1. Caspian energy development -- t he second phase Jonathan Elkind Joint Global Change Research Institute University of Maryland

2. Progress to date  Independent resource decisions  Endless debates – how much and when?  Upstream  PSAs agreed  Initial field explorations  Transportation is the key  Multiple pipelines as a commercial need

3. Status of Caspian energy development  Region is “on the map”  A core part of the global energy scene  Diversification of global energy supply  Potential contributor for well-being  Complicated force  Source of stress as well as benefit for post- Soviet states and Turkey as well

4. The second phase  Multi-decade relationships  Challenges:  Changing political landscapes  Need to maintain contractual terms  Prominent environmental considerations  Concerns over societal benefit

5. Oil production  Tengizchevroil – approx. 240K barrels/day in 2000  Producing as TCO since 1994  Azeri-Chirag-Guneshli – 117K BBL/day in 5/01  AIOC producing since 1997  Moving now on Phase One – 470K BBL/day  Karachaganak – 80K BBL/day; twd. 230K  Recent export woes

6.  Dry holes Absheron  Work ahead Azerbaijan – Nakhicevan, Inam, Alov Russia – Severniy block Kazakhstan – Kashagan, Khvalinskaya Oil production (continued)

7. Oil transportation  Early oil pipelines  Baku-Novorossisk – approx. 100K barrels/day  Baku-Supsa – approx. 100K barrels/day  Caspian Pipeline Consortium – 560K barrels/day  Benefits for Russia  How to interpret delayed start of operations – Concerns over quality bank? More?  Implications for Transneft?

9. Oil transportation (continued)  Baku-Tbilisi-Ceyhan – 1M BBL/day, projected for 2004  Sponsors Group participation  BP leadership  Non-AIOC additions -- Eni  Question marks -- Chevron? Lukoil? Exxon- Mobil?  Detailed engineering & sanction decision – summer 2002

10. Oil transportation (continued)  Implications for Turkish Straits  Baseline of 1.2 million barrels / day  New increments of Russian production  CPC now on-line  Need for other routes out of Black Sea?  Odessa-Brody line?  Other “bypasses”?

11. Gas production  Azerbaijan  Shah-Deniz – plus others?  Kazakhstan  Turkmenistan  World’s third-largest reserves  Strategic competitors  Isolating itself

12. Gas transportation  Western European gas demand growth  Uncertain Turkish gas demand  EIA: 4.7% annual growth from 1999 to 2020  New sources of supply  Blue Stream – 8 BCM to start, 16 later; on-stream 2002?  Baku-Erzurum – 7 BCM to start; on-stream 2004?  Trans-Caspian Gas Pipeline – not in our lifetimes  Turkmen and Kazakh gas flow through Russian system to Turkey and Central/Western Europe

13. The big questions ahead  Russia’s role  Changes in Russian energy sector  Active commercial role in Caspian?  Iran’s role  Delimitation controversy  Oil export line after Baku-Ceyhan?  Production volumes  Direction

14. The big questions ahead (cont’d)  Environmental challenges  Legitimate issues  Spill response capabilities  Legislation and institutions  Misdirected concerns  Other energy and industrial development  “Blame the oil companies”  Need for transparency, data, NGO dialogue

15. Contact information: Jonathan Elkind Senior Research Associate Joint Global Change Research Institute University of Maryland 8400 Baltimore Avenue College Park, Maryland 20740 tel.: ++1-301-314-6738 fax: ++1-301-314-6741 e-mail: jelkind@umresearch.umd.edujelkind@umresearch.umd.edu http://globalchange.umd.edu