Since the 1991 collapse of the Soviet Union, the race to bring Caspian oil to the global market has been marked by a three-way race involving Russia, the United States and Iran.Five nations now share the Caspian`s coastline -- Azerbaijan, Russia, Kazakhstan, Turkmenistan and Iran. Russia initially won the race to exploit Kazakh and Turkmen energy assets, while Azerbaijan, first with the opening in 1999 of the Baku-Supsa pipeline and last year with the opening of the $3.6 billion, 1,092-mile Baku-Tbilisi-Ceyhan pipeline, has managed to nullify its dependence on transit routes to Novorossiisk controlled by the Russian pipeline monopoly Transneft, falling completely within the orbit of Western oil companies.
Russia has managed to retain its control for the present over Kazakhstan`s oil exports via the Caspian Pipeline Consortium, a 938-mile pipeline running from Kazakhstan`s massive Tengiz to Russia`s Novorossiisk maritime terminal on the Sea of Azov. Kazakhstan adroitly awarded Transneft a leading 24 percent share in CPC but parceled out the remaining shares to the government and Western oil companies.
However, the CPC pipeline, which opened in 2001 and has a current capacity of 700,000 barrels per day, will be unable to cope with the added output from Kazakhstan`s offshore Caspian Kashagan field, scheduled to begin production by the end of the decade. Kashagan, a massive 47-by-22-mile field, holds an estimated 9 billion to 16 billion barrels of recoverable oil, the largest outside the Middle East and in terms of reserves, the fifth-largest in the world.
Despite delays, when Kashagan comes online later this decade Astana estimates that output from the country`s three major fields, including Kashagan and the onshore Karachaganak and Tengiz fields, will push total Kazakh oil production to 1.6 million bpd by 2010, rising to 2.0 million bpd by 2015, nearly three times the CPC`s current carrying capacity. While the CPC is slated for upgrades to produce a projected capacity of about 1.4 million bpd by 2015, it is this disparity between production and transit capabilities that Iran is hoping to exploit with its oil swap proposals. In May the U.S. Energy Information Administration projected that by 2015 Caspian basin energy production could reach 4.3 million bpd, a rate of production that would dwarf existing export pipelines.
Iran`s interest in oil swaps is longstanding, and its proposals have great appeal to Kazakhstan for a number of reasons, both geographical and economic. Oil swaps with Iran bring exports significantly closer to the booming East Asian market. In contrast, tankers above Suezmax capacity loading at Turkey`s Ceyhan Mediterranean port have to transit the Mediterranean and circumnavigate Africa in order to reach Asian customers, significantly adding to transport costs.
Kazakhstan first began making oil swap deliveries to Neka in early 2002, initially keeping the amount small, at about 1,600 bpd to avoid Washington`s anger and threat of sanctions under the Iran-Libya Sanctions Act. Kazakhstan had reason to be cautious as previous Turkmen-Iranian oil swaps were judged to violate ILSA. The pace of oil swaps nevertheless slowly continued to increase and in 2005 Iranian oil swaps with Kazakhstan reached 1.4 million tons, rising in 2006 to 4.2 million tons. Iran moved to facilitate the growing volume in 2003 opening the 186-mile Neka-Tehran pipeline, which tripled Iran`s swap capacity to 150,000 barrels per day. In 2006 swaps reached over 120,000 bpd, with 40,000 bpd going to Tehran and the remainder to Tabriz. Iran obviously believes that Kazakhstan will eventually be able to flout ILSA with impunity; the Neka-Tehran pipeline`s current capacity is 180,000 bpd, but the Iranian government intends first to double and then triple its capacity.
In May 2006, Iran`s ambassador to Kazakhstan, Ramin Mehmanparast, told the official IRNA news agency that Iran was striving to triple its oil swaps with Kazakhstan, stating, 'An agreement to increase the amount of oil swaps has already been reached, and now Iranian companies have begun to fulfill these agreements.' National Iran Oil Co. Deputy Managing Director Mohammad-Javad Asemipour said that oil swaps between Iran and its Caspian Sea neighboring states currently stand at 130,000-140,000 bpd, occasionally surging to 200,000 bpd.
Kazakh President Nursultan Nazarbayev has consistently advocated diversifying Kazakh energy export routes and reiterated in June 2004 that he preferred an oil export pipeline to the Persian Gulf through Iran over a connection to BTC, through China, or through Russia, a policy clearly at odds with Washington`s wishes.
What is unclear in Iran`s ambitions are the ultimate positions of Washington and Moscow. Despite their differences over such issues as the division of Caspian waters, ILSA sanctions have had the inadvertent result of deepening Russian-Iranian bilateral relations, as neither nation wishes to see Washington expand its presence in the Caspian region. Washington has seen its bargaining pressure over its Western European allies erode as in an era of record high energy prices they seek discreetly to broaden their ties with Iran, the Organization of Petroleum Exporting Countries` second-largest producer. Given the level of U.S. investment in Kazakhstan, Washington may well decide its most prudent policy is to turn a blind eye to the burgeoning Iranian-Kazakh oil trade in hopes of retaining its influence in Astana.
The Kremlin`s position is more ambivalent; while cheering on any development that weakens Washington hegemonic ambitions, Iran is a competitor in the global energy market. Furthermore, as in the case of Azerbaijan, Moscow has seen its hefty transit fees end as Western-financed alternative pipelines became operational. As both Kazakh production and world energy prices surge, Moscow may well ameliorate its policies toward Kazakhstan in order to retain a piece of the action.
The clear winner in all this is Kazakhstan. Nazarbayev`s pragmatic energy export diversification program, combined with a deft foreign policy that manages to remain on good terms with Tehran, Washington and Moscow have seen Kazakhstan`s gross domestic product growth in the first six months of 2007 rising an extraordinary 10.2 percent year-on-year, against 2006`s growth rate of 9.3 percent. In such circumstances, when Nazarbayev speaks, it behooves Iran, Russia and the United States to pay close attention to his words.
Via: Monster & Critics News
by John C.K.
