Energy in the Caspian Sea region in the late 1990s: the end of the boom?

Abstract

Central Asia (Azerbaijan, Kazakhstan, Turkmenistan and Uzbekistan) have been expected to become important players in the international oil and gas trade. Recent forecasts (1998) still assume net exports of the Caspian region to increase to 75–118 million tonnes of oil and 72–84 billion cubic metres of gas in 2010. However, the real development of the energy sector in these countries, since they gained national independence in 1991, has been dis-appointing. Oil production so far has hardly recovered from the post-Soviet slump (52 mt in 1998) and oil exports have remained marginal (18 mt, i.e. just one per cent of international trade flows). The region's gas production fell from 146 bn cu m in 1990 to 80 bn cu m in 1998. Net gas exports diminished from 61 bn cu m in 1990 to a mere 5 bn cu m in 1998. This paper analyses the development of the Caspian region's energy sector over the last decade. It also looks at the reasons why the high hopes concerning its potential have so far been disappointed: –The macroeconomic development of all Caspian countries suffered badly after the collapse of the Soviet Union. Furthermore, the incipient recovery after 1996/97 was stifled by the fallout of the financial turmoil in Russia and the Commonwealth of Independent States (CIS) after August 1998. –A number of technical, legal and political obstacles has so far prevented the implementation of large investment projects. –The restructuring of domestic oil and gas companies is further complicated by socio-economic obstacles, e.g. overemployment, untransparent systems of governance and the need to diversify regions dominated by a single industry. In view of the existing structural problems, the paper concludes that a major expansion of the region's energy output and exports is unlikely in the medium term (this paper was submitted to the OPEC Review in January 1999).