Great powers and the Caspian Region’s energy resources

Matthias AdolfCaspian Energy Policy Research GroupEnvironmental Policy Research CentreFree University Berlin

Reform Group meeting: Energy & Climate Policy – Towards a Low Carbon FutureSchloss Leopoldskron, Salzburg, September, 18th 2008

Content• The Caspian Region• Interests of (Great) Powers

• PR China• EU• Russia• U.S.

• Energy Policy in the PR China• Conclusions

Strategic Ellipse

The Caspian Region

… and how much oil and gas is there in the Caspian Region?

Caspian Region - Energy situationOil and Gas Resources in the Caspian Region

Oil (World share)Tsnd. Mtoe

Natural Gas (World share)Trillion m3

Azerbaijan 1.0 (0.6%) 1.3 (0.7%)

Kazakhstan 5.3 (3.2%) 1.9 (1.1%)

Turkmenistan 0.1 (< 0.1%) 2.7 (1.5%)

Uzbekistan 0.1 (< 0.1%) 1.7 (1.0%)

Total 6.5 (~ 4.0 %) 7.6 (4.3%)

Source: BP: Statistical Review full Report Workbook 2008

Caspian Region - Energy situation

Source: BP: Statistical Review full Report Workbook 2008

Oil (2007) Production

(Tsnd. bpd)

Consumption

(Tsnd. bpd)

Armenia - 42

Azerbaijan 868 93

Georgia - 13

Kazakhstan 1,490 219

Kirgizstan - 10

Turkmenistan 198 107

Uzbekistan 114 119

Total 2,670 564

Export capacity: 2.1 Mio. Bpd = ~ production in Iraq

Caspian Region - Energy situationNatural Gas (2007) Production

(Billion m3)

Consumption

(Billion m3)

Armenia - 1.3

Azerbaijan 10.3 8.3

Georgia - 1

Kazakhstan 27.3 19.8

Kirgizstan 0 1

Turkmenistan 67.4 21.9

Uzbekistan 58.5 45.6

Total 163.5 98.9

Export capacity: 65 billion m3 = ~ production in NetherlandsSource: BP: Statistical Review full Report Workbook 2008

… who is interested in the energy resources of the region?

PR China• Economic and political influence

• for example Shanghai Cooperation Organisation

• Diversification of oil/natural gas imports:• 80% of oil imports have to cross the Strait of

Malacca which is controlled by the U.S.• Investments in companies

• for example Petro-Kazakhstan, 4.18 billion US-Dollar in 2005

11/72

PR China

… whether the PR China can realise it’s ambitions depends on the

interests of:

European Union• Extension of political and economic

influence:• INOGATE

• (Interstate Oil and Gas Transport to Europe)• TRACECA

• (Transport Corridor Europe-Caucasus-Asia)

European Union• Central-Asia strategy 2007 (democracy, education,

trade, security) • Diversification of oil and natural gas

• Baku-Tbilissi-Ceyhan (Oil)• Baku-Tbilissi-Erzurum (Natural Gas)• Nabucco (Natural Gas)

• For example: Journey of Frank-Walter Steinmeier 2006/2007

15/72

European Union

… but probably the success is on the side of:

Russia• Political and economic influence to restore „great

power“ status• Resources are needed to compensate for shortages

in delivering natural gas to the European Union.• 15 % of Russian energy exports are from

Turkmenistan and Kazakhstan• China good as customer, but bad as protagonist in

the region

• For example: Journey of Putin 2007

… so there is not much space in the region for the interests of:

USA

… therefore there are very different interests in the realization of:

Pipeline dreams in the Caspian Region

• If all Turkmenian pipeline dreams are fulfilled, this would mean:

• Russia: +45 billion m3

• PR China: +30 billion m3

• Pakistan/India: +30 billion m3

• EU: +15 billion m3

• Altogether: +110 billion m3 per annum

• Export today: 45 billion m3 (Russia)6,5 billion m3 (Iran)

• Altogether: 51,5 billion m3 per annum

Where shall this increase in production come from?

… because of this geopolitical and geoeconomical competiton in the Caspian Region, the Region will be fraught with crises and conflicts in the future.

… but now: Special focus on the PR China:

Energy market and consequences for the Caspian Region

Energy situation in PR China• Since 1979:

• Average growth rate of GDP: 9.5%• Since 1993:

• Net importer of oil• Between 2000 and 2006:

• Average annual growth rate of energy demand: 9.8% (967 Mtoe – 1,698 Mtoe)

• 2006:• Share of world primary energy consumption: 15.6%

Energy situation in the PR China

Source: IEA 2006: 516

Energy situation in PR China

Source: IEA 2007: 516

… to satisfy the growing demand China went out into the big, wi(l)de

world …

Zou shu qu!• 2002 adoption of the „going out!“ strategy

• Secure effective ownership of energy resources and transportation infrastructure to:• secure energy supply• reduce dependence on foreign companies• diversify energy transportation routes

Zou shu qu!• Strategy of procedure:

• Active, energy-centered way of commercial diplomacy within the key energy exporting regions

• Widening campaign by China’s three major NOCs to secure equity investments in oil and gas fields abroad

• Diversified supply of long-term crude and LNG contracts from a broad range of exporters to meet future needs

… this includes a secured access to the Caspian Region

-But what can be done to reduce the

conflict potential?

Conclusions – PR China• Cooperation in the region:

• Shanghai Cooperation Organization (SCO)• Association of Southeast Asian Nations

(ASEAN)• Collective Security Treaty Organisation (CSTO)• Energy cooperation between India/PR China

• Organizations like the SCO have the chance to develop common solutions for energy policy problems.

Conclusions – PR China• Reduction of Chinas energy import:

• Substitution of fossil by renewable energyresources

• Increase of energy efficiency• High investments in research and development

• Rising of affordable technology transfer from western countries

Conclusions – EU/U.S.• Recommendations for the EU/U.S.:

• Dialogue with SCO• Integration of Iran in western economical

structure• Cooperation with Indian, Chinese and other

regional energy companies• Dialogue on creation of world currency basket

with Dollar, Euro, Yen (later on Ruble and Yuan)

Thank you for your attention!