Those Playing Caspian Basin Energy Game May Suffer from “Irrational Exuberance” -- Expert

Those Playing Caspian Basin Energy Game May Suffer from "Irrational Exuberance" -- Expert

Policymakers are suffering from "irrational exuberance" when it comes to Caspian Basin energy issues, a US expert on the region says.

The Caspian Basin is now the scene of intense competition among the United States, Russia and China, which are all battling for control over natural resources and export routes. [For background see the Eurasia Insight archive]. Maureen Crandall, an economics professor at the Industrial College of the Armed Forces at the National Defense University, said during a September 20 appearance in Washington that the Caspian Basin's profit potential is probably exaggerated.

To support her contention she pointed to questions about the region's reserves of oil and gas. According to her own estimates, the entire region will be producing 3.6 million barrels of oil per day by 2015, and 3.36 million in 2020. Of that, Kazakhstan will be the largest supplier, and its production is projected to peak at about 2.5 million barrels per day. Her figures are significantly lower than official Kazakhstani estimates, which peg peak production at roughly 3.5 million barrels per day. "Saying it does not make it happen," Crandall said.

Turkmenistan is another country where reserves and production capacity are coming under question. The country currently produces about 60 billion cubic meters (bcm) of natural gas annually, of which roughly 75 percent is exported. Turkmen leader Saparmurat Niyazov has deals in place to ship 130 bcm of gas to China, Russia and elsewhere by 2009. Many experts believe Turkmenistan's reserves are not sufficient to meet these export commitments. [For background see the Eurasia Insight archive]. Turkmenistan has not released the results of an independent audit of its energy reserves.

From a financial perspective, oil and gas extraction is not going to be as good a business proposition as some might have earlier expected, Crandall said. "I'm suggesting that because the investment climate has changed, this hype is unwarranted," she said. "Reality has caught up to the oil companies." She was a featured speaker in a discussion -- titled "Caspian Energy: Over Hyped and Under Risked?" -- jointly sponsored by the Central Asia-Caucasus Institute and the International Energy and Environment Program, both at the Johns Hopkins School for Advanced International Studies.

Crandall also has recently written a book on the same topic, Energy, Economics, and Politics in the Caspian Region: Dreams and Realities.

Her presentation was followed by a rebuttal by S. Frederick Starr, the chair of the Central Asia-Caucasus Institute. Starr generally agreed with the premise of Crandall's presentation and book. "Was this [energy speculation] over-hyped? I think that's fair to say," he said. But he went on to criticize her focus on the region's negative aspects. He argued that the oil-and-gas industry has brought benefits to the Caspian Basin.

He lauded Washington for always providing strong backing for construction of the Baku-Tbilisi-Ceyhan (BTC) pipeline. The so-called "deal of the century" that created the BTC option was signed in 1994 during the Clinton administration. [For background see the Eurasia Insight archive].

Starr focused on Azerbaijan, saying the country's leadership deserves plaudits for using petro-profits to build housing for internally displaced persons, and for other infrastructure initiatives. Azerbaijan's State Oil Fund, according to official statistics, had over $288 million in expenditures during the first six months of 2006, of which $29.8 million, or just over 10 percent of the overall funds, was earmarked for infrastructure projects. "I think this is a responsible use of money," he said. He also noted that in Kazakhstan a middle class is rapidly developing, and poverty is falling as a result of oil and gas revenues.

"This is transforming the region [the Caspian Basin]