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John Daly

John Daly

Dr. John C.K. Daly is the chief analyst for Oilprice.com, Dr. Daly received his Ph.D. in 1986 from the School of Slavonic and East European…

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South Korea and Kazakhstan Deepen Energy Ties

Since the December 1991 collapse of the USSR, one of the most exciting developments for the international energy community has been the rise of oil exports from the Caspian region.

According to the U.S. government's Energy Information Administration, the Caspian's 143,244 square miles and attendant coastline could contain as much as 250 billion barrels of recoverable oil besides an additional 200 billion barrels of potential reserves. Additionally, the EIA places the Caspian basin's natural gas reserves at up to 9.2 trillion cubic meters of recoverable natural gas.

Two decades ago, the USSR and the Islamic Republic of Iran divided the Caspian between them on the basis of the 1940 Soviet-Iranian treaty, which replaced the 1921 Treaty of Friendship between the two countries, which 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."

Well, the USSR is 20 years in the grave, and now five new nations ring the Caspian – Azerbaijan, Iran, Kazakhstan, the Russian Federation and Turkmenistan. The outstanding issue is how to divvy up the pieces, and secondly, who to sell the output to?

American interest in the Caspian reaches to the very highest levels of the executive branch; in 1998, Vice President Dick Cheney remarked, "I can't think of a time when we've had a region emerge as suddenly to become as strategically significant as the Caspian." Since 1991 the Caspian's percentage of global oil production has risen steadily to the point that, of global daily oil production and consumption of approximately 86 million barrels per day (bpd), the five Caspian nations now account for 15.75 million bpd, a figure sure to increase dramatically when significant offshore production begins. All in all, the Caspian’s energy reserves are estimated to be worth an eye-watering $3 trillion.

So, who’s charging in to grab a piece of the action?

The cash flush but energy deficient economies of China, Japan and South Korea.

South Korea has assiduously cultivated its contacts with Kazakhstan, whose estimated oil reserves are put at over 30 billion barrels. South Korea's partnership with Kazakhstan began in 2004 when a South Korean consortium led by the state-run Korean National Oil Corp. set up an oil company, ADA Oil LLP, in Kazakhstan's western province of Aktobe. Korean National Oil Corp. holdings in Kazakhstan now include eight active exploration projects and were boosted in March, with the Korean National Oil Corp. purchasing a 95 percent stake in the Kazakh Altius Holdings exploration company. The Korean National Oil Corp. also has a 9.45 percent stake in Kazakhstan’s offshore Caspian Zhambyl joint exploration project.

Speaking to reporters, Korean National Oil Corp. Kazakhstan office official Shin Yong-hwa said, "When the ADA well becomes active next year, its daily production will likely climb up to 6,500 barrels. The point is to secure production sources that can supply our country's needs in times of crisis, not to actually bring the oil to our country, which often costs more than to buy from countries that carry significantly lower shipping costs."

In its drive to secure a variety of global energy resources Korean National Oil Corp. is seeking to increase its global daily production from the current 200,000 barrels per day to 300,000 bpd by next year.

Korean National Oil Corp. president Ryou Sang-soo said, "Kazakhstan is a country where the Korean National Oil Corp. posted nothing but success from exploration to production. And we will continue to be more successful here as we only have room for growth."

As South Korea imports an average of 2.3 million barrels of oil per day, there is surely room for growth in Korean National Oil Corp.’s strategy. While South Korean efforts in Kazakhstan lag behind both China and Japan, it would be reasonable to expect to see them continuing to punch above their weight in the fight for energy exports.

Two months ago in Astana Kazakh President Nursultan Nazarbayev, after noting that South Korean investments in Kazakhstan now exceeded $4 billion stated following a meeting with South Korean President Lee Myung-bak, “I would like to outline that over the past three years we made a significant breakthrough in our relations, and now they have character of strategic cooperation between our countries.”

Given the Kazakh President’s blessing on “strategic cooperation,” Seoul’s access to Kazakhstan’s number one export can only increase, as energy imports are indeed a high “strategic” priority for South Korea.

By. John C.K. of Oilprice.com




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