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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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Presentation Transcript
slide1

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 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!
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...
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