Russia making new push in Caspian Basin energy sector

Russian leaders are hoping that the launch of the country’s first major Caspian Sea off-shore energy development project will re-invigorate the Kremlin’s overall oil-and-gas strategy for the region.

Russia’s paramount leader, Prime Minister Vladimir Putin, traveled to the southern Astrakhan region in late April to inaugurate Lukoil's offshore oil rig at the Korchagin deposit. Located about 180 kilometers from the city of Astrakhan, the deposit is estimated to contain nearly 30 million tons of oil and 63 billion cubic meters (bcm) of gas. Over the past decade, Lukoil has discovered six deposits in the northern Caspian with total oil reserves estimated at 4.7 billion barrels. Lukoil plans to pump up to 30 million tons per year of oil and 20 bcm per year of gas by 2020.

To date, a major impediment to the development of Caspian Sea energy deposits has been the lack of a territorial agreement. Talks among the five littoral states – Azerbaijan, Iran, Kazakhstan, Russia and Turkmenistan – to divide the seabed are currently stalemated, with Tehran’s insistence on an equal 20 percent share being one of the key obstacles to agreement. [For background see "Tehran conference fails again to demarcate the Caspian Sea" in EurasiaNet’s archive].

The April 28 ceremony afforded Putin an opportunity to press Russian energy executives to implement development plans, as well as offer the state’s strong backing for additional off-shore and infrastructure projects. Needed improvements could cost upwards of $27 billion, Deputy Energy Minister Sergei Kudryashov said in Astrakhan. The comments of Putin and other top Russian officials were apparently aimed at sending a signal to other Caspian Basin states that Russia was prepared to push ahead the development of off-shore deposits on its own.

Many of Russia’s joint development projects with its Central Asian and Caspian Basin neighbors appear to be stuck in neutral. Five years ago, for example, Russian and Kazakhstani officials finalized plans covering the joint development of the Khvalynskoye oil and gas field in the northern Caspian. Around the same time, the Russian and Kazakhstani state oil firms, Rosneft and KazMunaiGas, signed a 55-year production-sharing agreement covering the Kurmangazy oil field. Both projects, however, are not functioning as originally envisioned.

Russian officials are also interested in accelerating cooperation with Uzbekistan. On April 27, Alexey Miller, the CEO of the state-controlled gas behemoth Gazprom, held talks in Moscow with Uzbekneftegaz head Ulugbek Nazarov to discuss export and development projects. Gazprom has pledged to buy not less than 15.5 bcm of gas from Uzbekistan in 2010. But that figure is largely unchanged from 2009, when Uzbek leader Islam Karimov pledged to supply 16 bcm of gas annually to Russia, and indicated that the export level could rise to 31 bcm by 2019.

Russian President Dmitry Medvedev and Karimov held what they described as a successful summit April 19-20 in Moscow. However, it is noteworthy that they refrained from commenting on energy cooperation.

Meanwhile, Russia’s energy cooperation with Turkmenistan is heading south. Gazprom deputy CEO Valery Golubev reaffirmed in Astrakhan that the firm would buy no more than 10 bcm of gas from Turkmenistan in 2010. Under earlier agreements, Gazprom had committed to purchasing at least 30 bcm per year from Ashgabat.

In the aftermath of the global economic collapse of 2008, Gazrpom’s purchase agreement for Turkmen gas became too pricey, and company officials sought to back out of their previous commitments. [For background see "Gazprom plays hardball with Ashgabat on pricing" in EurasiaNet’s archive].

Energy relations between Russia and Turkmenistan have been tense since a pipeline blast in April 2009 caused a prolonged interruption in gas deliveries. [For background see "Pipeline spat with the Kremlin turns into a political test of strength" in EurasiaNet’s archive].