Pipeline Politics:The Caspian and Global Energy Security

By John Roberts,Energy Security Specialist, Platts

KAZENERGYAstana, Kazakhstan

4-5 October, 2011

Version 2.0

Pipeline Politics: Back Where We Started?

20 years of progress, 20 years of change….

…. but transit is still an issue

• The Russian problem with oil

• The Turkish problem with gas

• The call for dedicated pipelines

• The experience of CPC; the consequences for Nabucco

Azerbaijan’s Gas Export Pipeline Decision - 1

The issue for Azerbaijan

• The ongoing development of SD 2.

• What lies beyond SD2:

• Umid

• Absheron

• Deep Level ACG

The twin decisions

• Which pipeline?

• Which customers?

Azerbaijan’s Gas Export Pipeline Decision - 2

The Issue for Turkmenistan

• Diversification & the multiple vector approach

• Russia: 9 April 2009

• Iran: 7 November 2010. Javad Oji’s statement.

• China: Missing targets and delivery for debt

The cash crisis and the need for a fourth option

• TAPI and TCGP

• Politics VERSUS economics or politics AND economics

Turkmenistan: Fallout from the 9 April 2009 Cutoff

Turkmenistan’s gas balance in 2011 - The Classic Fields• Productive capacity: 70–75 bcm• Domestic consumption: 18-20 bcm• Export to Russia: 11-12 bcm• Export to Iran: 12-13 bcm• Export to China: Zero in 2011; 6 in 2014. (See next slide)STRANDED CAPACITY: 25-34 bcm.Precision is impossible. Consequences of 12 hours notice of pipeline shut-in before

line shot down, followed by Km-487 explosion.Consequences of abruptly shutting down 195 fields

representing 92% of exports to Russia – or c. 40-45 bcm of capacity.

Direct Gains: The Trans-Asia Gas Pipeline

Indirect Gains: The Beineu-Bozoi-Akbulak Main Gas Pipeline

Indirect Gains: The West Kazakhstan-West China Oil Pipeline

The Caspian’s Role in Global Energy Security

Producer:

Kazakhstan, Azerbaijan, Turkmenistan

Transit:

Kazakhstan, Uzbekistan & Azerbaijan

Exemplar:

Kazakhstan, Azerbaijan

• Energy Charter Treaty

• Extractive Industries Transparency Initiative

Caspian Gas Potential

Current and projected export availabilities (in bcm)

2008 2009 2010* Projected

• Azerbaijan: 5.6 7.0 8.5 25-30 by 2020.

• Kazakhstan: 2.6 8.0 8.3 20 by 2015

• Uzbekistan: 13.5 16.5 13.6 35 by 2018

• Turkmenistan: 45.1 16.5 19.8 140 by 2020

• Caspian Region 66.8 48.0 50.2 220-235 in 2020?

* 2008-2010 from BP Statistical Review 2011

Projections by Platts

Energy In The Next Decade …..

Oil

• The rise & rise of China

• The rise of shale oil

Gas

• The rise & rise of shale gas

• The transformation of Europe

• The imponderables of Russia

Unconventional Gas

European Conventional Gas Reserves (BP): 14 tcm (Includes Ukraine, excludes Russia and other CIS) Europe-14 (EIA, April 2011) 5.2 tcm

Unconventional Gas: Old reserve paradigm: (US NPC 2007) 34.7 tcm

(CERA 2007) 3 - 4 tcm

New reserve paradigm: (EIA April 2011) Europe-14 17.9 tcm(IHS CERA, March 2011) Up to 173 tcm

IHS CERA’s oil price assumptions place the cost of unconventional gas on par with the long-term average price of contract gas.

IHS CERA source: Breaking with Convention, March 2011.

European Shale Gas Potential - US EIA 5 April 2011

Technically RecoverableShale Gas

Imports(Exports)

tcf tcm tcf tcmEUROPE 10.81 14.62 186.21 5.208 639 17.89France 0.03 1.73 98% 0.2 0.0056 180 5.04Germany 0.51 3.27 84% 6.2 0.1736 8 0.22Netherlands 2.79 1.72 -62% 49 1.3720 17 0.48Norway 3.65 0.16 -2156% 72 2.0160 83 2.32U.K. 2.09 3.11 33% 9 0.2520 20 0.56Denmark 0.3 0.16 -91% 2.1 0.0588 23 0.64Sweden - 0.04 100% 41 1.15Poland 0.21 0.58 64% 5.8 0.1624 187 5.24Turkey 0.03 1.24 98% 0.2 0.0056 15 0.42Ukraine 0.72 1.56 54% 39 1.0920 42 1.18Lithuania - 0.1 100% 4 0.11Hungary/Romania/Bulgaria 0.48 0.95 50% 2.71 0.0759 19 0.53

Estimated shale gas technically recoverable resources for select basins in 32 countries, compared to existing reported reserves, production and consumption during 2009

2009 Natural Gas Market1            (trillion cubic feet, dry basis)             

Proved Natural Gas Reserves

Production Consumption

Shale Gas – European Perceptions

OLD:

• Little will happen in terms of production by 2015, or even by 2020. Although by 2015 perceptions of the impact of unconventional gas on future European gas perceptions will start to exercise a profound impact on assessments and planning for European gas supplies.

NEW:

• Scenario planning 1: Prospectively as much as 35 bcm in production by 2020 (Platts unconventional gas conference, September 2011).

• Scenario planning 2: 60-200 bcm around 2025 (IHS CERA, March 2011).

• UK: Cuadrilla 5.7 tcm of gas resources in place; a 20% recovery factor?

And don’t forget conventional challenges: The Eastern Mediterranean

A lesson from the past?

Douglas Corrigan

17-18 July 1938

Where Do Central Asia’s Pipelines Lead?

Lines to the West (2015-2020)

OIL GAS• CPC 1.04 mb/d Direct:• BTC 1.2 mb/d SCP 8 bcm/y• Atyrau-Samara0.3 mb/d Az-Europe 16-30 bcm/y• KCTS/BTC+ 0.5-1.2 mb/d Indirect: • Baku-Supsa 0.15 mb/d CA-C/Russia c. 40 bcm/y

TOTAL 3.2-3.9 mb/d 24-38 or (?) 64-78

Lines to the East (2015-2020)• West Kazakhstan-West China Trans Asia Gas Pipeline

400,000 b/d 55 bcm/y

….And The Caspian’s Role

OIL

• The expansion of CPC

• The question of Kashagan and the KCTS

GAS

• Uncertainty over Russia-China gas relations

• The rise of Azerbaijan

• The doubts about Turkmenistan

THE BOTTOM LINE:

• The very real prospect of a new gas age in Europe

• The challenge for Kazakhstan

Questions?

John_Roberts@platts.com

Tel: +44-1835-863-725Mobile: +44-7966-290-354