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Second Joint University of Houston – Oxford University Conference April 19-21, 2001. UNIVERSITY of HOUSTON. Developing Energy Resources in the Caspian: Soviet and Independence Periods. BAUER COLLEGE of BUSINESS. ENERGY INSTITUTE. S. Gürcan Gülen , Ph.D.

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Developing Energy Resources in the Caspian: Soviet and Independence Periods

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Developing energy resources in the caspian soviet and independence periods

Second Joint

University of Houston – Oxford University

Conference

April 19-21, 2001

UNIVERSITY of

HOUSTON

Developing Energy Resources

in the Caspian:

Soviet and Independence Periods

BAUER COLLEGE of BUSINESS

ENERGY

INSTITUTE

S. Gürcan Gülen, Ph.D.

www.uh.edu/energyinstitute


Soviet times

Soviet Times

  • In 1988, the U.S.S.R.

    • Was the world’s largest producer of oil (11.8 mb/d)

    • Was the second largest exporter of oil in the world (4.1 mb/d)

    • Was the world’s largest producer of natural gas (817 bcm a year)

  • Russian Republic accounted for 91% of oil and 65% of gas production.

  • The Caspian countries accounted for 8% of oil and 12% of gas production.


After the collapse

After the Collapse

  • Along with many other industries, the oil & gas sector contracted.

  • Caspian countries wanted to support their economic independence from Russia based on oil and gas export revenues.

  • But, the interdependent Soviet economic network (especially in the oil & gas sector) posed challenges.

  • There are stories of relative success as well as of consistent disappointment in Caspian countries’ efforts.


But first

But, First…

  • In order to have the right perspective on the issues faced by the Caspian countries, let us look into some numbers

    • Reserves

    • Production

    • Consumption


Reserves end of 1999

Reserves (end of 1999)

Source: BP World Energy


Reserves

Reserves

  • 1.6 percent of World’s Oil

  • 5.0 percent of World’s Gas

  • After 12-3 years of investment, more gas, but not much oil is found! (Kashagan pending)


Reserves end of 19991

Reserves (end of 1999)

Source:BP World Energy


Production consumption of oil

Production & Consumption of Oil

Source:BP World Energy


Production consumption of gas

Production & Consumption of Gas

Source:BP World Energy


Production exports

Production & Exports

  • 1.7 percent of World’s Oil

  • Only about 150,000 b/d exported outside FSU

  • Saudi Arabia alone has more spare capacity!

  • 3.2 percent of World’s Gas

  • Almost no exports outside FSU


Now challenges

Now, challenges..

  • Oil & gas production fell significantly after the break-up because

    • Centrally-managed production quota system of the Soviet times

      • Failure to maintain equipment & fields

      • Poor reservoir management

      • Excessive drilling & flooding

      • No access to modern technologies

    • Persistent problems after the break-up

      • No adequate management system

      • Continued reliance on the administrative system

      • No incentives


Index of oil production 1989 100

Index of Oil Production (1989=100)

Source:BP World Energy


Index of gas production 1989 100

Index of Gas Production(1989=100)

Source:BP World Energy


On the demand side

..on the demand side

  • Energy has been wasted and continues to be used wastefully:

    • Subsidized pricing of energy.

    • Non-payments by users.


Energy intensity btus per of gdp

Energy Intensity (Btus per $ of GDP)

Source:Energy Information Administration


Per capita energy consumption mmbtus

Per Capita Energy Consumption (MMBtus)

Source:Energy Information Administration


Investment

Investment?

  • Unattractive investment environment.

    • Concerns about rule of law.

    • Lack of world-class petroleum laws.

    • Lack of world-class regulatory frameworks, including an independent regulator.

    • Lack of tariff structures.

  • In short, no clear and transparent process!


Legal regulatory environment

Legal & Regulatory Environment


Azerbaijan

Azerbaijan

  • Remains dependent on Russian & Georgian pipeline and rail network for its exports!

    • Not enough oil to justify new non-Russian main export pipelines.

  • Infrastructure from Soviet times crumbling.

  • Difficulty of getting equipment to Baku for offshore activities.

  • Keeping Russia’s intentions in the region in check.


Kazakhstan

Kazakhstan

  • Remains almost fully dependent on Russian pipeline and rail network for exports.

    • Recently completed CPC pipeline appears dedicated to Tengiz, but runs through Russia.

  • Cannot supply domestic refineries with domestic oil; needs to import Russian oil!

  • Refineries still use outdated Soviet technology that was designed as part of the whole Soviet system.

    • Refineries cannot produce the products Kazakhstan needs today!


Turkmenistan

Turkmenistan

  • Turkmenistan is ready to export, but does not have a significant alternative to the Gazprom system.

    • Gazprom used to send its gas to hard currency markets, while sending Turkmen gas non-paying customers in Ukraine.

  • Turkey, a key market, appears staurated.

  • Russia may need Turkmen gas!

  • After Shah Deniz...


Caspian pipelines

Caspian Pipelines


Happiness is multiple pipelines

Happiness is Multiple Pipelines?


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