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Map 2.1.Turkmenistan Oil and Gas
Turkmenistan‘s output dropped throughout the 1990 from 57.7 bcm to 13.2 bcm in 199239. In 1999 in the wake of Turkmen-Russian agreement production skyrocketed to 21.3 billion cubic meters and continued to increase before reaching an estimated 62.2 billion cubic meters in 2006 - placing the country as the second largest gas producer after Russia in the former Soviet bloc40.
All major gas fields in Turkmenistan have been producing for more than 25 years and are running low. If the quantity extracted does not enable the quotas for Russia and China to be met, Turkmenistan will face a difficult problem: which customer to satisfy? This could cause problems for cooperation in the energy sector for the entire region, not only between Russia and Turkmenistan but also between Russia and China.
Kazakhstan is a country important to the world energy markets because of its big reserves. In terms of proven reserves of natural gas rank it among the world‘s top
39 ―Нефтегазо-вая Вертикаль‖http://www.ngv.ru/article.aspx?articleID=22567, access July 15 2010.
40 U.S. Energy Information Administration,http://www.eia.doe.gov/cabs/Centasia/NaturalGas.html, access July 15 2010.
Sources: ROGTEC Magazine
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2041 couturiers. With population 1742 million people, Kazakhstan can allow itself to become a main natural gas exporter in Central Asia. See graph 2.2
After years of foreign investment into the country's oil and natural gas sectors, the landlocked Central Asian state has recently begun to realize its enormous production potential. The main oil gas company in Kazakhstan is state-run KazMunNaiGas43. Kazakhstan could become a major world energy producer and exporter over the next decade. Main destination for Kazakhstan gas is Russia and Ukraine. Kazakhstan exports most of its gas volumes through KazRosGaz which at present has a de facto monopoly on gas exports from Kazakhstan.44 KazRosGaz is a joint venture between Gazprom (50%) and KaZmuNaiGaz (50%).
Graph 2.2 Gas Consumption and Production in Kazakhstan (bcm)
41 Anne Peck, , Economic development in Kazakhstan, New York : RoutledgeCurzon, 2004 p.193.
42 Robert E. Ebel, Energy choices in the Near Abroad, Washington, D.C. : The CSIS Press,1997, p.69.
43 КазМунайГаз http://www.kmg.kz/page.php?page_id=1009&lang=2, access July 15 2010.
44 The Oxford Institute for Energy Studies http://www.oxfordenergy.org/pdfs/NG25.pdf,access July 15 2010.
Sources: Statistical Review of World Energy 2011, British Petroleum
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At the end of 2010, British Petroleum (BP) revised upwards its estimate of proved natural gas reserves in Kazakhstan to 1.8 trillion cubic meters45, with estimated undiscovered reserves of 6.2 trillion cubic meters46. These estimates are putting the country on par with Turkmenistan. Most of Kazakhstan's natural gas reserves are located in the west of the country, with roughly 25 % 47 of proven reserves situated in the Karachaganak field. Karachaganak field located about 150 km east from the city of Oral (Uralsk) in the northwest of Kazakhstan (See map 2.2).It is estimated to contain 1.2 trillion cubic meters of gas and 1 billion tones of liquid condensate and oil48.
Map 2.2 Main gas field Kazakhstan
45―BP Statistical Review of World Energy 2011‖ British Petroleum ,
http://www.bp.com/liveassets/bp_internet/globalbp/globalbp_uk_english/reports_and_publications/statistical_energy_review _2011/STAGING/local_assets/pdf/natural_gas_section_2011.pdf , access July 15 2011.
46 Croissant, Michael and Aras Bulet, Oil and geopolitics in the Caspian Sea region, Westport, Conn.: Praeger, 1999 p.182.
47 Energy Information Administration http://www.eia.doe.gov/cabs/Kazakhstan/NaturalGas.html, access July15 2011.
48 Chamber of Commerce and Industry of the Republic of Kazakhstan in the USA, http://kazcham.com/?p=128, access July 15 2011.
Karachaganak field
Tengiz field
Sources : Energypedia
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located in northwestern Kazakhstan's low-lying wetlands along the northeast shores of the Caspian Sea. The country is poised to become a net exporter in 200849.Uzbekistan has smaller proven reserves, but is an established producer with registered output of 55.8 bcm50. Of this total 6, 5 bcm is exported, mostly to neighboring states, creating an important lever as well as irritant to these states‘ mutual relations51. At the end of 2010 British Petroleum (BP) revised upwards its estimate of proved natural gas reserves in Kazakhstan to 1.68 trillion cubic meters52. Uzbekistan because high domestic consumption and large losses due ailing infrastructure, gas export account only about 20% of production53. Most of the export goes to Russia, greater domestic requirements. See graph 2.3
Also is greater difficulty in co-opting popular support with smaller amount of export revenue. Its other staple commodity is cotton. Hence Uzbekistan conforms less closely to model of a rentier economy or state more to one of simple repressive autocracy.
49 Energy Information Administration, http://www.eia.doe.gov/cabs/Kazakhstan/NaturalGas.html, access July 15 2011.
50 BP Statistical Review of World Energy 2011‖ British Petroleum ,
http://www.bp.com/liveassets/bp_internet/globalbp/globalbp_uk_english/reports_and_publications/statistical_energy_review _2011/STAGING/local_assets/pdf/natural_gas_section_2011.pdf, access July 15 2011.
51 Dina R. Spechler and Martin C. Spechler Central Asia. Trade, energy, and security in the Central Asian arena, Seattle:
National Bureau of Asia Research, 2006, p. 205.
52 ―BP Statistical Review of World Energy 2011,‖ British Petroleum ,
http://www.bp.com/liveassets/bp_internet/globalbp/globalbp_uk_english/reports_and_publications/statistical_energy_review _2011/STAGING/local_assets/pdf/natural_gas_section_2011.pdf, access July 15 2011.
53Morten Anker, Baev Pavel, Brunstad Bjorn , Overland Indra and Torjesen Stin , The Caspian Sea Region Towards 2025 , The Netherlands, Asmsterdam: EburonNederland, 2010, p. 31.
54Glenn Curtis ,, Kazakhstan, Kyrgyzstan, Tajikistan, Turkmenistan and Uzbekistan - country studies, Washington, D.C. : Federal Research Division, Library of Congress, 1997, p. 377.
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Graph 2.3 Gas Consumption and Production in Uzbekistan (bcm)
Uzbekistan‘s main problems are a lack of sufficient foreign investment, political instability and long geographical distances from consumers. Country is geographically far from the end-use markets they serve (e.g. Europe) and lack sufficient pipeline infrastructure to export more hydrocarbons. Uzbekistan and wants to diversify export routes for their resources outside of the Russian-controlled pipelines, but each of them must seek to obtain capital, technical assistance, and political support for alternative pipelines.
At present, Russian strategic interests mainly concern the three Central Asian states that possess commercial reserves of hydrocarbons: Kazakhstan, Turkmenistan and Uzbekistan. As yet no reserves of hydrocarbons in commercial quantities have been discovered in the other two countries of the region – Tajikistan and Kyrgyzstan, and for this reason Russian interests there are little concerned with questions of
Sources : Statistical Review of World Energy 2011, Britisch Petroleum
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extracting and importing hydrocarbons but are mainly aimed at opening the market for petroleum products.55
Gazprom is the only real presence in Tajikistan. So far, no significant commercial reserves of oil and gas have been revealed. The high price of hydrocarbons is stimulating Gazprom‘s interest, firstly in the Tajik market for petroleum products and only secondly in the potential gas reserves of the country. In Kyrgyzstan, there is only one Russian company – Gazprom. No commercial reserves of oil and gas have been discovered so far in Kyrgyzstan56
In 2003 Gazprom signed long-term (25 years)57 cooperation agreements with the prime minister of Tadzhikistan and Kirgizstan. Neither country is a major producer nor is consumer of gas and demand in both countries significantly less than 1 Bcm per year.58 This is mostly imported from Uzbekistan. Both agreements joint development of exploration and production upgrading and expansion of facilities. Agreements also expressed in very general language, the possibility of Gazprom selling gas in both countries from its Uzbeks developments.
55 Dr Vladimir Paramonov and Dr Aleksey Strokov The Defense Academy is the United Kingdom "Structural
interdependence of Russia & Central Asia in the oil and gas sectors",2008, http://www.da.mod.uk/colleges/arag/document-listings/ca/07(16)VPEnglish.pdf access July15 2010.
56 Ibid.
57 Gazprom, http://www.gazprom.com/production/central-asia/, access July 15 2011.
58 Jonathan Stern, The Future of Russian Gas and Gazprom, Oxford: Oxford University Press, 2005, p. 81.
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Legacy after USSR, gas pipelines and plants. Old and present infrastructure.
The gas can be transported in two ways – through pipeline or as liquefied natural gas (LNG). Three kinds of pipelines can be defined—domestic, cross-border, and transit. The key in differentiating between the three types is the nature of the governing jurisdiction. Domestic pipelines are within an existing sovereign territory.
Sovereign is defined as the national or regional ability to unilaterally abrogate
agreements59. Such pipelines are subject to the laws and regulations of that territory.Cross-border pipelines directly link the producer state of oil and gas with the consumer state. Transit pipelines cross a third sovereign territory to get to market. Normally the terms of transit are enshrined in an agreement that, among other things, determines the transit payments. These are payments made to the transit government. Normally payments include a transit fee, but they can also set the terms under which the transit country can lift off take.
Construction of new routes of transmission is extremely costly. The carriage of LNG is competitive, if an alternative pipeline would have a length of more than 5 000 kilometers (or 3000 km, where the road leads into the sea)62. A majority of the world's LNG supply comes from countries with large natural gas reserves. These countries include Algeria, Australia, Brunei, Indonesia, Libya, Malaysia, Nigeria, Oman, Qatar,
59The National Bureau of Asian Research, http://www.nbr.org/publications/specialreport/pdf/preview/SR23_preview.pdf, access July 15 2011.
60 Gassco, http://www.gassco.no/wps/wcm/connect/Gassco-EN/Gassco/Home/om-gassco/ access July 15 2011.
61Wirtualny Nowy Przemysl, http://www.wnp.pl/artykuly/gdzie-rura-nie-dojdzie-tam-lng,5121.html, access July 15 2011.
62 Ibid.
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and63 . If the gas is to be transported to remote regions of the world- particularly LNG - is the only option. Flowing from Arab countries to Japan, Taiwan or South Korea.64
Speaking about the transport of large quantities of crude oil and natural gas on the surface, transport via pipelines is the only economically viable way. Compared to the other, it has a lower cost per unit. Although pipelines can be built even under the sea, it is very economically and technically demanding process, so most of this kind oil is transported by tankers at sea. Wherever possible, pipelines are built on the surface of the earth.
Pipelines and the rest of infrastructure date back to the times of Soviet Union.
The countries of Central Asia are all connected through their gas pipelines with Russia.
In Russia and Turkmenistan gas is sent mainly to gas pipelines. Central Asian Center gas pipelines built between 1960 and 1988 is controlled by Gazprom 65. Turkmenistan and other Central Asian countries do not have any other natural gas pipelines that would reach long-way customers in Europe and Asia bypassing Russia. Since all of the pipelines connecting the region to the world markets were owned by Gazprom, and routed through Russia, Turkmen natural gas was squeezed out of the market
Central Asia Center gas pipeline (See map 2.3) was built in 1960-1988 is controlled by Gazprom. Pipelines begin in the fields of oil and gas extraction and run through Russia before entering Europe. In Russia and Kazakhstan gas is being sent mainly by gas pipelines.
63 California Energy Commission http://www.energy.ca.gov/lng/faq.html#650, access July 15 2011.
64 Wirtualny Nowy Przemysl http://www.wnp.pl/wiadomosci/69419.html, access July 15 2011.
65 Jonathan Stern, The Future of Russian Gas and Gazprom, Oxford: Oxford University Press, 2005, p.58.
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Map 2.3 Central Asia Centergas pipelines
On 2007, Russia, Turkmenistan and Kazakhstan agreed to construct a new Caspian pipeline66 parallel to the existing CAC pipeline. See map 2.4. The pipeline will be built between Belek compressor station in Turkmenistan and Alexandrov Gay compressor station. Capacity of the new pipeline will be 20 bcm a year67. Construction of the pipeline should be start in the second half of 2009, but has not started as of yet.
66 Gazprom, Pre-Caspian gas pipeline http://www.gazprom.com/production/projects/pipelines/pg/, access July 15 2011.
67 Kazahstan Government site, Kazakhstan, Russia and Turkménistan agree to renovate the Caspian gas pipeline, http://en.government.kz/site/news/052007/16, access July 15 2011.
Sources: HydrocarbonsTechnology.com
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Sources: Gazprom
Map 2.4 Russian planning gas pipeline in Central Asia - Pre-Caspian Project
Main hydrocarbon fields: Tengiz and Karachaganak are both located in western part of Kazakhstan. See map 2.5. Unfortunately, they are not connected with southeast and north of the country, where most of Kazakh population and industry are concentrated. Because of lack of infrastructure (refineries) Astana needs to export and reexport 68 its own gas via Orienburg which is located in Russia. This plant is processing 8 - 9 bcm of Kazakhstan‘s gas per year69 (all Kazakhstan export). In Soviet times central administrators in Moscow considered Kazakhstan to be a transit area for the gas deliveries from Turkmenistan and Uzbekistan. As a result, the gas trunk pipelines did not cover the entire territory of Kazakhstan, and were not linked to a national network.
68Adam N Stulberg ,,Well-Oiled Diplomacy: Strategic Manipulation and Russia's Energy Statecraft in Eurasia,” New York:
State University of New York Press, 2007, p.118.
69The Jamestown Foundation Kazakhstan‘s growing gas exports to go Russia‘s way
http://www.jamestown.org/single/?no_cache=1&tx_ttnews[tt_news]=32749, access July 15 2011.
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Sources: Gazprom, author
Map 2.5 Plant in Orienburg
In 2007, Russia and Kazakhstan reached an agreement on the Orenburg plant, which will be jointly owned by Gazprom and KaZmuNaiGaz. The Kazakh Company will pay 350 million USD for its 50% stake and will also invest an additional 250 million USD in the modernization of the plant‘s facilities, which will require a total estimated investment of 500 million USD70. By 2012 the Orenburg processing plant will be upgraded to handle more gas from the Orenburg (Russia) and Karachaganak (Kazakhstan) hydrocarbon fields.
Russia tries to keep its monopoly in exporting Central Asian gas and denies another states independent access to the Central Asia. Russia buys about 58 bcm71 per year of Central Asian gas. ―A recent agreement to pay market prices‖ 72 for gas effective since 2009 will secure steady gas supplies for Gazprom and enable him to keep a middleman position to ship natural gas from Turkmenistan, Uzbekistan, and Kazakhstan to Russia and on to Europe.
Russia is afraid of the scenario in which her clients can find another supplier.
Russia's way to reduce the potential competition is current construction of the gas pipeline from Eastern Siberia to China. .Siberian natural gas field could provide China
70 The Oxford Institute for Energy Studies http://www.oxfordenergy.org/pdfs/NG25.pdf, access July 15 2010.
71 EconoMonitor Energy Power Play: Courting Central Asia http://www.rgemonitor.com/economonitor-monitor/252525/energy_power_play_courting_central_asia, access July 15 2011
72 UK Reuters, Kazakhstan sees 70 pct gas price rise from 2009 http://uk.reuters.com/article/oilRpt/idUKL1840067520080318, access July 15 2011.
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with natural gas in the next decade. ―Since the natural gas would not arrive until 2012 at the earliest and since China is pursuing other natural gas import plans in the meantime, it is possible that Russian natural gas will not have a buyer‖73 .
In 1997 Turkmenistan launched the $190-million Korpezhe-Kurt Kui pipeline to Iran74. See map 2.6 It is the first natural gas export pipeline in Central Asia to bypass Russia. This 200 km pipeline can reach Iran and other geographically close countries like Armenia or Azerbaijan. Its capacity is around 10-12 bcm75 per year but deliveries to date have fallen far short this level. According to terms of the 25-year contract between Turkmenistan and Iran, 35%76 of Turkmen gas pipe by this pipeline is a payment for Iran's contribution to building this project. ―In 2001 Turkmenistan and Armenia signed an agreement‖77 to buy gas to Armenia via the Korpezhe-Kurt Kui pipeline and next across Iran.
Sources: Gazprom, author
Map 2.6 Korpezhe-Kurt Kui pipelin
73 Energy Information Administration http://www.eia.doe.gov/cabs/Russia/NaturalGas.html, access July15 2010.
74 The Jamestown Foundation, http://www.jamestown.org/single/?no_cache=1&tx_ttnews[tt_news]=33590 access July 2011.
75 Sally Cummings, ―Oil, Transition and Security in Central Asia‖ , U.K. 2003, p.152
76 Energy Information Administration http://www.eia.doe.gov/emeu/cabs/caspgase.html July15 2010.
77 Ibid.
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Competitive proposal to allow diversification gas transportation in Central Asia is Turkmenistan-Kazakhstan-China Pipeline. See map 2.7. In 2007, Kazakhstan and China reached an agreement on the construction and operation of the Kazakhstan-China gas pipeline network. The first pipeline (running through Southern Kazakhstan) will be the Kazakh section of the Turkmenistan–China gas pipeline. Turkmenistan will be the major supplier for the 7000 km pipeline. Kazakhstan, which hosts 1300 km of the pipeline, plans to extend its part in the future, connecting it to its own gas fields near the Caspian. Construction works of Kazakhstan section started on July 2008.
Uzbekistan also started construction of its part this month while Turkmenistan launched its segment in 2007 78
The gas pipeline from Turkmenistan to China, which runs via Uzbekistan and Kazakhstan, was officially launched on 2009. Cost of construction – US$6.7 billion79 Ownership – each section is owned by a company in which CNPC and the local partner hold 50% of shares.
Sources: HydrocarbonsTechnology.com
Map 2.7 Turkmenistan-Kazakhstan-China pipeline
78 Upstream the international oil and gas newspaper http://www.upstreamonline.com/live/article158831.ece, access July 15 2011.
79 Centre for Eastern Studies ―The Turkmenistan-China gas pipeline considerably strengthens China's position in Central Asia‖ http://www.osw.waw.pl/en/publikacje/eastweek/2009-12-16/turkmenistan-china-gas-pipeline-considerably-strengthens-chinas-posit, access July 15 2011.
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The launch of the pipeline is of great economic significance for the region because it offers the Central Asian states access to an alternative gas buyer to Russia, and because they can use this new position in negotiations with Gazprom to maximize their gas export revenues. The main consequence of this process is that Russia has lost some influence in the region while China has strengthened its position. The new gas pipeline is the result of the Central Asian states' policy of gaining more independence, and China's economic expansion in the region aimed at securing supplies of energy resources and building up its political influence, among other goals.
The new gas pipeline is around 2000 km long and will connect to a 5000 km-long internal Chinese gas pipeline (now under construction) at the Chinese-Kazakh border. Its target capacity, which it is planned to reach in 2012, is 40 bcm. This means that the pipeline will enable the Central Asian states to transmit a substantial portion of their gas exports to China (Central Asian gas exports totaled around 65 bcm in 2008).
The pipeline's capacity may be increased to above 40 bcm. No information on the price of gas is available. The price discussed in January 2008 was around US$195 per 1000 cubic meters80.
Another planned project is Trans-Caspian Pipeline. See map 2.8. Proposed Trans-Caspian Pipeline would bypass both Russia and Iran to carry Turkmen gas across the Caspian Sea to Azerbaijan. This proposed pipeline could connect to the South Caucasus pipeline flowing gas to Turkey and then to the planned Nabucco pipeline to southeastern Europe (From Turkey to Austria). This project has several serious problems. None of which so far been resolved. European consortium led by Austrian OMV doesn‘t have enough financial recourse for starting build the pipeline.
The implementation is always postponed to future. Next serious problem is the sources of supply.
80 Centre for Eastern Studies ―The Turkmenistan-China gas pipeline considerably strengthens China's position in Central Asia― http://www.osw.waw.pl/en/publikacje/eastweek/2009-12-16/turkmenistan-china-gas-pipeline-considerably-strengthens-chinas-posit, access July 15 2011.
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Sources: STRATFOR
Map 2.8 Possible Nabucco and Trans-Caspian Pipelin
Map 2.8 Possible Nabucco and Trans-Caspian Pipelin