June 2002 has marked a potentially decisive turn in the Great Game for Caspian oil–a game Washington has played for a draw at the very best, even as Moscow plays for the sweepstakes. On June 5, Presidents Vladimir Putin of Russia and Nursultan Nazarbaev of Kazakhstan signed a wide-ranging set of agreements that ensure a Russian near-monopoly on the transit of oil from Kazakhstan for years to come. The accompanying agreements, moreover, set the stage for a similar Russian move on Kazakhstan’s gas.
One of the agreements guarantees that 15 million tons of Kazakhstani oil will be pumped through the Atyrau (Kazakhstan)-Samara (Russia) pipeline each year from 2003 on, for fifteen years. Another will send 2.5 million tons of Kazakhstani oil annually, also for fifteen years, by tankers to Russia’s Caspian port of Makhachkala, thence to be pumped into the pipeline via Tikhoretsk to Novorossiisk on Russia’s Black Sea coast.
Novorossiisk is already slated to receive 28 million tons of Kazakhstan’s oil through the Tengiz-Novorossiisk pipeline, which was commissioned last year, and is due to operate at that capacity from 2005 on. Thus, in toto, approximately 45 million tons of Kazakhstani export oil are already committed to Russian export routes. Such a commitment far exceeds Kazakhstan’s current oil exports, which stood at some 28 million tons in 2001. Russia–this discrepancy clearly shows–has preempted the transit of Kazakhstani oil for years to come. Also clear is that annual export increments will be routed through Russia.
By comparison, Kazakhstan’s oil exports in other directions amount at present to less than 3 million tons annually. Those directions–by sea and rail to Batumi, Georgia, and by sea to northern Iran–have little or no growth potential. Meanwhile, Moscow has announced ambitious plans to increase the throughput capacity of its pipeline network to accommodate the projected increases in Kazakhstan’s oil exports.
Those projections are spectacular, with approximately 100 million tons of Kazakhstani oil expected on stream by 2015 or even earlier. To capture that flow, Moscow is moving in at least three directions.
–First, it envisages a massive increase in the Tengiz-Novorossiisk pipeline’s throughput capacity, courtesy of Western–mainly American–companies in the Caspian Pipeline Consortium (CPC), which built that pipeline and operates it. When CPC inaugurated that line last year, it announced plans to double the line’s capacity to 56 million tons annually in a second stage, after 2010.
–Besides tapping Western investors, Moscow plans to spend some of its own scarce funds for expanding the capacity of its internal pipeline network, so as to pump Kazakhstani oil through Russia’s Baltic Pipeline System (BPS, in progress) to the Primorsk terminal, under construction at the Russian east end of the Baltic Sea. The Russian government expects Kazakhstan to share, in one form or another, the cost of this project.
–The third move is to create an entirely new transport route for Caspian oil–from both Kazakhstan and Azerbaijan–in a westerly direction from Novorossiisk. The plan is to have the oil shipped by tankers across the Black Sea to the Bulgarian port of Burgas, thence by an overland pipeline to terminate at the Greek port of Alexandropolis on the Aegean Sea, and from there by tankers again to the end consumers. The Burgas-Alexandropolis pipeline project is an age-old Soviet idea, favored also by some Greek interests, but thwarted by insufficient resources and questionable economics. Moscow has recently resurrected this project with a new rationale: to divert some of the oil tanker traffic from the Turkish Straits.
Supertankers loaded with oil from Novorossiisk must now pass through the narrow and winding Bosporus, and literally cut through Istanbul. This poses unacceptable risks and hazards to the other maritime traffic and to the multimillion city itself. Inevitably, Turkish authorities are taking measures to limit tanker traffic through the Bosporus. Such measures indirectly place a cap on oil tanker loadings at Novorossiisk itself. Moscow, however, wants to expand Novorossiisk’s oil-loading role, because it is crucial to Russia’s strategy to control Caspian oil flows. Recognizing that it cannot continue dismissing the Turks’ concerns over the Bosporus, the Russian government is now again promoting the Burgas-Alexandropolis pipeline, this time as a second outlet from Novorossiisk, bypassing the Turkish Straits. A second outlet would ensure that Novorossiisk absorbs ever-growing volumes of Caspian oil.
The strategy has failed in Azerbaijan, where the bulk of the anticipated output is already committed to the Baku-Tbilisi-Ceyhan (Turkey) pipeline project, which the United States and the region’s pro-Western countries favor. But it is a spectacular win in Kazakhstan, where both the current and the projected output are far larger than in Azerbaijan and have already been preempted by Russia.
A prime example is Kazakhstan’s promising Kurmangazy offshore oilfield. Under agreements dividing the northern Caspian seabed, which Putin and Nazarbaev signed in May of this year, Kurmangazy was assigned to Kazakhstan’s jurisdiction, but is to be developed “jointly” by Kazakhstan and Russia on a parity basis. Its projected output is already slated to be pumped through the CPC pipeline to Novorossiisk. Meanwhile, work is underway to connect the giant onshore Karachaganak field to the CPC pipeline. Meanwhile, the Russian government continues opposing Baku-Ceyhan, in softer tones but with undiminished effectiveness. The latter stems largely from Moscow’s veto power on trans-Caspian pipelines that could bring Kazakhstan’s oil–or, for that matter, Turkmen gas–directly to markets without passing through Russia.
The supergiant offshore oilfield Kashagan, where prospection is now being completed, may offer a last chance to reduce Kazakhstan’s dependence on Russian transit, and the first chance to bring major volumes of Kazakhstan’s oil to the western Caspian shore and from there directly to international markets. Kashagan will be a make-or-break test of Russia’s policy to monopolize the transit of oil from Kazakhstan. And that monopoly means controlling the lion’s share of Caspian oil flows.
Moscow’s goal is to concentrate Russian and Caspian oil and gas into a single pool for export under Russian physical and political control. Moscow’s goal is to concentrate Russian and Caspian oil and gas into a single pool for export under Russian physical and political control. If successful, it would gain leverage over European consumer countries and renewed predominance over Caspian countries. Energy economics overall, however, would be distorted, and supplies to other countries would not be secured.
Vladimir Socor, long-time senior analyst with the Jamestown Foundation, formerly a senior research analyst with Radio Free Europe/Radio Liberty in Munich, and prior to that a professor of history and political science, is a specialist in the non-Russian former republics of the USSR, CIS affairs and ethnic conflicts.