Finnish expert: Caspian Sea oil could break OPEC influence

A Finnish petroleum expert says that the world oil market could undergo radical changes when large amounts of oil produced in the Caspian Sea region start reaching the markets of the West. The completion of new oil pipelines from the former Soviet republics in the area would sharply reduce the influence of OPEC in the oil market.

Mika Anttonen, managing director of the oil company Green, says that the former Soviet Union operates according to different rules than the rest of the world.

"Oil will continue to flow from the area even if the world market price were to collapse. In such a case, OPEC would not be able to reduce production enough to keep prices high", Anttonen says.

Anttonen believes that the oil of the Caspian Sea region will inevitably bring down the price of oil. The economies of the countries are already largely dependent on oil, and even in a situation of oversupply they could not afford to cut production, even if the price were to go down.

Members of the Organisation of Petroleum Exporting Countries (OPEC), including Iraq, produce about 29 million barrels of oil a day. Last year Kazakhstan produced just one percent of the world’s oil, but its importance is growing fast. This month a new oil pipeline will open up for Kazakhstan’s oil with a transport capacity that could eventually reach 1.3 million barrels a day.

"The basic problem here is that the production of one barrel costs Saudi Arabia about one dollar, and it brings in 25 dollars on the world market. Such a good business cannot continue very long", Anttonen says.

Since the collapse of the Soviet Union Western oil companies have flocked to the countries surrounding the Caspian Sea. Central Asia, mainly Azerbaijan and Kazakhstan have oil reserves estimated at 65-80 billion barrels. In addition, Turkmenistan has considerable reserves of natural gas.

Most oil production and pipeline projects are being run by joint ventures formed by foreign oil companies and the governments of the countries in question. The US oil company Chevron runs the large Tengiz oil field in Kazakhstan. The Italian company Agip recently won the bid for tenders for the recently discovered massive Kashagan oil field, with reserves of at least 10 billion barrels.

Oil from the Caucasus will soon start flowing to the world market much more efficiently than before. Until now production has been plagued by a lack of efficient pipelines.

A recently completed pipeline will soon start pumping oil from Kazakhstan’s Tengiz oil field to Novorossijsk on the Russian shore of the Black Sea. Another major pipeline project, from Baku, Azerbaijan to Ceyhan, Turkey, is still in the planning stages. British Petroleum owns the largest share of that project. "Now it would seem that the pipeline, worth three billion dollars, could be taken into use in 2005", says Pekka Purho of the Finnish energy company Fortum.

The Ceyhan pipeline has strategic importance for the Western companies and the countries in the region because it does not go through Russian territory. This would give the oil producers in the area a greater amount of independence over their former Russian rulers. Even Kazakhstan has indicated some interest in the Ceyhan pipeline

The oil business in the Caspian Sea is a tough balancing act involving international politics and economic interests. The political uncertainties are a challenge for Western companies, whose strong presence might annoy fundamentalist forces in the region. The dependence of the economies on oil and the capital brought in by Western oil companies has raised fears in the area that the countries might suffer "the fate of Nigeria". In Nigeria the production of Shell has caused extensive pollution with very little economic benefit to local inhabitants. Environmental damage is another great risk inherent to oil exploration and production in the Caspian Sea region.

Petroleum analysts in Britain warned on Wednesday that if war in Afghanistan is drawn out, it could be a threat to new investments in the area. The unrest could also spread to the Caspian Sea region

Upstream, a newspaper of the petroleum business, wrote a week ago that many Western oil companies have pulled their personnel out of the Caspian Sea area in response to the threat of terrorism. On Monday ExxonMobil and Unocal also said that they would keep their offices in the Indonesian capital Jakarta closed

http://www.helsinki-hs.net/news.asp?id=20011012IE2&pvm=20011012

-- Martin Thompson (mthom1927@aol.com), October 12, 2001