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Caspian: Firms Seek Stable Investments In Caspian Oil

London, 11 May 1998 (RFE/RL) -- Western firms investing in the rich oil and gas reserves of the Caspian are closely watching plans to build a 1,400 km pipeline to carry oil from Kazakhstan to the Black Sea, regarding its a crucial test of regional cooperation.

The multinational giants are also looking for a stable investment climate and a resolution of regional conflicts in an area with a turbulent history that has only recently won independence

The concerns of the oil firms were spelled out in a study by Greg Renwick, a senior executive of the giant U.S. multinational, Mobil. Renwick, who is based in Turkmenistan, is a Mobil vice-president dealing with new ventures in the CIS countries.

The planned export pipeline will carry Kazakh oil from the Tengiz field on the northeast Caspian coast across southern Russia. The oil will then be pumped to the Black Sea port of Novorossiysk, where it will be loaded onto tankers serving western markets.

Renwick says the pipeline will be the first major new export pipeline in the Caspian region since the break-up of the Soviet Union, and provides an opportunity to test regional collaboration.

He said it will provide landlocked Kazakhstan with its first dedicated oil export route to world markets, and will bring the governments of Kazakhstan, Russia and the local oblasts a steadily increasing income from royalties, taxes and dividends. His paper was given to RFE/RL by banking sources in London.

Renwick said successful completion of the project to be built by the Caspian Pipeline Consortium will increase investor confidence in the Caspian region and Russia. He said any failure to complete the pipeline will have a negative impact on the region and investors.

Mobil is part of the Caspian Pipeline Consortium, set up to capitalize on the rich energy deposits of the Caspian region, said by Renwick to have the world's third largest proven oil and gas reserves after the Middle East and Russia. There is an ongoing debate as to just how significant are the Caspian reserves.

Renwick said all the landlocked Caspian nations face the same challenge: how to transport their energy wealth to world markets. In order to do so, their oil and gas must cross at least one neighboring country, making it a multi-lateral government affair.

Azerbaijan, Kazakhstan, Turkmenistan, Uzbekistan, Russia and Iran are all involved in what has been called the "pipeline politics game." The role of Russia, Iran and Azerbaijan is particularly crucial because, asides from producing oil and gas, they will likely be the transit route for oil and gas produced by their neighbors.

Renwick said this need for regional collaboration has forced international oil companies investing in the region to focus on three issues -- sovereignty, stability and regional conflicts. These issues are particularly important because the oil and gas industry has to take a longer view (30-40 years) than perhaps any other industry.

On sovereignty, Renwick said it is a tribute to the leadership of the Caspian region nations that they have steered an independent course since the 1991 break-up of the Soviet Union, encouraging the oil industry to conclude that these new countries "are here to stay." However, it is easy to forget the uncertainties of the late 1980s and early 1990s when there was speculation as to whether these emerging states could survive politically and commercially.

Noting the sovereignty issue remains on the agenda, Renwick said that international oil companies "cannot forget the turbulent history of the region nor talk of its re-integration with Russia." Renwick said the need for a stable investment climate is self-evident, given that the energy development projects are so large, that they will have such long life spans, and will require multi-lateral governmental cooperation. He said a stable investment climate requires observance of the rule of law, consistent tax regimes, fair business practices and an understanding of the working of free markets. He added: "It is clear this need is recognized, and is being acted on in all the Caspian states."

Renwick also said that a successful opening up of the oil and gas reserves of the region requires a resolution to the outstanding regional conflicts -- particularly those of Nagorno-Karabakh, of Georgia and of Chechnya -- as they have "contributed to political instability and hindered consideration of serious options for the transportation and production (of oil and gas) from the south Caspian."

Renwick said the other great source of concern is the unresolved question of the disputed legal status of the Caspian Sea. He said the lack of progress in resolving this was a "roadblock" in the development of the oil and gas fields and pipelines.