Upstream investors, operators in Kazakhstan from America, Europe pin big hopes on Caspian accord

Big oil multinationals operating in Kazakhstan and Azerbaijan hope to push ahead with new upstream projects while sustaining their ongoing ventures in the Caspian region once, after a quarter century of squabbling between the governments of the five littoral states, an agreement on the seabed’s status and divisions has been reached, according to Forbes.

“On August 12, presidents of five littoral nations will meet in Aktau, Kazakhstan's main port on the Caspian Sea, to discuss the legal status of this resource-rich body of water, which has been the subject of geopolitical discord since the collapse of the Soviet Union,” Forbes reports. “Reconciliation of maritime borders known as delimitation, exploitation of commodities, and international security will be the primary focus of next weekend’s summit. But should the Caspian Five – Russia, Iran, Kazakhstan, Azerbaijan, and Turkmenistan – reach a consensus, as is expected, the implications will reverberate well beyond the Eurasian neighborhood and into the global marketplace.”

“Energy majors across the world will be eager to develop some of the 48 billion barrels of oil and 292 trillion cubic feet (Tcf) of natural gas in proven offshore reserves. This is $4 trillion for oil and over $2 trillion for gas in today’s prices. Chevron, Exxon, Shell and BP are among those likely to compete with Russian, Chinese, and other big players for new oil and gas discoveries in the Caspian,” the article continues. “The fate of a number of large oil and gas projects, including Trans-Caspian Pipeline (TCP), Baku-Tbilisi-Ceyhan, Trans-Anatolian (TANAP) to Turkey and the Trans-Adriatic Pipeline (TAP), also will be affected.”

“With over 90% of the draft convention approved, the Caspian Five are within reach of an agreement for the first time in over two decades. This comes after more than two decades of negotiations at the expert level, over 10 meetings at the foreign minister level, and four presidential summits over the issue. After the collapse of the Soviet Union, the three littoral states of the Caspian emerged from the USSR’s corpse, to include Azerbaijan, Kazakhstan and Turkmenistan. The Caspian Sea is of vital geopolitical importance to these three littoral countries as they are all landlocked, and rely on the Caspian for transportation, trade, and valuable environmental resources,” in Forbes’ words.

“While Russia and Iran have their own ocean access, the Caspian remains a prize for them as well because of its vast hydrocarbon reserves. The EIA predicts that the region’s natural gas supplies could add as much as 27% to global production over the next 10 years. That is, if they can be accessed. Much of the Caspian’s oil and gas lies in the South Caspian Basin, which spans Azerbaijan, Iran and Turkmenistan, where territorial disputes have hindered offshore exploration. A resolution of these conflicts would remove key obstacles to fossil fuels exploration and development in these disputed areas, which make up some 20% of the Caspian's licensed and unlicensed drilling blocks. Kazakhstan's mammoth Kashagan offshore oil field, the world's fifth largest, have only recently begun production after 20 years of development, yet would too benefit from a more solid legal framework that is about to be laid, including through the construction a potential underwater pipeline.”

“Critical to any lasting solution is the Caspian’s status as a sea or lake. With an area of 440,000 square kilometers and a deepest point of 1,025 meters, the Caspian is the largest closed body of water on Earth. The Caspian has no direct access to the ocean so is technically not a sea, but due to its immense size, it cannot legally be defined as a lake. If ruled an international border lake, all five states would be granted a 20% share of the body regardless of the length of coastline. It is no surprise then that Iran, which claims the shortest coastline along the Caspian, is advocating for this approach. Should the Caspian be classified as a sea, however, the provisions of the United Nations Convention on the Law of the Sea (UNCLOS) applies. The Caspian would be divided into ‘national sectors’ according to the median line principle, where territory is determined by equidistant points from land. The length of the exclusive economic zone is calculated to run proportionally along a state’s territorial coast, thus dividing the sea into separate sectors. This is the same regime that Kazakhstan correctly lobbied for in the 1990’s and was eventually ratified by Russia and Azerbaijan in 2003.”

“The current proposal, similar to that offered by Kazakhstan, does not seem to make that choice of either/or, as indications imply. It includes a "modified median line" (MML) strategy, which treats the surface of the Caspian as a lake and the subsoil as a sea. This arrangement allows for the free flow of shipping across the surface and also permits the construction of underwater pipelines through exclusive economic zones, presumably without consent from other, unaffected, littoral states. The Trans-Caspian Gas Pipeline between Azerbaijan and Turkmenistan could be built as a result of the MML agreement and the green light may be given to other significant projects as well. The Agreement opens the door for a pipeline that would connect the Azerbaijan-led Southern Gas Corridor to the Trans-Anatolian Pipeline to Turkey. It will also provide gas to Europe, with a critical linkage to the Trans-Adriatic Pipeline in the Balkans. The EU will have greater diversification of its natural gas as a result, and Turkmenistan will expand its client portfolio, as it currently only sells gas to China.”

“The Caspian Sea is not as energy-rich as the Persian Gulf -- but it can provide a welcome alternative to the unstable and divided Middle East. In addition to its proven reserves, the US Geological Survey (USGS) estimates that the Caspian holds another 20 billion barrels of oil and 243 Tcf of natural gas still to be discovered. If and when the Caspian Sea accord is finally signed, we can expect a reinvigoration of the region’s hydrocarbon sector, as exploration and production projects ramp up. While the upcoming signing of the Caspian Sea legal convention is a communal achievement, Kazakhstan's President, Nursultan Nazarbayev, who made consensus building in his neighborhood a trademark policy, and its foreign ministry, which diligently worked on preparing the summit, deserve special kudos. It would have helped the littoral states to come to an agreement sooner, but at this Summit, late is certainly better than never.”

By Forbes (Kazakhstan).


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