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Caspian Sea: Falling Oil Prices Will Delay Foreign Investment

London, 9 April 1998 (RFE/RL) -- A top Western energy consultant says falling oil prices could cause foreign firms to postpone investments in the Caspian oil and gas fields, and delay plans to build export pipelines from the landlocked region.

Andrew Apostolou, a consultant on Central Asia from Oxford University, also says the economic crash in southeast Asia, that has caused stocks and currencies to dive in Indonesia, South Korea and Thailand, may help depress global oil demand and prices for some time to come.

Apostolou spoke to RFE/RL at a conference -- entitled Current Trends in Transitional Economies -- at the Center for Euro-Asian Studies at Reading University, outside London.

Apostolou disputes some commonly-accepted generalizations about the oil and gas reserves of the Caspian, the richest fields of which are located in Azerbaijan, Kazakhstan and Turkmenistan.

He says claims that the hydrocarbon reserves are the second largest in the world after the Gulf are probably exaggerated, and appear to originate from a U.S. National Security Council estimate in 1995 that the region has 200 billion barrels of oil and gas.

Apostolou said western energy firms put the figure smaller at 60 thousand million barrels -- about the size of the reserves located in the North Sea, albeit still large enough to sway global energy trade.

But plans to open up the Caspian reserves have been thrown into doubt by the world oil glut that has seen oil prices fall to their lowest level in real terms in years, partly because of a fall-off in Asian demand but also because of a proliferation of suppliers.

The Caspian region is at a disadvantage because its energy reserves are located in an out-of-the-way region far from world markets and in countries that are landlocked. Apostolou points to the failure so far to build a commercially viable and large-scale export pipeline west to Turkey, south to Iran or east to China.

Says Apostolou: "I don't see a pipeline being completed for maybe four years. The problem is that the longer the delay, the worse the prospects get. At the moment we have a very serious oil glut problem. And if we don't get some sort of stability in oil prices, I think you are going to see foreign firms starting to delay investments in the Caspian region."

Apostolou says Kazakhstan is desperate to get a pipeline link to western markets; while Turkmenistan, with the fourth largest reservoir of natural gas in the world, could be producing 10 times as much as right now, but both "can't get their product to market."

Apostolou also says a plan to build a 3,000 km pipeline from Kazakhstan across Xinjiang to eastern China does not make commercial sense, given present low oil prices, the 3 thousand million dollars construction cost, and the expected very high transit fees.

Apostolou is skeptical about grandiose claims that the Central Asian region is poised to become the site of a 21st Century Silk Road: a high-tech superhighway, or land-bridge, linking Europe and Asia with motorways, railways, and fiber optic cables.

Historically, he says, Europeans have always found it easier to get access to east Asia by sea rather than overland. Even today, the region is very isolated in the "back of beyond", and remains sparsely populated.

Kazakhstan, five times the size of France, has only 17 million people. Apostolou says the Central Asians themselves, imagine that their countries are less peripheral than they are.

Says Apostolou: "The mistake the governments have made is to sit around and think that 'we are right at the center of the earth, at the center of everything'. If you go to Uzbekistan, there's a big globe, where they've replaced a statue of, I think, Karl Marx, and there's a huge Uzbekistan in the middle of it, the size of Latin America. Well, I'm sorry, you're not (at the center of the world.) You're marginal to the world economy and you have to integrate."

Apostolou says the governments in the Caspian region are telling their people that the new petrodollar wealth will be spent on improving living standards and redressing the imbalances left over from the Soviet era. But he says the "titular nationals" of the region -- the Kazakhs, the Turkmen and the Azeris -- are actually going to benefit least from the opening up of the new oil and gas fields.

Says Apostolou: "The people who are going to benefit overwhelmingly are urban groups who tend to have a knowledge of the specific energy sectors and who are close to the government. The Azeris, Kazakhs and Turkmen are still mostly rural, mostly quite poor, and mostly in large families. And they're not going to benefit that much."