Summer 1998 (6.2)
by Adil Baguirov
Various estimates have been published about Azerbaijan's potential oil reserves. Some accuse Azerbaijan of exaggerating. Who is telling the truth?
Even after the collapse of the
Soviet Union, the mass media mostly ignored Azerbaijan except
for the occasional article written about war in Nagorno-Karabakh
in which Azerbaijanis were invariably depicted as the aggressors
even though the entire war was taking place on their territory.
However, beginning around 1994, the number of articles increased,
and the content was not as negative.
What provoked such a change? Let's be frank: most of the new-found interest in Azerbaijan is due to oil-lots of oil. By now, most major newspapers, magazines and even television broadcasting companies have done features on the Caspian, and specifically Azeri oil. Adventurous headlines like "Powers Replay Great Game" or "Azerbaijan Oil Boom" have become journalistic clichés. Every article features keywords such as pipeline, transport, littoral, export, strategy and geopolitics. Unfortunately, this creates the misconception that the whole region is one "huge pool of oil."
How Much Oil?
When the U.S. State Department released its report on the Caspian region more than a year ago, it estimated that there may be up to 178 billion barrels of combined proven and potential oil reserves in the Caspian Sea, along with trillions of cubic meters of gas. Such statistics were significantly higher than previous estimates, as new data had been collected using advanced 3D seismic survey technology.
However, most reporters seem to have decided to adjust the figure to one that was easier to remember-200 billion barrels, or even more. This led to the conclusion by some that Azer-baijan must have more oil than Saudi Arabia.
According to the same report, Azerbaijan alone was proven to have at least 3.6 billion barrels and up to 27 billion barrels in possible reserves. However, SOCAR's own estimates put the figure higher, up to 40 billion barrels.
Meanwhile, others have been trying to downplay such figures, perhaps deliberately, according to some sources (Radio Free Europe / Radio Liberty, May 5, 1998). Taking into account the complexity of the so-called "last Great Game," certain circles started an active campaign to discredit the reports about huge oil reserves. Obviously, their attempts are aimed at discouraging investment.
This tactic seems to have been carried out mostly by neighboring countries that felt cut off from their "piece of the pie." For example, Russia was very skeptical at first, at least publicly, about the reserves in the Caspian. In countless newspaper articles, they attacked the U.S. estimate.
Russia has since changed its position on the "status of the Caspian." Initially, their leaders objected to allowing each country develop its own section of the Caspian. Russia insisted that the sea was really a lake and, consequently, should be developed equally by all countries that border it.
What made Russia change its mind? First, the "sensational discovery by Russian oil geologists," as one leading Russian newspaper put it, which in the midst of joy also incorrectly claimed that the new 600 million ton field in the Russian sector was higher than AIOC's fields with "only 500 tons" (Rossiyskaya Gazeta, January 22, 1998). The second factor was the oil transportation through the "Northern pipeline"-which goes from Baku through Russian Federation to the Black Sea port of Novorossiysk.
Iran has also been dissatisfied, since most of the prospective offshore oilfields were perceived to be located outside its sector. This, despite the fact that the same U.S. report predicted up to 12 billion barrels in possible reserves in Iran's sector of the Caspian.
By far, the most virulent critic of all is Armenia. Because of its hostility and aggressive demands in the region, it has become isolated from the process of oil transportation. Screaming headlines such as "Baku is Bluffing" (Respublika Armenia, December 27, 1997) do little to guise their intentions.
But the question should be raised: is there, indeed, some kind of "bluff?" In September 1994 when the first deal was signed with AIOC (Azerbaijan International Operating Company) in what is fondly called the "Contract of the Century" by Azeris, AIOC estimated that the three fields, Azeri, Chirag and the deep water portion of Gunashli, have about 511 million tons of oil. Over the years, as more research was carried out, the estimate rose to about 540 million tons. Yet, when development test wells were drilled, AIOC's Founding President Terry Adams reported that there is, indeed, much more oil there, just as Azerbaijani oil specialists have always maintained-somewhere around 650 million tons (Interfax, July 17, 1997).
However, even this estimate is understated according to the Geology Institute of Azerbaijan's Academy of Sciences which maintains that the reserves of these three oil fields contain "at least 800 million tons of oil" (Zerkalo, July 5, 1997). One undisclosed source puts forward a figure of more than 1 billion tons of oil underneath these "mega-fields." The reserves of Umid and Babak oil structures, which are not yet part of any consortium, are also said to be much higher than the generally accepted estimate of almost 100 million tons.
To a certain degree, numbers can, will be and should be debated. There is no doubt about the strategic importance of both the onshore and offshore energy reserves of the Caspian littoral states. While in terms of oil reserves, the Caspian Sea is still second to the Persian Gulf, it is nearly double the size of the North Sea (primary supply of energy to Western Europe). Furthermore, the significance of the Caspian Sea as a new oil reservoir will increase at the beginning of the 21st century because of the anticipated drop in oil output from Alaska and the North Sea and the projected growth in the demand for energy all over the world.
Due to constraints on space,
full coverage of the latest developments in Caspian legal status,
specific positions of littoral states in regard to the development
of the Caspian and the drilling of Karabakh field by CIPCO could
not be covered in this issue.