17.906 The Geopolitics and Geoeconomics of Global Energy, Spring 2007 Prof. Flynt Leverett Lecture 11: Energy Battlegrounds – Central Asia The prize / what is at stake in central Asia • What is central Asia o The “Stans”  Kazakhstan  Uzbekistan  Azerbaijan  Turkmenistan o Iran o Russia • Proven reserves in the Caspian Basin o 32-50 Billion Barrels in proven oil reserves  Russia and Iran are left out of the calculation  4% of the worlds proved reserves • 6 major hydrocarbon bases in the basin itself • Uzbekistan is a unique state o It is “doubly landlocked”  It is landlocked, and are all of the countries surrounding it o It’s not really in the Caspian Basin as well • For oil o Kazakhstan is the biggest holder in the region  39 Billion Barrels in proven reserves o Azerbaijan is second  7 Billion Barrels o Uzbekistan and Turkmenistan  ~1 Billion Barrels each • For Gas o 232 TCF of proven gas reserves in the Caspian Region o Turkmenistan is biggest holder of gas  71-101 Trillion Cubic Feet of proven reserves  11th-14th largest in the world à could potentially be the 5th largest reserve worldwide if they find it all  “Bizarre place” à People don’t seem to think that the government has any idea how much they actually have there o Uzbekistan  66 TCF o Kazakhstan  65 TCF In the 1990s there was a lot of hype over huge oil reserves in central Asia • US State Department released a study that said that there was potentially 200 Billion Barrels of oil in Central Asia o Turns out that it is not true o Caused lots of Congressmen to get hot and bothered about ending our relationships with the Middle Eastern Supplier states  This wouldn’t have been a good idea anyway because just Saudia Arabia, Iran, and Iraq have upwards of 500 Billion Barrels combined, which is still a significant amount of oil that can’t be ignored Cite as: Flynt Leverett, course materials for 17.906 Reading Seminar in Social Science: The Geopolitics andGeoeconomics of Global Energy, Spring 2007. MIT OpenCourseWare (http://ocw.mit.edu), MassachusettsInstitute of Technology. Downloaded on [DD Month YYYY].Problems with Central Asia oil and gas exporting • Because many of these Central Asian states are double landlocked, the issue of transportation becomes particularly difficult o Pipelines would have to be put in place to go everywhere o Since Central Asian gas is close to many important markets – Europe, East Asia, Russia, and Iran, this is where resource nationalism and resource mercantilism come together in spades After the fall of the Soviet Union, the Central Asian states were essentially starting from scratch vis-à-vis the oil industry • Azerbaijan was essentially the birthplace for oil industry in Russia and then the Soviet Union • Shifted to other Central Asian states, and then again to Siberia In natural gas, Turkmenistan played an important role in getting the Soviet Gas industry started, but then the industry shifted to Siberia • After the fall of the Soviet Union, there was some infrastructure in place in many Central Asian countries, but it was not even close to being developed fully At the fall of the Soviet Union, Western investors were essentially drooling over the idea at exploiting these newly formed countries for their natural resources basically because there was no real government infrastructure in place to deal with foreign investment in oil production • Chevron was the first into Turkmenistan • Other flocked to Azerbaijan and Uzbekistan There were some catches, though • As governments go through this learning curve on how valuable these natural resources are and how they need to regulate the industries, they also are figuring out how to pipe the stuff out of their countries o Before these countries came into their own, the Soviets were the only ones who had been building pipelines, and all of those pipelines went directly to what was now Russia, and from Russia, the pipelines went to Europe  Not export infrastructure into East Asia  This gave the Russians a huge advantage in the battle for influence in the region vis-à-vis how this industry was going to be developed There was going to have to be some external player in place to help these Central Asian countries to develop new infrastructure to export these resources out of the region. Unfortunately, Russia was going to have a huge influence on how this was going to happen Idea #1 - Caspian Pipeline Consortium (CPC) • Created to export Kazakh oil out, giving Russia a huge say in how this happened, but financed by Western Energy Companies o Idea was to wean the Russians off of Central Asia o Russian government got a 24% share in the stake, the largest stake of everyone o Chevron got 15%, etc. • Problems o Strategic problem, in that there was going to be a limit to Russian tolerance for the amount of oil that would be flowing out of the region and not under their control o Within the CPC, because it was built by many state of the art companies, it used the latest technologies in the new infrastructure Cite as: Flynt Leverett, course materials for 17.906 Reading Seminar in Social Science: The Geopolitics andGeoeconomics of Global Energy, Spring 2007. MIT OpenCourseWare (http://ocw.mit.edu), MassachusettsInstitute of Technology. Downloaded on [DD Month YYYY].17.906 The Geopolitics and Geoeconomics of Global Energy Lecture 11 Prof. Flynt Leverett Page 2 Allowed for quality bank system, separation of the different grades of oil when it came to the end of the pipeline  The Russians always blended their grades of oil together when it came to port, called Transneft  The Russians began losing money to the CPC, because the CPC was producing a better product than the Russians  The Russian didn’t like this, and terminated expansion of the CPC pipeline in the Black Sea • Bottom-line: CPC did not provide a model for how to export oil from Central Asia Idea #2 – Involve Iran • Run pipelines down to Tehran, and join those pipelines with existing Iranian pipelines to run to the ports o Economically it made sense • US-Iranian issues became strained during the mid 1990s, as Clinton Administration cracked down on US investment into Iran through sanctions, etc. • For political reasons, Iranian involvement was squelched Idea #3 - East-West