WASHINGTON, Jan. 18 (UPI) -- While Western investors looking at offshore Caspian development tend to concentrate their attention on Azeri and Kazakh offshore fields, Russia is now moving swiftly to develop projects in its own self-defined sector of the Caspian. The initiative for the development comes from the very highest levels of the Russian government, from President Vladimir Putin himself. Russia's move offshore means it is now joining post-Soviet republics Azerbaijan, Kazakhstan and Turkmenistan in developing their claimed national sectors of the Caspian, leaving only Iran, stymied by U.S. trade sanctions barring significant foreign investment in its oil infrastructure, as the sole riverain nation unable to ramp up its offshore production.
The Caspian basin is regarded as a treasure trove, with conservative estimates valuing its reserves at more than $12 trillion. As in Moscow, American interest in the Caspian reaches to the very highest levels of the executive branch; in 1998 Dick Cheney remarked, "I can't think of a time when we've had a region emerge as suddenly to become as strategically significant as the Caspian." With the notable exception of Azerbaijan, however, U.S. regional influence is in decline, because of a combination of factors ranging from greed to arrogance, allowing Russia to pick up much of the slack and in some cases take the lead in developing Turkmenistan's and Kazakhstan's Caspian reserves.
On Jan. 16 Putin met with Lukoil CEO and President Vagit Alekperov in the Kremlin, where he inquired about the progress in Russia's offshore Caspian development. Alekperov reported, "I have fulfilled your order. The first facility has been created in Astrakhan. And infrastructure has been created too -- an Astrakhan platform that will employ about 600 people. There will be seven such platforms." While reporting that the project was under way, Alekperov nonetheless dropped in a subtle hint for state aid, saying, "We also need state help in setting up the necessary infrastructure to develop the unique Russian offshore field in the Caspian. We are currently installing the first platform, which will start pumping its first oil in 2009." Lukoil hopes to float the platform into position later in the spring, when the Caspian's waters are at their height.
In his report Alekperov was optimistic about the field's potential, telling Putin that in 2009 Lukoil would extract 10.7 million barrels of oil from the deposit, which has a predicted annual output of 71.4 million barrels of oil and 12 billion cubic feet of natural gas. According to Alekperov, Lukoil is developing the site in conjunction with Gazprom and Rosneft as a joint venture and is also pursuing discussions with Kazakhstan about joint Caspian exploration.
The Russian Caspian sector development is not Lukoil's first venture into the inland sea's waters, as in 1994 it partnered with Azerbaijan's state oil company, BP Amoco, Unocal, Penzoil, Statoil and others joined to form the Azerbaijan International Operating Company, two years later acquiring a 10 percent share in Azerbaijan's Shah Deniz Caspian development project.
After meeting with Lukoil's board of directors Alekperov told journalists, "This year the company will overcome the minor shortfall in production growth and increase hydrocarbon production by 5-7 percent."
In 2007 Lukoil had a banner year. At a time of record high global prices for gas and oil Lukoil preliminary data estimates that the company's 2007 production was 690 million barrels of oil and 16.4 billion cubic meters of natural gas, generating $8 billion in profits vs. $11 billion in expenses, with 80 percent going on exploration and hydrocarbon production and the remaining 20 percent on processing and marketing. Similar profits by other Russian energy companies allowed the Russian economy in 2007 to expand by 6 percent, with energy accounting for nearly 80 percent of the country's exports.
Lukoil may even be encroaching upon territory that Washington regards as completely within its sphere of influence; Alekperov is scheduled to discuss re-launching its West Qurna-2 project with Iraqi Oil Minister Hussain al-Shahristani at the upcoming World Economic Forum in Davos. While Baghdad currently maintains that the contract is invalid Alekperov remains optimistic, noting that after the Iraqi government adopts oil law legislation, "we will have all grounds to continue consultations with the (Iraqi Oil) Ministry and move on to the practical implementation of the West Qurna project."
If Lukoil succeeds in its efforts to retain the least to develop the site, the company will quickly become a major player in Iraq, as the West Qurna field is believed to contain 10-20 billion barrels of oil capable of producing one million barrels daily. Lukoil signed a production-sharing agreement development for the West Qurna-2 field in March 1997, which was to run until 2020, but the sanctions regime imposed against Iraq following the Gulf War prevented Russian companies from implementing oil projects in Iraq. At the end of 2002 Saddam's government annulled the contract, saying that Lukoil had failed to implement its obligations under the contract. Given Washington's influence in Baghdad, it seems unlikely that even now Lukoil will be able to revive the project, one of the Russian energy giant's few setbacks. In the interim, Washington can only gaze northwards from Baku at Russia's burgeoning Caspian development with envy.