What to do with excess of Caspian gas?
Global oil majors that have rushed to grab chunks of the remote Caspian Sea's mineral riches are scratching their
heads over one question: What to do with the gas? Vast amounts of gas are believed to lie under the landlocked
Caspian Sea, a resource that would be valuable elsewhere but worth nothing in a region surrounded by gas producers
and located thousands of miles from any hard-currency markets.
"Caspian gas is like the kiss of death," said one senior executive with a US oil firm. "We are very keen to go in for more offshore exploration tenders, but the problem is you risk striking gas. You can't abandon it, you can't use it and you can't export it."
British energy giant BP fell victim to that fate in 1999, when it hit the Shakh Deniz gas field, which has 1 tcm of
reserves. Three years on, the major is still sitting on the field.
Its oil pipeline, the 1,094-mile Baku-Tbilisi-Ceyhan, long written off as uneconomic, now appears to be streaming ahead and is expected to be ready by 2004.But plans for a link to export Shakh Deniz gas are still stalled. "Gas contracts are much tougher to get than oil ones. You can't just put gas on a ship and sell it," BTC regional head Barry Halton said.
BP still hopes to exploit the field one day but has postponed development, citing escalating costs and lack of
buyers. It now sees a pipeline ready by 2006, at a cost of $ 3.2 bn. Analysts are not too sure.
"It's all looking substantially more gloomy even though everyone is being very brave about the Turkish market," said Jonathan Stern, a fellow at London's Royal Institute of International Affairs. "Demand is down and project costs are up. It's going to be a very long time before Caspian gas reaches Europe."
The Caspian is surrounded by five states -- Russia, Azerbaijan, Turkmenistan, Kazakhstan and Iran -- that together
contain most of the world's natural gas. Realization has set in that Turkey, initially targeted by these countries,
is unlikely to see its economy recover in time to absorb this fuel. Ankara recently renegotiated gas prices downwards
with Iran and Russia.
"When the Shakh Deniz project was first talked of, the Turkish market was on the up, but that has slowed down in the last few years," BP's Halton said.
Investors hope Turkey and neighbouring Greece will emerge not only as markets but also as hubs, reselling volumes
into the European Union, where utilities' demand for cleaner fuel than oil or coal is expected to grow.
The two countries have already agreed to build a $ 300 mm link to carry 500 mm cmpy. Stern threw cold water on the idea, saying all the gas needed in the next decade was contracted for already. "Even if you leave Turkey aside, Europe has way too much immediate gas, and no one is going to need more until 2010 at the earliest, unless there is booming economic growth," he said.