KAZAKHSTAN AND RUSSIA TO SHARE NORTHERN CASPIAN OFFSHORE OILFIELDS.

Publication: Monitor Volume: 8 Issue: 94

On May 13 in Moscow, Presidents Vladimir Putin and Nursultan Nazarbaev signed what is being presented as a legally binding document on dividing the northern and northeastern Caspian seabed between Russia and Kazakhstan. The document, which took almost three years to negotiate, has the form of a protocol to the 1998 Moscow agreement, which Nazarbaev and Putin’s predecessor Boris Yeltsin signed.

That agreement had marked a turning point in the negotiations among the five Caspian states on the sea’s status. Departing from the condominium principle and from the pursuit of five-country agreements, Russia and Kazakhstan set two precedents: dividing the seabed bilaterally among a pair of neighboring countries, and accepting a sectoral division, albeit one confined to the seabed only, while leaving the water body and surface for common use. The 1998 agreement envisaged dividing the seabed along a “modified median line, in accordance with the fairness principle.” But it stopped short of stipulating a method for defining the median line, for modifying it, or for determining “fairness.”

Russian official statements at the time and since then–including those of Putin’s plenipotentiary envoy for Caspian negotiations, Viktor Kalyuzhny–seemed to imply that Russia should have rights to those offshore oilfields in which it had already begun prospecting or exploring, even if those fields were “disputable” under geographic criteria and, thus, not legally open to development. That appeared to be the practical meaning behind such vague formulae as “modified median line” and “fairness principle” (“po spravedlivosti”). On April 26 in Moscow, Deputy Prime Ministers Viktor Khristenko of Russia and Karim Massimov of Kazakhstan ironed out the final terms of division (Interfax, April 27).

The May 13 protocol draws the modified median line in a way that leaves the Tsentralnoye and Khvalin offshore fields under Russian sovereignty, and the Kurmangazy under Kazakhstan’s. Russia and Kazakhstan are to develop the three fields jointly, on a parity basis, with each holding a 50-percent interest in each field. As of the moment, neither their estimated reserves nor a timetable for exploration and development have been officially announced.

At the signature ceremony, some Russian officials ventured to estimate not the reserves, but the production potential for the “northern Caspian”–that is, apparently, for the Russian seabed sector plus these three fields held jointly with Kazakhstan–at 50 million tons of oil annually. For his part, Kazakhstan’s Foreign Affairs Minister Kasymzhomart Tokaev had last week assessed Kurmangazy’s reserves as equal to the combined ones of Tsentralnoye and Khvalin; but he stopped short of naming any figures.

The agreement and protocol envisage that Russia and Kazakhstan will jointly administer bioresources and make joint decisions on ecological protection in the area on either side of the median line as defined. This kind of stipulation is being sought by Moscow in its negotiations with the other Caspian states as well. Whether bilaterally or on a five-country basis, joint jurisdiction over ecological issues hands Moscow de facto veto power on development and transport issues in general, and on trans-Caspian pipelines in particular. Unable to block the start of the Baku-Ceyhan and Shah Deniz-Erzurum pipeline projects for oil and gas, respectively, from the western Caspian shore, Moscow staunchly opposes trans-Caspian pipeline projects on ecological pretexts.

With Russia exercising sovereignty over two fields and half-ownership of the third under the May 13 agreements, it seems a foregone conclusion that the future output will be exported through Russian pipelines. According to Tokaev, even the output of Kurmangazy–the field under Kazakhstan’s sovereignty–is slated to be exported through the Tengiz-Novorossiisk pipeline. This would increase Russia’s already overwhelming share in the transit of Kazakhstani oil. In 2001, Russia was the route for 38 million of 40 million tons of oil exported from Kazakhstan.

According to Putin and other Russian officials at the signing ceremony, this settlement should encourage American and West European investment in the northern Caspian oil projects. As part of their pitch, some Russian officials claimed that the extraction costs are lower in offshore northern Caspian fields than in onshore Persian Gulf fields. They also drew an invidious comparison with Azerbaijan, which allegedly cannot agree with its direct neighbors–that is, Iran and Turkmenistan–on seabed division. This line of argument would seem implicitly to blame Azerbaijan, first, for Iran’s threats of force over the Alov-Araz-Sharg fields, which by any definition are located deep inside Azerbaijan’s sector; and, second, for Turkmen President Saparmurat Niazov’s claims, which no country takes seriously, to parts of Azerbaijan’s Azeri-Chirag-Guneshli (“contract of the century”) acreage.

The Russian side timed the signing to the upcoming U.S.-Russia and G-8 summits, where Putin will appeal for Western investments in Russian oilfield development, including that in the northern Caspian Sea. Moscow lacks the technology and capital for such development. It also timed the signing to the top-level CIS meetings on May 13-14 in Moscow. In the same context, as a curtain-raising gesture to the Russian-Kazakh and CIS summits and the follow-up Russia-Azerbaijan summit, Putin ordered large-scale military exercises to be held in the northern and central Caspian Sea next month (Interfax, May 6, 13; ORT Television, Habar TV and news agency, May 13).

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