Page 6 - MEOG Week 32

MEOG Commentary MEOG
Caspian talks
unlikely to yield
oil and gas gains
CasPIan
THE five countries surrounding the oil and gas-rich Caspian Sea convened at an economic forum in Turkmenistan on August 11-12, to discuss how to divide the area’s resources. As of press time, no breakthroughs in negotiations have been announced, although it is worth tak- ing a look at what is at stake in the talks.
Carving up resources
e heads of Azerbaijan, Iran, Kazakhstan, Rus- sia and Turkmenistan signed a convention last summer on the Caspian’s legal status.
Though a landmark deal in its own right, establishing zones of jurisdiction and shing rights, as well as prohibiting foreign military in the region, it did little to resolve the decades-long dispute over how the Caspian’s 48bn barrels of oil and 8tn cubic metres are to be carved up among its littoral states. e division of these spoils has instead been le to the countries involved to decide on a bilateral basis.
Azerbaijan, Kazakhstan and Russia have already divided up the northern Caspian among themselves through bilateral agreements based on median lines, allowing them to advance a number of major projects.
Turkmenistan too has brought on stream sev- eral oil and gas elds by acting unilaterally. But at stake in the current negotiations are two projects that remain e ectively frozen because their own- ership is contested.
Turkmenistan awarded a production-sharing agreement (PSA) in 2007 to Cyprus-registered Buried Hill to develop Block 3, containing the Serdar oil eld. According to a 2012 company presentation, Serdar holds 1.4bn barrels of oil in 2C contingent resources.
But Buried Hill has been unable to pro- ceed with drilling as Serdar is also claimed by Azerbaijan, which refers to the eld as Kapaz. Another disputed area is the Alov exploration block, awarded by Azerbaijan to a BP-led group in 1998.
BP attempted to survey the area in 2001 but its vessels were forced to withdraw a er being approached by gunships from Iran, which also lays claim to the area, and the project’s PSA was eventually terminated in 2016. Several Turkmen
exploration blocks are also contested by Azerbai- jan and Iran.
Serdar/Kapaz is the largest discovered resource in the disputed areas. According to Buried Hill, it is geologically similar to BP’s super-giant Azeri-Chirag-Deepwater Gunashli (ACG) project o Azerbaijan, and could yield 300,000 barrels per day of oil, subject to explo- ration results.
e company is hoping to farm out a 50% stake in the block to an international oil major, having reportedly held talks with France’s Total. However, this all depends on whether Azerbai- jan and Turkmenistan can strike a deal on joint development. Turkmenistan is known for its reluctance to engage constructively with its Cas- pian neighbours, though, making compromise unlikely.
e same can be said for the disputed explo- ration acreage o Turkmenistan. And even if disputes with Azerbaijan and Iran are resolved, longstanding problems with Turkmenistan’s investment climate are likely to impede develop- ment. e country has been unable to advance any new projects beyond those developed by Malaysia’s Petronas and UAE-based Dragon oil in the late 1990s and early 2000s.
Turkmenistan’s authoritarian political system and aspects of its state-managed economy have presented barriers to foreign investment. Inves- tors have also encountered di culties with red tape, corruption and the government reneging on commitments.
ere have been some signs of progress at the Alov block, where Iran’s NIoC and Azerbaijan’s SoCAR signed a memorandum of understand- ing (MoU) on joint explored work in May 2018, along with additional accords later that year. However, Iran’s involvement in the project will make it near impossible to secure the foreign investment, expertise and technology necessary to develop the deepwater site, as long as Wash- ington continues ratcheting up sanctions on Tehran.
other talking points
Determining ownership of resources in the Cas- pian is therefore unlikely to have any signi cant
P6
w w w . N E W S B A S E . c o m Week 32 13•August•2019