Gigantic Oil and Gas Deposits May Be Bones of Contention between Russia and Kazakhstan



(Specially for THE GLOBE)

According to an existing agreement between Russia and Kazakhstan, this process of delimitation and demarcation was due to start with the Atyrau oblast.

Officially, it is easier to conduct delineation and demarcation of the border in this oblast, as the border between Astrakhan and Atyrau oblasts goes through the fairway of the Kigach River. Unofficially, both parties need to settle disagreements here, as the question is directly connected with the status of the Caspian Sea. To be more accurate, the delineation of the land border will help to determine sea borders. Moreover, the ownership of a number of islands in the Caspian has yet to be clarified. Kazakhstan's primary interest is in Ukatny island with thick cane, 1200 square kilometres in area. The island is also directly connected with the promising Kurmangazy oil structure, via the Ukatinsky sag. According to forecasts, this structure should be able to produce as much as 600 million tons of oil.

Over two weeks in March the Kazakh government conducted successful negotiations with Chevron Overseas to transfer the Kurmangazy structure to the company, according to the Atyrau newspaper Ak Zhaiyk, which referred to sources in the Atyrau oblast Akimat. The conclusion of an agreement on the division of products (ADP) now depends only on results of the Astrakhan negotiations.

If the border is extended along the Ivolginsky channel, the Ukatny island will belong to Kazakhstan. To clarify Russia's position regarding this island, in early February Kazakh cartographers went to take co-ordinates of the island. But to fly over the island they had to ask for permission from Russian frontier troops. Possibly, Russian frontier troops are guarding the Ukatny as their own territory.

Previously, under Russian pressure Kazakhstan ceded the Kurmangazy sea block. At the end of 1998 Russia's Ministry of Fuel and Energy announced a tender for the Hvalynskoye structure, won by the Lukoil company.

The licensed territory of the Hvalynskoye included a site behind the demarcation line set by the USSR Ministry of Oil Industry in 1978 between the oil companies of Azerbaijan, Russia, Kazakhstan and Turkmenistan. Diplomats of the Caspian states use to this line to determine the Caspian sea's status and to delineate the sea shelf. Kazakhstan responded to the inclusion of the Kurmangazy block with a note of protest. The Kazakh President N. Nazarbayev offered the Russian Ministry of Fuel and Energy and Lukoil to transfer the Kurmangazy structure to Lukoil in exchange for the acknowledgement of this site as Kazakhstani. Initially Lukoil agreed, but according to the information bulletin of NOC Kazakhoil, it put in additional claims to transfer also a big deposit Alibekmola in Aktyubinsk oblast. Kazakhstan denied this, referring to the fact that this deposit was a strategic reserve of Kazakhstan. Thus, no deal was concluded.

A scandal also took place at the Kazakh-Uzbek border in January, when Uzbek frontier guards began to install boundary posts in the territory of Kazakhstani villages. However, border disputes with Putin's Russia are fraught with more serious scandals. The hydrocarbon rich areas in and around the Caspian sea may yet prove to be seeds of discord.

Hot Oil will Get Cool

OPEC's decision to increase oil production is of primary interest to the U.S.A., Saudi Arabia and, though it seems strange, to Russia

Nikolai SILAEV,

Alexander IVANTER

(Expert # 59)

At the Ministers of Oil Industry conference for OPEC countries held on March 27 to 28 in Vienna, it has been decided to increase oil production quotes by 1.45 barrels per day.

Although all exporters, except Iran (which, however, changed its position during the two days) and partially Libya, accepted the offer to increase production, they are hardly going to demolish the market under the US dictate. Obviously, no oil producing country will agree to sell �black gold� at prices of 1998. An increase of production by less than 6% will not result in an abruptly falling prices. The OPEC General secretary, Rilvany Lukman announced in his recent interview with the Financial Times that he did not think today's prices were too high and able to cause inflation in the most industrially developed countries. According to the General Secretary's opinion, only an insignificant reduction of oil prices, to US$ 25 per barrel, is possible.

Saudi Arabia gained the most advantages from the summit. �Today the country possesses oil producing facilities with capacity of about three million barrels per day that are not currently in use�, the Russian Trade Representative to Er-Riad, Victor Zhilin explains. �These facilities are ready for mobilisation any moment, once restraining quotes are slackened. Iran which opposed Saudi Arabia has no technical potential to increase production and export fast.� According to the decisions taken, Saudi Arabia will gain almost 600,000 barrels from the production surplus, i.e. just slightly less than half of the entire quote increase for all OPEC countries. Thus, it will produce the former volume, as it had before the quotes were reduced on April 1, 1999.

Oil valve

During the last twenty years, one of the US political priorities was to make OPEC a mechanism of continuous oil production, and, hence, reduction of oil prices: before last year the offer exceeded the demand by 2.5 million barrels per day. Cheap import oil, a consumption share of which came to 53% was extremely important for the US economy in 1990s. Imported oil sold at low prices, the cheapest (about US$ 2 per barrel at real prices of 1970s), since 1992 encouraged the economic growth in the U.S.A. without any serious consequences. In 1998 (the last �cheap� year before prices grew in the last year), falling oil prices reduced the inflation tempo by 0.4%, and increased growth by 0.2% in western countries. This almost compensated for the American losses caused by the economic crisis in Asia. Oil became a key strategic resource, through the manipulation of oil prices it was possible to regulate development tempo of the whole region.

Behind the OPEC decision there is the rigid US position, as the U.S.A. is interested in reducing oil prices to prevent inflation growth in its country. A week before the summit the US Lower Chamber approved a bill on ceasing of state aid to countries �artificially restraining oil prices.�

Tougher methods to press allies in the Persian Gulf were necessary after the US Minister of Energy Bill Richardson's mission had failed. In the late February he went on a tour in countries exporting oil. Referring to a danger of inflation in the U.S.A. due to high oil prices, he asked exporters from Latin America and the Gulf countries to increase production of �black gold�. The US Minister of Defence, William Coan, also made a demonstrative visit to the Gulf. Although with the result that sheikhs agreed to increase production and to reduce prices, they postponed taking a decision until the OPEC summit in March. Kuwait, which had been once protected from Iraq by the U.S.A. was especially thankless. Its government considered reduction of prices to be unnecessary.

Returning cartel

Commentaries on disagreements inside OPEC cannot dispute the fact that the efficiency of joint operations of the members of the cartel, has recently grown. So, in March 1999 oil exporters managed to take a decision on reduction of oil production (from 28 to 24 million barrels per day) and the quotas were met via strict controls. The unprecedented growth of oil prices following the reduction of production, allowed OPEC members to believe in the importance of their organisation and efficiency of their common decisions again.

The steadfastness of the OPEC countries has made oil exporters not included in the organisation, such as Norway and Mexico, support the OPEC. Even after September 1999 when the OPEC countries decided to keep a low production level, most non-member countries of the organisation did not increase their production unilaterally. This helped to save the unity and strengthen positions of the oil producing countries in the world market. Bill Richardson's diplomacy also has not resulted in a split of the �oil alliance�. Even Mexico, closely integrated with the U.S.A. within NAFTA preferred to wait for a common decision on the increase of production.

High prices have changed the correlation of forces between national companies of the Persian Gulf countries and big foreign companies. Now ironically, it is not the Arabians that had to appeal for investments to oil giants, but the latter had to seek favour from the Arabian governments. The story of forcing the Japanese company, Arabian Oil, out from the neutral zone between Saudi Arabia and Kuwait, where it had been producing oil, has become characteristic. A condition for prolonging the production concession, proposed by the Japanese company, was the financing of railway building in Saudi Arabia to the tune of US$ 1 billion. The Japanese company have not done this and Arabians have refused to prolong the concession to them.

All Over the Globe is published by IPA House.
© 1998 IPA House. All Rights Reserved.