Magazine article Geographical

Pipe Dreams

Magazine article Geographical

Pipe Dreams

Article excerpt

As Central Asia's former Soviet republics sell off the rights to their potentially vast oil and gas reserves, Western companies are scrambling for a piece of the action. Now a strategic, economic and diplomatic wrestling match is developing over how these hydrocarbons should be transported to the marketplace. Ronald Asprey reports.

During the latter decades of the 19th century, an epic contest took place between the two greatest empires of the day -- the Russian and the British -- for control of Central Asia. Dozens of spies were despatched by each side to try and win over and make allies of the many emirs, khans and princes who presided over some of the remotest areas on Earth. The Russians called the contest the Tournament of Shadows; Rudyard Kipling dubbed it "the Great Game".

Today, a new struggle is underway in Central Asia. Its focus is the Caspian Sea, and the prize is oil and gas. For beneath the world's largest lake lie huge fossil fuel reserves -- estimated to be second in size only to those of the Persian Gulf.

Azerbaijan, Kazakhstan and Turkmenistan, all former Soviet republics, are blessed with the lion's share of the oil and gas. Azerbaijan and Kazakhstan have the oil -- Kazakhstan's giant Tengiz field is the largest oilfield discovered in the last 25 years -- while Turkmenistan has vast reserves of natural gas.

It is little surprise then that Central Asia has become a hive of activity in recent years, with international oil companies scrambling for a piece of the action.

This may be one of the last major fossil fuel reserves on Earth, and while much of the Persian Gulf's oil wealth (notably that of Iran and Iraq) is off-limits to Western companies, the Caspian Sea's riches are available to the highest bidder.

"The exploration of oil and gas is absolutely central to the development of the Caspian countries," says Christian Hodson, senior economist at Barclays. "However, the former Soviet republics are dependent on investment by foreign companies because they just don't have the ability to raise the sort of large sums of money required."

Azerbaijan, Kazakhstan and Turkmenistan are all poor countries. They are heavily dependent on agriculture and in urgent need of modernisation. If they can strike the right deals with the big oil companies -- and so far they have -- the money will start rolling in. It is estimated that by 2020, Azerbaijan will be earning between $5 and $6 billion annually in oil revenues alone -- more than doubling its current GDP.

"These fossil fuel reserves are desperately important," explains Dr Margo Light, specialist in former Soviet republics' affairs at University College London, "not only in terms of revenue but also in terms of badly needed investment in infrastructure."

Take Baku, the capital of Azerbaijan, which, given its spectacular setting overlooking the Caspian, has the potential to be a beautiful city. Yet its crumbling, dusty roads and ugly concrete apartment blocks reflect decades of underinvestment.

Nobody will benefit from the Caspian's oil, however, unless it can reach its market. Just how it will do this is the region's biggest unresolved issue. Most Caspian oil is exported via Russia, but a major new pipeline will be needed to transport the large volumes of oil expected beyond 2000. Establishing a route for the main export pipeline is the subject of intense diplomatic and political wrangling, with each nation backing the route best serving its interests. The Russians are determined to retain the only major export route from the region, while the oil-rich Caspian states want to lessen their dependence on Russia. The oil companies want the safest and most reliable route.

Many countries are keen to accommodate a pipeline. Everyone from Western oil executives to Afghanistan's Taliban militia has a preferred route. And since the area is entirely landlocked, any pipeline will have to cross at least one international border before it reaches the open sea, and the countries selected stand to gain from transit tariffs and infrastructure investment. …

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