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Division Of The Caspian

The last document to delineate the Caspian's legal status, the 1940 Soviet-Iranian treaty, awarded each signatory an "exclusive right of fishing in its coastal waters up to a limit of 10 nautical miles. The treaty further declared that the "parties hold the Caspian to belong to Iran and to the Soviet Union." Since the 1991 collapse of the Soviet Union, the legal issues reflect Caspian politics arising because the 1982 U.N. Convention on the Law of the Sea defines it as "a special inner sea."
by John C.K. Daly
UPI Correspondent
Washington (UPI) Aug 09, 2007
Russia's recent effort to claim unilaterally its northern seabed to the North Pole has highlighted the race to divide the globe's remaining waters for nation's benefits. Besides the Arctic, these include Antarctica and the Caspian. Of the three, the Caspian is the most hotly contested, as extraction efforts are already under way, and the battle involves not only the riverain powers Russia, Iran, Azerbaijan, Kazakhstan and Turkmenistan, but behind them, massive Western investment thirsty for access to the region's hydrocarbons.

Some experts estimate the Caspian could hold possible reserves of up to 250 billion barrels of oil, along with more than 200 billion barrels of potential reserves. The Caspian may also contain up to 325 trillion cubic feet of natural gas. The Caspian is the world's largest enclosed body of water, with a surface area of 143,244 square miles, and is uniquely defined under international law as an inland sea.

The Caspian is already under intensive development, with Kazakhstan already exporting about 1.1 million barrels per day, primarily via the Caspian Pipeline Consortium, while Azerbaijan is pumping more than 800,000 bpd through both the Baku-Supsa and Baku-Tbilisi-Ceyhan pipelines; BTC is designed to handle up to 1 million bpd, and Baku is aiming to increase exports up to 1.2 million bpd next year. While Kazakhstan is a newcomer to the petrochemical market, by the beginning of the 20th century Azerbaijan was supplying almost half of the world's oil, producing 212,000 bpd by 1901. Azerbaijan and Kazakhstan alone have increased their oil production by 70 percent since 1992.

The biggest issue stymieing further development is an unresolved legacy from the Soviet era -- a final division of Caspian waters and the seabed. In the absence of such an agreement, such favored Western projects as undersea natural gas pipelines for exporting Turkmen natural gas westward remain for present on the drawing table. Furthermore, 16 years after the collapse of the Soviet Union, a final solution to the issue seems as far away as ever.

The issue takes on added importance because of the seabed's potential, which the Soviet Union was largely unable to exploit. During the Soviet era, less than 2 percent of the country's oil was produced offshore, most of it from the shallow 32- to 82-foot-deep Neft Dashlari (oily rocks) complex off Baku. More than 80 percent of Azerbaijan's oil is now produced from offshore Caspian fields, including Azerbaijan's shallow-water Caspian Gunashli field, located 60 miles off the Azeri coast.

The heart of the issue since 1991 can be simply stated: In a division of offshore waters, is a national sector to be determined by length of coastline or a proportional sharing of 20 percent among the five new nations that in 1991 replaced the Soviet Union and Iran?

The last document to delineate the Caspian's legal status, the 1940 Soviet-Iranian treaty, awarded each signatory an "exclusive right of fishing in its coastal waters up to a limit of 10 nautical miles. The treaty further declared that the "parties hold the Caspian to belong to Iran and to the Soviet Union."

Since the 1991 collapse of the Soviet Union, the legal issues reflect Caspian politics arising because the 1982 U.N. Convention on the Law of the Sea defines it as "a special inner sea."

Of the five Caspian states, Iran, with occasional support from Turkmenistan, has been pressing for an equity agreement of 20 percent, a formula opposed by Russia, Kazakhstan and Azerbaijan. Tehran's promotion of this argument is based on the fact that should the coastline argument be adopted, Iran could be left with as little as only 13 percent of the seabed.

Both Iran and Russia hold "trump cards" in the ongoing debate. For Russia, its advantages are that it controls the bulk of existing pipelines that allow Russian, Kazakh and Turkmen hydrocarbons to be exported westward. A second advantage the Kremlin possesses is sole ownership of the Volga-Don Canal. The canal provides the only maritime link between the Caspian and the oceans, as it connects the Volga, which empties into the Caspian, and the Don, which flows into the Black Sea's Sea of Azov, allowing shipping using the Turkish Straits to reach the Mediterranean and the ocean. Western companies seeking to exploit Caspian offshore deposits have all been forced to use the canal to ship in their massive equipment.

For Iran, its advantage is that it controls the shortest route to the Persian Gulf and eastward to the lucrative Asian markets. All Iranian efforts to promote oil swaps and pipelines have been thwarted by U.S. pressure, however.

The death last December of Turkmen leader Saparurmat Niyazov has removed his quixotic policies from the equation, and Russia now has substantial influence over four of its five Caspian partners, producing a greater opportunity for resolving the issue than at any time since 1991. Furthermore, Russia's control of the Volga-Don canal means its participation to move offshore will be essential if any substantial drilling equipment is to enter the Caspian. Washington has relatively little influence over the issue except for blocking Iran, as the United States never signed the 1982 UNCLOS convention. In such an instance, the European Union, ever more dependent on Russian energy imports, might undertake a role as an honest broker to untangle the issue once and for all, to negotiate with Iran to modify its position while soothing Washington's concerns. In an increasingly energy-hungry world, such an outcome could be a win-win situation, but if the history of the last 16 years is anything to go by, change will be gradual at best.

UPI Energy Watch
Washington (UPI) Aug 09, 2007

LUKoil eyes Iraqi oil

Top energy officials from Iraq and Russia met in Moscow Wednesday to hold talks on the new terms for Russian companies seeking to operate in Iraq.

Energy Minister Viktor Khristenko led officials from a consortium of three Russian companies -- LUKoil, Zarubezhneft and Mashinoimport -- to meet with Iraqi Oil Minister Hussain al-Shahristani in a bid to regain access to the country's oil fields, the Moscow Times reported.

Moscow is looking to revive a $4 billion deal to develop the 600,000 barrel-per-day West Qurna field, which was scrapped by Saddam Hussein shortly before the U.S.-led invasion in 2003.

"Iraq will cooperate with those companies that will propose the best conditions for Iraq, regardless of what countries these companies come from," Shahristani was quoted as saying by RIA Novosti.

Shahristani said no country would receive preferential treatment in the competition for Iraqi oil assets.

"There will be no privileges for any country or any company," Shahristani said. "LUKoil will be competing with other firms on equal terms in accordance with the new oil laws."

Shahristani said Iraq will consider contracts from LUKoil if it proposes projects that are competitive enough.

CNPC bids $2B for Devon's African assets

China National Petroleum Corp. placed a $2 billion bid for the West African oil and gas assets of U.S.-based Devon Energy Corp., Chinese media reports said.

According to the South China Morning Post, India's Oil and Natural Gas Corp. also placed a bid. CNPC, parent of Hong Kong-listed PetroChina, said it had no knowledge of the deal.

"CNPC does not yet have any Nigerian exposure and, given the success of CNOOC's partnership with France's Total, it's good to see CNPC trying to set up a project there," Gordon Kwan, an analyst, was quoted as saying. "More of a Chinese presence there will bring economies of scale between the two companies and there's technology transfer and knowledge to leverage (on)."

Last year, China National Offshore Oil Corp. acquired a 40 percent stake in an oil and gas deposit off the Nigerian coast called OML 130. Total holds 30 percent, while Nigeria's state oil firm owns the rest.

S. Korea to boost oil, gas reserves

South Korea plans to increase its oil and gas output to 28 percent within the next nine years by expanding offshore production, the government said.

The plan calls for the government to raise its mid-term production capacity goal of all gas and crude to 20 percent from 18 percent by 2013, while boosting its self-sufficiency rate to 50 percent for soft coal and 30 percent for iron ore, the Ministry of Commerce, Industry and Energy said.

The Korea Herald reported the government outlined its goals Tuesday as it seeks to become more self-sufficient.

Until last year, the country's self-sufficiency rate stood at 3.2 percent. It produced 34 million barrels of oil and gas at its overseas facilities, compared with imports of 1.09 billion barrels.

Vice Energy Minister Lee Jae hoon said the government will invest to improve technological capabilities at the state-run Korea National Oil Corp. in order to achieve this goal.

"At present, the KNOC's technical levels are rated as being 50 to 60 percent of what major multinational oil companies are capable of," Lee said. "The state-run company is thought to be outside the global top 100 in terms of overall size and capability."

The government said it will also invest more in training experts in energy exploration and development. Korea has about 540 specialists, much lower than the average 3,300 people that an oil company ranking among the world's top 50 employs, Lee was cited as saying by the Korea Herald.

Closing oil prices, Aug. 9, 3 p.m. London
Brent crude oil: $71.13
West Texas Intermediate crude oil: $72.15

Source: United Press International

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