caspian region continue at their recent rate, and if sufficient export outlets are developed, IEA reckons Caspian region oil production could reach 3.9 million b/d by 2010, of which 2.3 million b/d would be available for export. If low oil prices continue, Priddle said, Caspian region oil flow would be closer to IEA's "low case" scenario for 2010, with output reaching 2.8 million b/d, of which 1.5 million b/d would be available for export. He added that Caspian Sea production costs are below those of Russia and the North Sea but more than those of the Middle East, putting it on a par with offshore West Africa.
"At best," said Priddle, "the Caspian region will account for about 4% of world oil supply in 2010. By way of comparison, in recent years, Middle East-OPEC has supplied more than 40%, and could supply more than 52%, of world consumption by 2010."
Priddle said that forecasting Caspian region gas production is extremely difficult, with output dependent on development of export markets, access to Gazprom pipelines, pace of new pipeline construction, and domestic consumption. He contends Turkey is the most likely gas export market for Caspian gas, with Turkish demand expected to provide sales potential.
IEA predicts Caspian region gas exports could reach a maximum of 84 billion cu m/year by 2010: "The level of reserves is not a binding constraint, and probably will not be for a long time."
Export dilemma
The Caspian Sea region is a potentially significant "marginal" supplier of oil and gas-in comparison with the Middle East-but what really sets it apart is the difficulty of getting oil and gas out of the area.
"The lack of export infrastructure is probably the most difficult problem facing investors in the region," said Priddle. "The construction of new export pipelines has become a priority. However, most routing options are fraught with technical, financial, legal and/or political difficulties. Many proposed pipelines must pass through, or take potentially expensive detours to avoid, politically troubled areas."
The most advanced export route from Kazakhstan is the Caspian Pipeline Consortium (CPC) project, work on which is now expected to begin in 1999 and be completed by 2001. The schedule has slipped several times. The CPC pipeline will have initial capacity of 560,000 b/d of oil and is expected to cost $2.24 billion. A major hurdle is obtaining rights of way through certain Russian regions along the route, although this is being overcome.
While the Azerbaijan International Operating Co. (AIOC) consortium is exporting oil from Chirag field by tanker and existing Russian pipelines, further export capacity is expected to be required by 2003 or 2004.
AIOC announced a short list of three potential routes for its "main oil pipeline" in July 1997: expanded versions of existing routes delivering early oil to Novorossiisk and Supsa and a new route to the Turkish Mediterranean port of Ceyhan. Priddle said the Azeri government and other local regimes prefer the Ceyhan route, while AIOC would like to continue putting off a decision on the route, as it has several times already: "It claims it will not need the main oil pipeline until 2004 and therefore should not have to start building it for at least another year."
The biggest drawback of the Ceyhan export route is its price, estimated at $2.2-3.7 billion, compared with $2.5 billion for a main export line to Novorossiisk and $1.8 billion to the Georgian Black Sea port of Supsa.
The Azeri government is keen to reduce pipeline construction costs, which can be recouped by AIOC, Priddle said: "Financing a large new pipeline would mean lower initial revenues for the Azeri government." |
