The document discusses challenges and developments related to gas reserves and pipelines in the Caspian region, emphasizing the complexity of gas extraction and the economic viability of resources. It highlights the Shakh Deniz project, its delays, and political dynamics involving Iran, Iraq, Turkmenistan, Kazakhstan, Turkey, and Azerbaijan. Overall, the document indicates that gas from these fields is unlikely to be cheap and reflects shifting political and economic influences in the region.

1. National Energy Security FundNational Energy Security Fund
Critical Decisions for the
Pipelines
Konstantin SimonovKonstantin Simonov
NicosiaNicosia
November, 14November, 14

2. National Energy Security Fund
Gas ReservesGas Reserves
Proved Gas Reserves in Caspain Area and Central Asia
42,3
26,0
2,6 3,1 1,7 1,8 1,2
44,8
29,6
8,0
3,2 1,6 1,8 1,3
0,0
5,0
10,0
15,0
20,0
25,0
30,0
35,0
40,0
45,0
50,0
Russia Iran Turkmenistan Iraq Uzbekistan Kazakhstan Azerbaijan
2000y
2010y
Source: BP World Energy OutlookSource: BP World Energy Outlook
20112011

3. National Energy Security Fund
Gas ReservesGas Reserves
• It is impossible to evaluate the structure andIt is impossible to evaluate the structure and
quality of gas resources in the Caspianquality of gas resources in the Caspian
region due to insufficient dataregion due to insufficient data
• Lifting cost on South Yolotan will be higherLifting cost on South Yolotan will be higher
then on Dauletabadthen on Dauletabad
• It requires deep and expensive processing toIt requires deep and expensive processing to
prepare Caspian gas for transportation.prepare Caspian gas for transportation.
Capacities for waste utilization are needed.Capacities for waste utilization are needed.
Moreover, substantial part of reserves is hardMoreover, substantial part of reserves is hard
to recover and thus economically unprofitableto recover and thus economically unprofitable

4. National Energy Security Fund
Shakh Deniz CaseShakh Deniz Case
• The project of developing the Shakh Deniz deposit was launchedThe project of developing the Shakh Deniz deposit was launched
in 1996 when the Azerbaijan parliament ratified a product sharingin 1996 when the Azerbaijan parliament ratified a product sharing
agreement with a consortium of foreign investors led by BPagreement with a consortium of foreign investors led by BP
• After three-year long geological prospecting the sides proceededAfter three-year long geological prospecting the sides proceeded
to the first phase of the deposit development with anticipated peakto the first phase of the deposit development with anticipated peak
production of some 8.6bn to 9bn cu m per year. The deposit wasproduction of some 8.6bn to 9bn cu m per year. The deposit was
launched with a two year delaylaunched with a two year delay .. Gas deliveries started in 2007.Gas deliveries started in 2007.
Production has not reached the designed capacity yet. Last yearProduction has not reached the designed capacity yet. Last year
some 6.9bn cu m of gas was producedsome 6.9bn cu m of gas was produced
• The sides originally planned to launch the second phase of ShakhThe sides originally planned to launch the second phase of Shakh
Deniz in 2012 but postponed it until 2017 with the designed outputDeniz in 2012 but postponed it until 2017 with the designed output
level of 16bn cu m and capital expenses above $20bn. However,level of 16bn cu m and capital expenses above $20bn. However,
neither a technical model of development nor commercialneither a technical model of development nor commercial
conditions of future supplies has been approvedconditions of future supplies has been approved
• The second phase is technically more complicated as it envisagesThe second phase is technically more complicated as it envisages
a greater sea depth at the place of production and much furthera greater sea depth at the place of production and much further
gas horizon compared to the first phase, which makes the secondgas horizon compared to the first phase, which makes the second
phase more expensivephase more expensive

5. National Energy Security Fund
Problematic SolutionsProblematic Solutions
• Iran – problem of sanctionsIran – problem of sanctions
• Iraq – problem of reconstruction ofIraq – problem of reconstruction of
economyeconomy
• Turkmenistan – problem of Trans-Turkmenistan – problem of Trans-
Caspian pipelineCaspian pipeline
• Kazakhstan – gas is mainly producingKazakhstan – gas is mainly producing
at oil deposits and pumped back intoat oil deposits and pumped back into
reservoirs to maintain pressurereservoirs to maintain pressure
• Turkey and Azerbaijan will be theTurkey and Azerbaijan will be the
winning partywinning party

6. National Energy Security Fund
More PoliticsMore Politics
then Economicsthen Economics
• Everyone wants to buy AzeriEveryone wants to buy Azeri
gasgas
• You can not avoid TurkeyYou can not avoid Turkey
• Political demands: membershipPolitical demands: membership
in EU; solving of Karabakhin EU; solving of Karabakh
ProblemProblem

7. National Energy Security Fund
RussianRussian Benchmark PriceBenchmark Price
for Azeri Gasfor Azeri Gas
Expenses on transporting Azeri gas from the Shakh Deniz deposit
(€/ 1,000 cu m)
77
90
104
0
20
40
60
80
100
120
Nabucco ITGI TAP
Cheap Gas?
345 360
0
50
100
150
200
250
300
350
400
Gaprom's gas average price in Europe ($/1,000 cu m), six
months ended June 30, 2011
Estimated price of gas from the Shakh Deniz transporting to
Europe through Nabucco ($/1,000 cu m)
Source: Gazprom, RWE,Source: Gazprom, RWE,
NESF calculationNESF calculation
Source: RWESource: RWE

8. National Energy Security Fund
SummarySummary
• Gas from Caspian greenfields willGas from Caspian greenfields will
not be cheapnot be cheap
• Growing of political ambitious ofGrowing of political ambitious of
Turkey and AzerbaijanTurkey and Azerbaijan
• Growing influence of China in theGrowing influence of China in the
regionregion
• Rejection of Russia as gasRejection of Russia as gas
suppliersupplier

9. National Energy Security Fund
Thank you!Thank you!
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10. National Energy Security Fund
Thank you!Thank you!
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