IT'S ALL ABOUT OIL!

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In 1998, Dick Cheney, now US vice-president but then chief executive of a major oil servicescompany, remarked: "I cannot think of a time when we have had a region emerge as suddenlyto become as strategically significant as the Caspian." But the oil and gas there is worthlessuntil it is moved. The only route which makes both political and economic sense is through

Afghanistan. [Guardian]

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1998 Unocal Statement:

Suspension of activities related to proposed

natural gas pipeline across Afghanistan

As a result of sharply deteriorating political conditions in the region, Unocal, which serves asthe development manager for the Central Asia Gas (CentGas) pipeline consortium, hassuspended all activities involving the proposed pipeline project in Afghanistan.

From the 1998 Congressional Record.Emphasis added to text.

U.S. INTERESTS IN THE CENTRAL ASIANREPUBLICS HEARING BEFORE THE

SUBCOMMITTEE ON ASIA AND THE PACIFICOF THE COMMITTEE ON INTERNATIONAL

RELATIONS HOUSE OF REPRESENTATIVES

ONE HUNDRED FIFTH CONGRESS SECOND SESSIONFEBRUARY 12, 1998

Next we would like to hear from Mr. John J. Maresca, vice president of international relations,Unocal Corporation. You may proceed as you wish.

STATEMENT OF JOHN J. MARESCA, VICEPRESIDENT OF INTERNATIONAL RELATIONS, UNOCAL CORPORATION

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Mr. Maresca. Thank you, Mr. Chairman. It's nice to see you again. I am John Maresca, vicepresident for international relations of the Unocal Corporation. Unocal, as you know, is one of the world's leading energy resource and project development companies. I appreciate yourinvitation to speak here today. I believe these hearings are important and timely. I congratulateyou for focusing on Central Asia oil and gas reserves and the role they play in shaping U.S.policy.

I would like to focus today on three issues. First, the need for multiple pipeline routes forCentral Asian oil and gas resources. Second, the need for U.S. support for international andregional efforts to achieve balanced and lasting political settlements to the conflicts in theregion, including Afghanistan. Third, the need for structured assistance to encourage economicreforms and the development of appropriate investment climates in the region. In this regard,we specifically support repeal or removal of section 907 of the Freedom Support Act.

Mr. Chairman, the Caspian region contains tremendous untapped hydrocarbon reserves. Just togive an idea of the scale, proven natural gas reserves equal more than 236 trillion cubic feet.The region's total oil reserves may well reach more than 60 billion barrels of oil. Some estimatesare as high as 200 billion barrels. In 1995, the region was producing only 870,000 barrels per

day. By 2010, western companies could increase production to about 4.5 million barrels a day,an increase of more than 500 percent in only 15 years. If this occurs, the region would representabout 5 percent of the world's total oil production.

One major problem has yet to be resolved: how to get the region's vast energy resources to themarkets where they are needed. Central Asia is isolated. Their natural resources are landlocked, both geographically and politically. Each of the countries in the Caucasus and CentralAsia faces difficult political challenges. Some have unsettled wars or latent conflicts. Othershave evolving systems where the laws and even the courts are dynamic and changing. Inaddition, a chief technical obstacle which we in the industry face in transporting oil is theregion's existing pipeline infrastructure.

Because the region's pipelines were constructed during the Moscow-centered Soviet period,they tend to head north and west toward Russia. There are no connections to the south and east.But Russia is currently unlikely to absorb large new quantities of foreign oil. It's unlikely to be asignificant market for new energy in the next decade. It lacks the capacity to deliver it to othermarkets.

Two major infrastructure projects are seeking to meet the need for additional export capacity.One, under the aegis of the Caspian Pipeline Consortium, plans to build a pipeline west from thenorthern Caspian to the Russian Black Sea port of Novorossiysk. Oil would then go by tankerthrough the Bosporus to the Mediterranean and world markets.

The other project is sponsored by the Azerbaijan International Operating Company, aconsortium of 11 foreign oil companies, including four American companies, Unocal, Amoco,Exxon and Pennzoil. This consortium conceives of two possible routes, one line would anglenorth and cross the north Caucasus to Novorossiysk. The other route would cross Georgia to ashipping terminal on the Black Sea. This second route could be extended west and south acrossTurkey to the Mediterranean port of Ceyhan.

But even if both pipelines were built, they would not have enough total capacity to transport allthe oil expected to flow from the region in the future. Nor would they have the capability to

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move it to the right markets. Other export pipelines must be built.

At Unocal, we believe that the central factor in planning these pipelines should be the locationof the future energy markets that are most likely to need these new supplies. Western Europe,Central and Eastern Europe, and the Newly Independent States of the former Soviet Union areall slow growth markets where demand will grow at only a half a percent to perhaps 1.2 percentper year during the period 1995 to 2010.

Asia is a different story all together. It will have a rapidly increasing energy consumption need.Prior to the recent turbulence in the Asian Pacific economies, we at Unocal anticipated that thisregion's demand for oil would almost double by 2010. Although the short-term increase indemand will probably not meet these expectations, we stand behind our long-term estimates.

I should note that it is in everyone's interest that there be adequate supplies for Asia's increasingenergy requirements. If Asia's energy needs are not satisfied, they will simply put pressure on allworld markets, driving prices upwards everywhere.

The key question then is how the energy resources of Central Asia can be made available tonearby Asian markets. There are two possible solutions, with several variations. One option is to

go east across China, but this would mean constructing a pipeline of more than 3,000 kilometers just to reach Central China. In addition, there would have to be a 2,000-kilometer connection toreach the main population centers along the coast. The question then is what will be the cost of transporting oil through this pipeline, and what would be the netback which the producerswould receive.

For those who are not familiar with the terminology, the netback is the price which the producerreceives for his oil or gas at the well head after all the transportation costs have been deducted.So it's the price he receives for the oil he produces at the well head.

The second option is to build a pipeline south from Central Asia to the Indian Ocean. One

obvious route south would cross Iran, but this is foreclosed for American companies because of U.S. sanctions legislation. The only other possible route is across Afghanistan, which has of course its own unique challenges. The country has been involved in bitter warfare for almosttwo decades, and is still divided by civil war. From the outset, we have made it clear that

construction of the pipeline we have proposed across Afghanistan could not begin until a

recognized government is in place that has the confidence of governments, lenders, andour company.

Mr. Chairman, as you know, we have worked very closely with the University of Nebraska atOmaha in developing a training program for Afghanistan which will be open to both men andwomen, and which will operate in both parts of the country, the north and south.

Unocal foresees a pipeline which would become part of a regional system that will gather oilfrom existing pipeline infrastructure in Turkmenistan, Uzbekistan, Kazakhstan and Russia. The1,040-mile long oil pipeline would extend south through Afghanistan to an export terminal thatwould be constructed on the Pakistan coast. This 42-inch diameter pipeline will have a shippingcapacity of one million barrels of oil per day. The estimated cost of the project, which is similarin scope to the trans-Alaska pipeline, is about $2.5 billion.

Given the plentiful natural gas supplies of Central Asia, our aim is to link gas resources with thenearest viable markets. This is basic for the commercial viability of any gas project. But theseprojects also face geopolitical challenges. Unocal and the Turkish company Koc Holding are

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interested in bringing competitive gas supplies to Turkey. The proposed Eurasia natural gaspipeline would transport gas from Turkmenistan directly across the Caspian Sea throughAzerbaijan and Georgia to Turkey. Of course the demarcation of the Caspian remains an issue.

Last October, the Central Asia Gas Pipeline Consortium, called CentGas, in which Unocal holdsan interest, was formed to develop a gas pipeline which will link Turkmenistan's vastDauletabad gas field with markets in Pakistan and possibly India. The proposed 790-milepipeline will open up new markets for this gas, traveling from Turkmenistan throughAfghanistan to Multan in Pakistan. The proposed extension would move gas on to New Delhi,where it would connect with an existing pipeline. As with the proposed Central Asia oil

pipeline, CentGas can not begin construction until an internationally recognizedAfghanistan Government is in place.

The Central Asia and Caspian region is blessed with abundant oil and gas that can enhance thelives of the region's residents, and provide energy for growth in both Europe and Asia. Theimpact of these resources on U.S. commercial interests and U.S. foreign policy is alsosignificant. Without peaceful settlement of the conflicts in the region, cross-border oil and gaspipelines are not likely to be built. We urge the Administration and the Congress to give strongsupport to the U.N.-led peace process in Afghanistan. The U.S. Government should use itsinfluence to help find solutions to all of the region's conflicts.

U.S. assistance in developing these new economies will be crucial to business success. We thusalso encourage strong technical assistance programs throughout the region. Specifically, weurge repeal or removal of section 907 of the Freedom Support Act. This section unfairlyrestricts U.S. Government assistance to the government of Azerbaijan and limits U.S. influencein the region.

Developing cost-effective export routes for Central Asian resources is a formidable task, butnot an impossible one. Unocal and other American companies like it are fully prepared toundertake the job and to make Central Asia once again into the crossroads it has been in the

past. Thank you, Mr. Chairman.

US Policy On Taliban Influenced By Oil Deal Negotiations

The two claim that the US government's main objective in Afghanistan was to consolidate theposition of the Taliban regime to obtain access to the oil and gas reserves in Central Asia.

They affirm that until August [2001], the US government saw the Taliban regime "as a sourceof stability in Central Asia that would enable the construction of an oil pipeline across CentralAsia" from the rich oilfields in Turkmenistan, Uzbekistan, and Kazakhstan, through Afghanistan

and Pakistan, to the Indian Ocean. Until now, says the book, "the oil and gas reserves of Central Asia have been controlled by Russia. The Bush government wanted to change all that."

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But, confronted with Taliban's refusal to accept US conditions, "this rationale of energy securitychanged into a military one", the authors claim.

"At one moment during the negotiations, the US representatives told the Taliban, 'either you

accept our offer of a carpet of gold, or we bury you under a carpet of bombs,'" Brisard saidin an interview in Paris.

The US government informed other nations of it's plan

to invade Afghanistan months before the 9/11 attacks

9 September 2001: Bush given Afghanistan invasion plan

7 October 2001: Bush announces opening of Afghanistan attacks

13 June 2002: Hamid Karzai Elected as New Afghan Leader(Former Unocal Consultant)

27 December 2002: Afghanistan Pipeline Deal signed

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An agreement has been signed in theTurkmen capital, Ashgabat, paving theway for construction of a gas pipelinefrom the Central Asian republic throughAfghanistan to Pakistan.

The building of the trans-Afghanistan

pipeline has been under discussion forsome years but plans have been held upby Afghanistan's unstable politicalsituation.

See also: Is the world's oil running out fast?

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