Global oil majors who have rushed to grab chunks of the remote Caspian Sea’s mineral riches, are stratching their heads over one question: What to do with the gas? Vast amounts of gas are believed to lie under the landlocked Caspian Sea, a resource that would be valuable else where but worth nothing in a region surrounded by gas producers and located thousands of miles from any hard-currency markets.
“Caspian gas is like the kiss of death,” said one senior executive with a US oil firm.
“We are very keen to go in for more offshore exploration tenders, but the problem is you risk striking gas… you can’t abandon it, gou can’t use it and you can’t export it.”
British energy giant BP fell victim to that kiss of death in 1999 when it hit the Shakh Deniz gas field, which has a cool trillion cubic meters of gas reserves.
Three years on, the major is still sitting on the field.
It’s oil pipeline, the 1,760-kilometer (1,094-mile) Baku-Tbilisi-Ceyhan, long written off as uneconomic, now appears to be streaming ahead and is expected to be ready by 2006. But plans for a link to export Shakh Deniz gas are still stalled.
“Gas contracts are much tougher to get than oil ones. You can’t just put gas on a ship and sell it,” BTC regional head Barry Halton told Reuters.
“That’s one reason why it’s taking a lot longer than anticipated to get Shakh Deniz moving, but it will move eventually.”
Gloomy prospects?
BP still hopes to exploit the field one day, but has postponed development, citing escalating costs and the lack of buyers. It now sees a pipeline ready by 2006, at a cost of $3.2 billion. Analysts are not too sure.
“It’s all looking substantially more gloomy even though everyone is being very brave about the Turkish market,” said Jonathan Stern, a fellow at London’s Royal Institute of International Affairs.
“Demand is down and project costs are up. It’s going to be a very long time before Caspian gas reaches Europe.”
The Caspian is surrounded by five states –Russia, Azerbaijan, Turkmenistan, Kazakhstan and Iran- which together contain most of the world’s natural gas.
Realization has set in that Turkey, initially targeted by these countries, is unlikely to see its economy recover in time to absorb this fuel. Ankara recently renegotiated gas prices downward with Iran and Russia.
“When the Shakh Deniz project was first talked of, the Turkish market was on the up, but that has slowed down in the last few years,” BP’s Halton said.
Investors hope Turkey and its neighbor Greece will emerge not only as markets but also as hubs, reselling volumes into the European Union where utilities’ demand for cleaner fuel than oil or coal is expected to grow.
The two countries have already agreed to build a $300 million link to carry 500 million cubic meters of gas a year.
Stern threw cold water on the idea, saying all the gas needed in the next decade was contracted for already.
“Even if you leave Turkey aside, Europe has way too much immediate gas and no one is going to need more until 2010 at the earliest, unless there is booming economic growth,” he said.
“The EU wants to diversify supplies but it isn’t keen to pay more and Caspian gas will be expensive. You have to argue hard to say the Caspian is a more secure source than Russia.”
Russia waits in the wings
The Caspian’s remoteness benefits Russia, which is keen to continue buying Central Asian gas instead of developing its costly Arctic fields.
It is buying large volumes from Turkmenistan and Kazakhstan and said this week it would seek to expand this arrangement.
Low-paying Russian markets may be the only oulet for Kazakh and Turkmen gas, but the low rates will not justify developing BP’s Shakh Deniz field in neighboring Azerbaijan.
“The east Caspian states are in an unfortunate position as the countries on the route to markets are also potential producers,” said Julian Lee at London’s Center for Global Economic Studies.
“The Eastern markets of China and India are too far away and so are the Western markets in Europe.”
(By Sujata Rao, Reuters)