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Caspian: Regional Oil Conference Looks To Future Riches, But Urges Caution

The rich oil reserves of the Caspian Sea will not make the surrounding region a new Persian Gulf. But they will play an important role in moderating worldwide oil prices. RFE/RL correspondent Francesca Mereu attended a New York conference on Caspian energy interests and files this report.

New York, 4 November 2002 (RFE/RL) -- In the years ahead, oil production outside Organization of Petroleum Exporting Countries (OPEC) member countries will see its biggest growth in the region of the Caspian Sea. This according to Steven Mann, director of the U.S. State Department's Caspian Energy Policy Office.

Mann made his comments at a conference on the region co-hosted in New York last week by the Associated Press news agency and Columbia University's Harriman Institute for the study of Russia and the Former Soviet Union. He said the Caspian nations, led by Kazakhstan and Azerbaijan, have some 50 billion barrels of proven oil reserves -- putting them on a par with Russia. But although the Caspian's energy resources will play an important economic role, he said, they will never dominate the world market the way the Persian Gulf has.

"The level of Caspian energy resources has been oversold. If you look at the discussion of Caspian energy in the mid-1990s, it talks about a wall of money hitting the area. It talks about a second Persian Gulf. That's not the case. [In the case of Saudi Arabian] reserves we're talking [about] hundreds of billions of barrels. Saudi and Persian Gulf capacities are just unmatched. But what we are talking about with the Caspian, it's about 4 percent of the world oil reserves, and that will play an important role in helping to set price on the margin."

Mann cites as an example the Kashagan oil field in the north Kazakh region of the Caspian. One of the five largest reserves in the world, it could sell some 50 billion barrels of crude. He also says Central Asia has significant reserves of natural gas -- more than either the United States or the North Sea.

The U.S. State Department official says energy revenues could help regional producers create prosperous and stable states. But he adds the area -- still struggling to shake off the burden of its Soviet past -- still has many problems to solve. "A fundamental problem, when you look at the Caspian region at the time of independence, is that all of the channels to export the energy resources ran from the south to the north. The pipelines were designed to supply the Soviet industrial heartland and any exports to the West would only be via [Soviet Russia and Ukraine]. So at the time of independence, the countries found themselves in a difficult position, because the Russian energy sector now enjoys monopoly control over Caspian energy resources. And that's where the U.S. government entered and advised a policy of supporting multiple pipelines as a way of strengthening these countries and supporting their prosperity and their sovereignty."

Mann says the United States has been working for years to create an East-West energy corridor. The Baku-Tbilisi-Ceyhan pipeline, which will run some 2,000 kilometers from Azerbaijan to Georgia to Turkey, is the result of such efforts. The $2.9 billion project is slated to bring oil into the deep-water Mediterranean port of Ceyhan in early 2005. Georgian President Eduard Shevardnadze says the project will earn his country some $63 million annually and boost its GDP by 10 percent.

A second speaker at last week's conference was Shahrbanou Tadjbakhsh, a visiting scholar at the Harriman Institute and a part-time adviser on Central Asian issues. She said that the U.S. is not the only country watching Central Asia with interest -- Russia is as well: "If you look at the actions of Russia in the past 10 years, you will see that in the beginning they actually withdrew from the region, because [they] looked at [their] internal problems, [at their] economy. And also their desire to look more west than south. However, when they realized that they were losing their patrimony of 150 years of engagement in the region, they came back with full engagement."

Mann says the U.S. is interested in cooperating with Russia in Caspian issues -- a partnership demonstrated by the Caspian Pipeline Consortium stretching from Kazakhstan to Russia, the largest U.S. investment in Russia. Mann says the U.S. stance on the region is not anti-Russia, but antimonopoly: "Our policy is a policy of antimonopoly and there's good reason for this -- the way the Russian energy sector has acted in the years since independence. The managers of the system used their monopoly power to disadvantage the energy sectors of the other Caspian states. And I will also argue that the nonmarket, nontransparent approach didn't really do service to the Russian economy as well. These great pipeline monopolies, Transneft and Gazprom, have been free to set transit rates at whatever levels they choose, unhindered by competition. Transneft to this day bitterly fights the concept of a quality bank for oil -- and this is a counting mechanism through which producers are paid varying rates according to the quality of oil that they ship through the lines."

Mann says monopoly control is costing Russian producers in profits and the Russian government in tax revenues. Moreover, Mann adds, the monopolies lack transparency. Mann says that U.S. Caspian policy wouldn't exist if the Soviet energy sector had previously -- and if Russia today -- acted in a market-based transparent way.

As far as the Caspian countries of Kazakhstan and Azerbaijan are concerned, Mann says they are already receiving a stream of revenues, even if most people in those countries have yet to feel the effects. Mann says revenues in Kazakhstan could eventually reach $30 billion a year, or even more.

But he adds that the problem in the region is how the money will be used. He says it is now important to work "for the productive use of the new energy revenues." The oil-producing countries of Central Asia look at Kuwait and the Gulf States and they hope that their revenues will grow as high. But a wiser course, Mann says, would be for Central Asia to concentrate on making itself more attractive to foreign investors in order to avoid what he called the "resource crisis." Three resource-rich countries -- Russia, Argentina, and Nigeria -- all suffered massive economic crises in recent years, Mann says.