Tuesday, 16 June 2015

Energy-Rich Patches of the Sea

Caspian Sea Littoral States to Bolster Naval Capabilities

The Turkmen Navy operates the two “Molniya” class (Projekt 12418/12421) missile corvettes “Gayratly” and “Edermen” built by Russia’s Vympel and Srednij Neva shipyards, respectively. Note their launching canisters for eight URAN-E (SS-N-25) anti-ship missiles.
(Photo: Turkmen Navy)
The Caspian Sea is a volatile region that, in the wake of the Ukraine crisis and the threat of terrorism in the North Caucasus, did not occupy much public attention in recent years. Turkmenistan’s President Gurbanguly Berdymukhamedov made it clear last year: He wants to back its claims to Caspian Sea oil and gas reserves with considerable naval power. The existence of huge hydrocarbon reserves, offshore exploration and production facilities, and undersea pipelines are the likely reasons for a maritime arms race in the region, with Azerbaijan, Iran, and Turkmenistan developing their own Caspian flotillas to protect their burgeoning energy assets. A reserve estimation made by the US Energy Information Administration says that the Caspian could contain up to 250 billion barrels of recoverable oil along with an additional 200 billion barrels of potential reserves and 9.2 trillion cubic metres of recoverable natural gas. Since the collapse of the Soviet Union in December 1991, disagreements over maritime claims on the world’s largest enclosed body of water have not been solved. Before 1991, both Moscow and Tehran divided the Caspian Sea amongst themselves, likely a result of the 1921 and 1940 Soviet-Iranian Treaties of Friendship. Since the end of 1991, the five littoral states, including Iran, bordering the Caspian Sea were unsuccessful in establishing maritime borders. There have been several attempts, however, to find a diplomatic solution about how equitably to divide the Caspian Sea, which, with a surface area of 386,400km2, is the biggest enclosed body of water on Earth. Hence, any of these efforts failed, and the Russian Federation, Azerbaijan, Turkmenistan, Kazakhstan, and Iran have moved to develop their offshore reserves in sectors that they believe would be indisputable.

Unequal Distribution of Resources
Moscow argues that Azerbaijan, based on its 800km of coastline, would receive 15.2% of Caspian Sea’s waters and seabed, while Turkmenistan’s 1,768km of coast would see it receive only a 16.8% share, and Kazakhstan, with 1,894km of coastline, the largest share of 30.8%. Although Tehran traditionally agreed with Moscow over international boundaries in the Caspian Sea, it claims a 20% share of the Caspian Sea’s waters and seabed. Joshua Kucera, a Washington DC-based analyst specialising in security issues in Central Asia, the Caucasus, and the Middle East, noted in the EurasiaNet’s Bug Pit blog that Russia and the other former Soviet states, namely Azerbaijan, contend that Iran should receive only a 13% share of the inland sea. According to a report distributed by the semi-official Fars news agency in late June 2014, Tehran now plans to deploy an undisclosed number of “light submarines” on the Caspian Sea. The report, however, did not specify how many boats would be deployed, what kind of armaments they would carry or when they would enter service. The Kremlin considers Tehran’s plans as the “biggest obstacle standing in the way of a regional treaty that would facilitate large-scale energy extraction in the region”, with Turkey and other countries gaining access to this “wealth of resources”.

Map showing the disputed Caspian Sea Hydrocarbon Region.
(Map: Courtesy of University of Texas at Austin)

The oil and gas reserves in the Caspian Sea are considered “huge and extensive”. One of the largest, yet undeveloped, fields, the Serdar (Turkmenistan)/Kyapaz (Azerbaijan) field was  discovered in 1959 by Azerbaijani geologists and is located in the middle of the sea, approximately 145km (80nm) off the coastline of Azerbaijan. While Azerbaijan and Russia were negotiating a bilateral agreement to fully develop the field in the mid-1990s, Turkmenistan filed an unsuccessful international injunction aimed at receiving a share of the disputed field. After some ‘retaliatory measures’ taken by the government in Baku in 1998, imposing sanctions against foreign companies operating in Azerbaijan if they “took part in any non-Azerbaijani tender to explore or develop a disputed oil and gas field to which Azerbaijan lays claim[s]”, Turkmenistan and Azerbaijan both agreed in 2008 to suspend activity in the Serdar/Kyapaz field until the dispute was settled. Conservative estimations speak of nearly 50 million tons of crude oil and 32bcm (billion cubic metres) of natural gas that may be recovered from the field.
Since the Russian-Ukrainian gas disputes of the mid-2000’s, Europe has been exploring new opportunities to reduce its dependence on the Russian gas market. Azerbaijan has been the focal point of the European Union’s (EU) efforts to gain access to easily recoverable hydrocarbon reserves.
Azerbaijan also counts as an economic partner for Turkey. Azerbaijani government investments in Turkey between 2008 and 2018, including pipeline infrastructure and a new oil refinery complex, are likely to reach US$20Bn, according to the Azerbaijani state oil company SOCAR. However, Azerbaijan’s President Ilham Aliyev has made these investments conditional on Ankara retaining the embargo on Armenia. President Aliyev, who speaks of “relatively cool personal relations” with Turkey’s Prime Minister Recep Erdoğan, sees Ankara as a partner in the modernisation of his country’s Armed Forces. As to a recent estimation by the Moscow-based Centre for Analysis of Strategies and Technologies, Azerbaijani contracts for Turkish military hardware are worth more than US$500M.
Meanwhile, Turkmenistan also appears to receive much attention, since the government in Ashgabat wants to link Caspian oil (and gas) en route to Southern and Southeastern Europe. However, this may be uncertain for the moment, since increasing military measures in the region between Azerbaijan and Turkmenistan only empowers Russia and provides more credence to its alternative South Stream gas pipeline. The latter, expected to be operational by 2015, could potentially carry 63bcm/year – not coincidentally 3bcm/year more than the (Trans-Caspian) pipeline from Turkmenistan to Azerbaijan.
Despite these developments, Turkmenistan plans to increase its production of natural gas, intending to increase its export of natural gas to Pakistan, China, India, Iran, and Russia to 75bcm in the next 20 years. Recently, Turkmengas State Concern and the State Development Bank of China agreed in Ashgabat to start negotiations on financing the second phase of Turkmenistan’s giant Galkynysh gas field, with the project envisaging the design and construction of a facility with a capacity of 30bcm per year.
Back in 2007, there have been attempts by the Kremlin to propose a new gas pipeline that would bring natural gas from Turkmen and Kazakh fields directly north to Russia, supplying the so-called Nabucco gas pipeline, thus drawing Ashgabat’s interest away from the envisioned Trans-Caspian pipeline project. Official sources in Brussels said this typically explains how Moscow is trying to “put every effort into preventing the fruition of any energy project that omits its participation.”
European sources expect that a “mutually beneficial pipeline spanning the Caspian” for delivery to Western Europe of up to 40bcm per year from Turkmen fields plus about 20bcm from Azerbaijan could stimulate substantial cooperation after 2020. If this happens, Turkmen deliveries may be divided into 30bcm from onshore resources, with the rest obtained from offshore deposits in the Caspian Sea. In 2011, the EU and its 27 member countries mandated that the European Commission create “a legal, regulatory, and commercial framework for a Trans-Caspian gas pipeline.”

If Someone is Too Safe, No One is Safe
Changes in the status of the Crimea, the armed conflict in eastern Ukraine, and the threat of terrorism in the North Caucasus were the dominant themes in any international media coverage in recent months. It would be wrong to consider the situation in Ukraine and in the North Caucasus as a kind of local situation with no connection to the rest of the region. Not surprisingly, Moscow is playing a key role in the Caspian Sea disputes as well. It already has troops stationed in Turkmenistan and maintains the most powerful flotilla on the Caspian Sea. Although the government in Ashgabat adopted its neutral status by the UN Resolution on 12 December 1995, it accepted in an agreement with Moscow that Russian troops may be present in the country. This led to disagreements with the government in Baku. Turkmenistan also received two “Molniya” class (Projekt 12418) missile corvettes from Russia, which are known to be equipped with eight URAN-E (NATO designation SS-N-25) anti-ship missiles, providing Ashgabat with some of the most heavily armed naval assets on the Caspian Sea. Turkmenistan, according to Russian sources at the KADEX-2014 defence exhibition in Astana, Kazakhstan, is planning to procure an additional three “Molniya” class corvettes in the near future. A Russian report quoted in July 2014: “If Iran is leading in quantity of ships on the Caspian, in striking power Turkmenistan has already overtaken them.” Also, the new acquisitions by the Turkmen Navy are seen to deliver a “diplomatic message” to Azerbaijan that received more military hardware (e.g. from Israel) than Turkmenistan’s Armed Forces. The Turkmen Navy also obtained two new patrol boats from Turkey. Based on the Turkish Navy’s “Tuzla” class patrol boats, the design offers an inherent capability to the naval service. The government in Ashgabat told that the new vessels will be primarily employed to protect oil and gas production and exploration installations in the southern portion of the Caspian Sea.

The Turkmen Navy’s two Type 1200 (modified “Tuzla” class) patrol boats “Barkarar” and “Arkadash” built by the Turkish shipyard Dearsan.
(Photo: Courtesy of Turkmen Boarder Guard)

A Link to Other Resources?
It is interesting to note that the five Caspian Sea countries also produce a wide variety of metallic and industrial minerals, and have a large variety of yet undeveloped deposits outlined in the vicinity of the inland sea. The region contains world-class resources of salt and associated potash, bromine, iodine, boron, and magnesium. Many of these commodities are known to occur in surface and near-surface accumulations in the present-day arid environments adjacent to the Caspian Sea. These deposits occur in Cenozoic sedimentary evaporate basins of Kazakhstan, southern Russia, Turkmenistan, and Uzbekistan. Some of them appear in the form of tabular beds in older subsurface Mesozoic and even Paleozoic sedimentary rocks. The Kara-Bogaz Gol lagoon off the Caspian Sea is known to produce the hydrous magnesium chloride and sulfate minerals bischofite and epsomite in sufficient quantities. Also, the region is known to contain about four major strontium deposits: Aurtash sedimentary deposit in Kazakhstan; Arikskoe, Central Karakumskoe, and Karashor sedimentary deposits in Turkmenistan.
According to Levine et al. (2001) in a report entitled “The Mineral Industries of the Commonwealth of Independent States – Armenia, Azerbaijan, Belarus, Georgia, Kazakhstan, Kyrgyzstan, Moldova, Russia, Tajikistan, Turkmenistan, Ukraine and Uzbekistan”, “...the [Caspian Sea] region is considered [a decade after the implosion of the USSR] under-explored for industrial mineral deposits, and considerable potential exists for undiscovered deposits.” However, in more recent years, exploration for base and precious metals has been very active, with a primary focus on copper, gold, Rare Earth Elements (REE), and some industrial minerals. Exploratory work in the region has been conducted for gold-bearing vein deposits in Armenia; porphyry copper (-molybdenum) deposits in Azerbaijan and Georgia; and iron ore, non-ferrous metals, uranium, thorium, REE, alunite, bentonite, fluorspar, phosphate, and zeolite deposits in Turkmenistan. A government programme, entitled “A Strategy for the Social-Economic Development of Turkmenistan to the Period of 2010”, called for continuing exploration for these commodities. It is likely that this appeared at a more moderate scale, except for Turkmenistan’s leading industrial mineral producers, Arpaklenskiy (barium contained in barite and witherite); Cheleken (exploiting iodine-bromine waters at the Boyadagskoye, Cheleken and Nebitdag deposits in the western part of the country); Gaurdak and Kara-Kum sulfur plants; and Oglanlinskiy (bentonite).

A Price Ankara Considers to Pay
Turkey’s influence in the region may not be underestimated. It is sponsoring Turkmenistan’s efforts to modernise its naval forces, including the construction of a new naval base. And there are attempts to get into new oil and gas ventures with Ashgabat. On 3 September 2012, Turkmenistan’s President Berdymukhamedov met with Azerbaijan’s Minister of Industry and Energy, Dr. Natig Aliyev, the EU’s Energy Commissioner Günther Oettinger, and the Turkish Energy and Natural Resources Minister, Taner Yildiz, in Ashgabat to talk about possible oil and gas exports. After the meeting, Yildiz said that Turkey aims to import and transport Turkmenistan’s gas, and according to him, “Turkey would purchase certain amounts for its own domestic needs while the remaining would ‘flow beyond Turkey’.” There have been a consensus whereby Azerbaijan would act as both a source and a transit country for Caspian gas. Local media also said that Yildiz declared that “they [the representatives of Azerbaijan, Turkmenistan and Turkey] agreed upon expanding the Trans-Anatolian Pipeline’s (TANAP) capacity to as much as 60bcm.”
Turkey already owns a 20% interest in TANAP which is set to transport up to 16bcm of natural gas per year from Azerbaijan’s Shah Deniz II field, the largest natural gas field in the country. Energy security experts stressed that the dispute over the Serdar/Kyapaz field disputed between Azerbaijan and Turkmenistan has yet to be resolved and must be sorted out between both countries before this potentially lucrative and integral deal can go through. However, the first naval exercise conducted by Turkmenistan in the Caspian Sea, named Khazar-2012 (“Khazar” is the Turkmen name for Caspian Sea), heightened tensions with Azerbaijan over natural gas fields in a contested part of the sea.
By Stefan Nitschke


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