Energy geopolitics, Russia, Central Asia, and South Caucasus

1
Energy geopolitics, Russia, Central Asia, and
South Caucasus

• Vladimir MilovYerevan, November 12th, 2007

2
Global resource imbalance key factor undermining
energy security concerns and energy geopolitics
Global proved oil gas reserves, end of 2006
Share in global PPP GDP, 2006
Sources BP Statistical Review of World Energy,
The World Bank
3
What drives Russias tough behavior on the
international energy arena?
SUBJECTIVE MOTIFS
OBJECTIVE MOTIFS
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Elements of Russian assertive energy behavior

• Barriers to international energy investments
• Desire to expand downstream energy presence in
  Europe connected with opposition to EUs energy
  market liberalisation ideas
• Blockade of free exports of Central Asian energy
  resources to Europe
• Denial to enter international legal regulatory
  framework on energy issues (Energy Charter
  Treaty)
• Confrontational approach to energy infrastructure
  projects bypassing Russian territory

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Central Asia broader diversity a question of time
Map Petroleum Economist

• Kazakhstan-China oil pipeline already built
• Turkmenistan-China gas pipeline the most
  realistic alternative for Turkmen gas

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Kazakhstan seeking alternatives for oil
evacuation to international markets

• Atasu-Alashankou oil pipeline to China first
  stage completed, expansion expected
• Shipments of oil via Baku-Tbilisi-Ceyhan pipeline
  remain an option
• At the same time
• No real progress with CPC expansion transit
  through Russia remains a problematic option
• Questions rise with regard to the consequences
  of the recent Kazakh government attacks on
  foreign investors (the Kashagan consortium)

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Unresolved Caspian dispute can effectively block
the construction of any Trans-Caspian pipelines

• Bargaining among Turkmenistan and Azerbaijan on
  Kyapaz/Serdar, Azeri/Khazar, Chirag/Osman fields
  continues
• No progress achieved at the summit of the heads
  of Caspian littoral states on October 16th, 2007,
  in Tehran
• Very hard to imagine a common position between
  Turkmenistan and Azerbaijan can be reached any
  time soon

Trans-Caspian gas pipeline remains a dream.
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Caspian pipeline

• Despite massive media coverage of the trilateral
  Russia-Kazakhstan-Turkmenistan summit of May
  12th, 2007, no real progress on the pipeline
  construction has been observed ever since
• Governments of the three countries were supposed
  to come up with specific agreement on pipeline
  construction by September 1st, 2007 but that
  still didnt happen
• In fact, hardly any negotiations are taking place
• Turkmen gas supply guarantees to Russia (50
  bcm/year) expire at the end of 2009
• Currently, an issue of severe gas supply price
  increase apparently will dominate the agenda of
  Russian-Turkmen gas relations

Map East European Gas Analysis
Caspian gas pipeline also remains a dream.
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Other alternative options for Turkmen gas supplies

• Trans-Afghani pipeline remains controversial both
  on security, resource base and economic grounds
• Trans-Iranian pipeline probably would work, but
  the United States would most likely do their best
  to block its construction

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Turkmenistan-China gas pipeline the most
realistic to-date alternative for Turkmen gas

• Fundamental link with upstream access (right bank
  of Amudarya, other fields) makes the project
  advantageous to China as compared to the Russian
  gas pipeline project
• Project not plagued with complicated geopolitics
  as compared to other competing projects
• China is capable of resolving problem issues of
  gas transit via Kazakhstan and Uzbekistan
• Although price issue is still unresolved, the
  project has good perspectives for moving forward

Above picture of symbolic first section of
Turkmenistan-China gas pipeline laid on August
30th, 2007
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South Caucasus gas pipeline a vital alternative,
but is there enough gas for Europe?

• Azeri gas production questionably sufficient for
  European exports
• Trans-Caspian gas link remains controversial

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Why Nabucco is sometimes viewed with skepticism?
Map Nabucco

• Unclear resource base
• The perspectives for a Trans-Caspian pipeline,
  putting aside the U.S. optimism, appear bleak due
  to unresolved Caspian seabed division dispute
• Without this, the supply capabilities of
  Shah-Deniz gas field in Azerbaijan will be only
  partially sufficient for Nabucco
• The Trans-Iranian pipeline (the most potentially
  realistic and viable option for transportation of
  Turkmen and Iranian gas to Europe) will be most
  likely blocked by the U.S.

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South Stream viable?

• Cost of construction? (Involvement of Gazprom and
  ENI suggests that the costs would be excessive)
• Wheres the gas?

Map ENI Gazprom
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Conclusions

• Resource nationalism apparently becomes the key
  issue of concern from energy security standpoint
• Current Russia represents a classical resource
  nationalist approach to energy issues
• Russian monopoly philosophy may generate
  tactical advantages, but will inevitably lead to
  successful implementation of alternative
  infrastructure projects
• This is best visible in Central Asia and the
  South Caucasus, where alternatives are already
  emerging