On 16 November in Astrakhan Lukoil president, Vagit Alekperov told journalists that his company will spend over $16 billion over the next decade to develop the countryâs Caspian offshore Korchagin and Filanovskii oil and natural gas fields in the Caspian, at the signing of a cooperation agreement with the Astrakhan Region.
An equitable division of the Caspianâs offshore resources have bedeviled the region since the December 1991 implosion of the USSR, putting the Soviet Unionâs previous cozy arrangements with the Shahâs Iran âinto the dustbin of history,â to quote Leon Trotsky.
Before the collapse of the USSR, the Soviet Union and Iran effectively divided the inland sea amongst themselves, according to the terms 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."
Since 1991 three new nations have arisen in the Caspian basin to contest this bilateral arrangement â Azerbaijan, Turkmenistan and Kazakhstan. For the past two decades the five nations have wrangled about how to divide the Caspian offshore waters, and little has been achieved.
Amidst the disagreements Azerbaijan, Turkmenistan and Kazakhstan have tentatively moved cautiously to develop their offshore reserves in sectors that they believe would be indisputably within their future assignations under an eventual five-state agreement.
Even within these cautious offshore margins, Azerbaijan and Kazakhstan have increased their output in the last 15 years by 70 percent.
But at issue are the diametrically opposed positions of Iran and the Russian Federation about how to develop an international Caspian consensus beyond the now moribund 1921 and 1940 treaties. Iran insists that all Caspian nations should receive an equitable 20 percent of the Caspian, while the Russia Federation has consistently maintained that the five Caspian riverine nations should receive their portion based on the length of their coastline. Under the Russian formula, Iranâs sector would consist of 12 percent to 14 percent of the Caspianâs waters and seabed.
The stakes are high â in 2009 the U.S. governmentâs Energy Information Administration estimated that the Caspian could contain as much as 250 billion barrels of recoverable oil along with an additional 200 billion barrels of potential reserves, in addition to up to 9.2 trillion cubic meters of recoverable natural gas.
Accordingly, all five Caspian nations have been delicately developing their offshore Caspian reserves in areas that will undoubtedly remain theirs whatever eventual agreement is hammered out between Azerbaijan, Iran, Kazakhstan, the Russian Federation and Turkmenistan. The Russian Federation and Iran are the last two nations to move âoffshore.â
Alekperov said, "Five hundred billion rubles ($16 billion) will be invested in development. This huge amount will provide an opportunity for sustainable development in the region."
Astrakhan Region Governor Aleksandr Zhilkin waxed lyrical on the importance of the agreement for the long-term development of Astrakhanâs shipbuilding industry, situated on the lower Volga, the Russian Federationâs major river emptying into the Caspian. Zhilkin commented, "All shipyards in Astrakhan Region will have work for the next ten years. Vagit Yusufovich (Alekperov) mentioned that Lukoil is investing more than 500 billion rubles ($16 billion) over the decade.
Zhilkinâs remarks to reporters are hardly an idle boast, as he stated that Lukoil had paid more than $16.1 million in taxes last year to Astrakhanâs regional budget.
So, the Russian Federation, like its four Caspian neighbors, is now beginning to tiptoe into its offshore waters, all the while insisting that its vision of divvying the inland sea prevails.
The last two decades have seen an apparent pragmatism slowly evolve over the Caspian offshore resources, first in Baku, followed by Astana, Ashgabat and more recently and reluctantly, Tehran and Moscow. While the issue of a final disposition of the Caspianâs offshore waters remains significant if for no other reason than the various proposed undersea pipelines such as Turkmenistan-Baku, which could be an influential element in the European Unionâs projected $15 billion Nabucco natural gas pipeline reverie, all five nations seem to be moving cautiously towards planting their offshore flags in areas unlikely to arouse their neighbors.
It will be interesting to see if they meet in the middle.
By. John C. K. Daly of Oilprice.com