CASPIAN SEA AGREEMENT PAVES WAY FOR PIPELINE PROJECTS AND OIL EXPLORATION
▶ But Iran, Russia, Kazakhstan, Turkmenistan and Azerbaijan will still need to tackle difficult issue of delimitation
Iran and four former Soviet nations, including Russia, agreed in principle yesterday on how to divide up the potentially large oil and gas resources of the Caspian Sea, paving the way for more energy exploration and pipeline projects.
But the delimitation of the seabed – which has caused most disputes – will require additional agreements between littoral nations, Iranian President Hassan Rouhani said.
For almost three decades, Russia, Iran, Kazakhstan, Turkmenistan and Azerbaijan have argued over how to divide the world’s biggest enclosed body of water.
And while some countries have pressed ahead with large offshore projects, such as the Kashagan oilfield off Kazakhstan’s coast, disagreement over the sea’s legal status has prevented other ideas from being implemented.
One of those is a pipeline across the Caspian that could ship natural gas from Turkmenistan to Azerbaijan and then on to Europe, allowing it to compete with Russia in western markets.
Some of the states have also disputed the ownership of several oil and gas fields, delaying the fields’ development.
The dispute began with the fall of the Soviet Union, which had a clearly defined Caspian border with Iran. In negotiations with post-Soviet nations, Tehran has insisted on either splitting the sea into five equal parts or jointly developing all its resources.
None of its neighbours agreed to those proposals and three of them – Russia, Kazakhstan and Azerbaijan – effectively split the north Caspian between one another using median lines.
Azerbaijan, however, has yet to agree on how to divide several oil and gas fields with Iran and Turkmenistan, including the Kapaz/Serdar field with reserves of about 620 million barrels of oil. The three countries have tried to develop the disputed fields while at times using warships to scare off contractors hired by other sides.
As a result, none of the disputed projects has made much progress. Speaking after the signing yesterday, all five leaders praised it as a historic event, but provided little detail about provisions on dividing the seabed.
Making it clear that the document is no final solution, Mr Rouhani said border delimitation would require further work and separate agreements, although the convention would serve as a basis for that.
Moscow has no outstanding territorial disputes but has objected, citing environmental concerns, to the construction of a natural gas pipeline between Turkmenistan and Azerbaijan.
It remained unclear whether the convention adopted would definitely clear a way for the pipeline. Kazakh President Nursultan Nazarbayev said the document allowed pipelines to be laid as long as environmental standards were met.
Ashley Sherman, principal Caspian analyst at energy consultancy Wood Mackenzie, said although the signing itself was “an unprecedented milestone” for the region, the immediate implications for the energy sector would be limited.
“We consider a trans-Caspian gas pipeline unlikely, even in the longer term,” he said. “Clarity on the legal status will shine more light on the commercial and strategic obstacles to a TCGP, from infrastructure constraints to supply competition, not least from Azerbaijan itself.”
In the upstream sector, the increasing interest in joint projects in the south Caspian is very promising, Mr Sherman said.
“Stranded fields and frozen exploration projects may well come back on the agenda,” he said. But with offshore Caspian oil and gas production already at almost two million barrels of oil equivalent per day, the effect from new fields – if and when disputes about their ownership are settled – might be limited.