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The Caspian Oil Myth
by Patrick Eytchison
Since September 11, 2001, innumerable articles have appeared - both in the mainstream media and on the left - building on the catch phrase “vast, untapped Caspian oil riches”. Analysts on the left have used these supposed “riches” to explain American Central Asian geo-strategy, particularly in relation to various proposed pipeline routes for carrying the Caspian region’s landlocked hydrocarbon resources to the outside world.
What is seldom pointed out in such articles, however, is that these Caspian “oil riches” are essentially a myth manufactured by the United States Geological Service (USGS), the US Energy Information Administration (EIA), governments of some of the newly independent Soviet states of the Caspian Region, as well as the early hopes of some Western oil companies at the time of the breakup of the USSR. Deconstructing the myth of Caspian oil is important both for understanding how misinformation is created and manipulated in the present world, and for understanding the United States elites’ true geopolitical goals in relation to energy. Understanding the myth of Caspian oil is also important for awareness of how persistently misinformation can remain alive in the contemporary information exchange system. As early as 1998, a Time magazine article pointed out that if the US Energy Department’s estimates of potential Caspian reserves were correct, the region would have to contain “the equivalent of 400 minimum-size giant fields”, yet only 370 “giant” fields exist worldwide.(1) This was an observation which should have ended the Caspian hydrocarbon fantasy; yet three years later analysts on the Left were routinely referring to “Caspian oil riches” as if to an established fact.
Caspian Oil, Fact and Fancy
Petroleum industry reports on Caspian oil reserves almost always refer to “US Energy Department figures” ( for the region ) with skepticism. There is good reason for this. The Caspian region is the world’s oldest oil producing area. Under the czars, commercially producing wells existed in Azerbaijan as early as the 1870s and the Caspian was the Soviet Union’s main oil source until the 1950s. As producing Caspian fields peaked and declined however, leaving only more difficult to recover offshore oil available, Soviet production shifted to the Vulga region and later to western Siberia. This shift from the Caspian by the Soviet petroleum industry left significant possible oil-bearing areas of the Caspian region geologically unexplored. It was these unexplored formations which attracted the attention of the US government and Western investment at the time of the fall of the Soviet Union. Here if anywhere some thought a true alternative to OPEC controlled oil might exist. In fact, geological explorations led by the USGS’s Dr. Harry E. Cook had been taking place in Central Asia (Kazakhstan and Kyrgyzstan) since 1985, six years before the breakup of the Soviet Union. (2)
Later under the guidance of Cook and his colleagues a consortium, the USGS-Kazakhstan-Kyrgyzstan Oil Industry project, made up of Eni/Agip, BG, BP, ExxonMobil, Inpex, Phillips, Royal Dutch Shell, Statoil, and TotalFinaElf and several former Soviet Union Russian research institutes was formed for exploitation of the area. (3) It was out of this investment context - before any exploratory wells had actually been drilled - that the phrase “vast Caspian oil riches” first appeared. The 1998 Time Magazine article referred to above reported that “dreamers in the US Department of Energy” had decided that 178 billion barrels of oil might exist in the Caspian Basin. But, as the article itself noted, this was far from a unanimous evaluation.
At the same time that the US Department of Energy and the USGS were giving their highly optimistic estimates of Caspian oil, other elite sources were downplaying the whole idea. In the late 1990s and in 2000, the Center for Strategic and International Studies (CSIS), the Council on Foreign Relations (CFR), the Baker Institute, and a NATO Science Series publication all issued statements questioning the notion that the Caspian Region could in any way be a fossil fuel alternative to the Middle East. A 1998 Wall Street Journal article voiced similar skepticism. (4) Such sources suggested a possible total of 50-60 billion barrels for the Caspian Region as a whole. Most geologists inside the petroleum industry also tended to be cautious. On the other hand, the USGS and the EIA were soon talking in terms of 200 billion barrels. How is this difference explained?
An essential key for interpreting USGS and EIA energy reports, especially since the OPEC oil crisis of the 1970s, lays in the contradictory political/bureaucratic and scientific responsibilities carried by these agencies. The EIA must not only issue projections on future energy availability, but also projections of future energy needs. An obvious political embarrassment will result if the two sets of figures are not in balance. In other words, the EIA operates under an in-built bureaucratic pressure to make optimistic projections of existing and future energy reserves. This was openly admitted in the agency’s Annual Energy Outlook 1998-2020 report released in December 1997 (5)
These adjustments to the USGS and MMS estimates are based on non-technical considerations that support domestic supply growth to the levels necessary to meet projected demand levels.
For somewhat similar reasons, towards the end of the 1990s, the USGS also apparently experienced bureaucratic pressure to expand reserve projections and in 2000 released its controversial USGS World Petroleum Assessment 2000 report which gave a higher figure for possible total world petroleum reserves than most estimates made by experts over past decades. (6) The USGS report, under the overall direction of Dr. Thomas Ahlbrandt, with Caspian estimates by Gregory F. Ulmishek and Charles D. Masters, employed a complex probabilistic method of assessment involving aggregated estimations and multiple probability listings. The report focused on “reserve growth” and possible reserve estimations. In standard petroleum assessment literature, a possible reserve need have only a 5% probability of being real and can even include oil that is known to be unrecoverable. Since the USGS 2000 report is one of the primary sources for a high figure for Caspian oil, these facts concerning the report’s methodology must be kept in mind.
Current (2002) EIA Caspian figures are based on similar probabilistic methods and tend to give an impression to the unwary that its numbers for “possible” reserves indicate undiscovered oil waiting to be found. In reality, however, they are the theoretical product of a complex and controversial statistical procedure. This procedure is not how estimated reserves are generally reported in the petroleum industry in such standard annual reports as that of the Oil and Gas Journal, which always cite proven reserves. US government petroleum figures may also often be influenced by the extra-scientific needs of US political strategy and tactics.
By 2001, actual exploratory wells in the Caspian had begun to give a more realistic picture of the region as a source for petroleum. The Caspian Region is landlocked, resulting in the need for the long and expensive pipelines so much a part of left analysis after September 11. Caspian oil is also deeply located, offshore, and requires a costly, complex technology for recovery (including ice breakers). One of the reasons the Soviet oil industry left the Caspian for the Vulga and Siberia was the expense and technological difficulty of oil recovery in its remaining Caspian fields. Caspian oil also has a high sulfur content, a contaminant which must be removed on site. Most disappointing, however, were the geological facts which actually emerged concerning the quantity of recoverable Caspian oil. Early on, it had been discovered that the Caspian Basin was sharply divided politically and geologically between “oil rich” and “oil poor” new nations of the former USSR. As it has turned out, Uzbekistan and Kyrgyzstan are insignificant areas for oil production while Azerbaijan and Kazakhstan are considered “oil rich”. Recent drilling in Azerbaijan, however, even as admitted by the EIA, has been “disappointing”.(7) This has left Kazakhstan as the Caspian’s one remaining oil “El Dorado” and in reality hopes for “oil riches” in the Caspian amount to exploitation of Kazakhstan’s oil fields.
But here disappointment has also been experienced. Kazakhstan’s oil is significant but comes nowhere near the reserve levels envisioned by USGS optimists at the time of Soviet collapse. One of Kazakhstan’s largest oil fields, the Tengiz, is predicted to eventually produce up to 500,000 barrels per day ( 20-23 million per year). This is an important field but nowhere near the large fields of the Middle East or the North Sea. Drilling in the Tengiz field is being carried out by the TCO consortium made up of Chevron Texaco, ExxonMobil, KazMunaiGaz, and Lurkarco. In March 2002, TCO was fined $72 million by the Kazakhstan Ministry of Natural Resources and Environmental Protection for open storage of 5 million tons of sulfur extracted from Tengiz oil, necessitating the relocation of a village. Local environmental groups have petitioned the United Nations with their concerns about Caspian oil drilling and production. (8)
The real hope for Kazakhstan oil has been the north Caspian Kashagan field discovered by Cook and his associates in the summer of 2000. (9) Kashagan was originally estimated to hold up to 50 billion barrels of oil which would have made it the world’s third largest; however this high estimate depended on the Kashagan being a single formation and three exploratory wells have proven this is not the case.(10) Instead Kashagan - like most of the Caspian’s offshore oil - is made up of a series of separate reefs. (11) This is a geology recently characterized by USGS associated geologist Igor Effinoff as, “--extremely complicated. One field can be completely different than a neighboring field.” (12)
As a consequence of this finding, while not well publicized outside industry publications, it took little time for hopes about Kashagan to be deflated. At the time of the Kashagan’s discovery, exploration and exploitation was in the hands of an international consortium - Offshore Kazakhstan North Caspian Operating Company (OKIOC; later changed to KCO) - made up of nine international companies ( ENI, BP, BG, ExxonMobil, Inpex, Phillips, Shell, Statoil, and TotalFinaElf ) which had been assembled through a deal with Kazakhstan’s president Nazarbayev worked out by New York promoter Jack Grynberg. (13) This arrangement, however, began to fall apart after 2001. Soon after the first exploratory wells had been drilled, Agip, a subsidiary of the Italian company ENI, was made operator of the consortium, while a number of the original members began to withdraw investments. By 2003, ExxonMobil, Statoil, BP, and BG had all cut back investments and operations in the Caspian. (14) Oklahoma’s Kerr-McGee Company, not a part of OKIOC, also sold its Caspian holdings. Luke R. Corbett, Kerr-McGee chairman and CEO, voiced at the time this not too cryptic reason for the company’s pull back: that the divestiture was “consist with our strategy of focusing on the development of core areas in high-potential trends.” (15) At the same time, Agip began issue much scaled down reports on Kashagan reserves.
By early 2003, Agip KCO’s rough estimates of 7 to 9 billion barrel reserves for Kashagan were an accepted figure throughout the world petroleum industry, although some industry observers did offer that the field might eventually yield up to 13 billion barrels. On the other hand, some projections have been even lower. In April 2002, Gian Maria Gros-Pietro, then chairman of Italy’s ENI, speaking at the Eurasian Economic Summit in Almaty, Kazakhstan stated that the entire Caspian contained only 7.8 billion barrels out of which Kazakhstan held only 5.4 billion.(16)
Such estimates are never purely a matter of science; oil companies tend, after operations have begun, to give low estimates while governments seeking foreign investments, such as the case with Kazakhstan, naturally push projections as high as they can. The Kazakhstan government continues to suggest that its nation’s oil resources may be as much as 50 billion barrels, but this is hardly taken seriously in the industry. While Agip’s current reserve figures may be intentionally low there is good reason to believe that they are reasonably accurate. A recent study by the consulting firm Wood MacKenzie estimated total hydrocarbon reserves of the 5 Caspian littoral states as 39.4 billion barrels. (17) At any rate, it is by now obvious that Caspian oil is not the alternative to OPEC Middle Eastern oil once envisioned by some strategists. To give some comparisons: while Kazakhstan’s Tengiz may hold 8 billion barrels of oil and Kashagan 7-9 billion barrels, Saudi Arabia’s Ghawar field (the world’s largest) holds 70 to 80 billion barrels of proven reserves. As the EIA itself admitted in a February 2002 report, “The Caspian will never be another Middle East.” (18)
The Caspian is also a significant source for natural gas but even at a high estimate - the EIA reports 328 trillion cubic feet (tcf) - this is only a little more than North American reserves (261 tcf). The world’s largest natural gas reserves are in the Russian Federation with 1,700 tcf and the Middle East holds about the same amount in natural gas reserves as Russia. Africa’s natural gas reserves are estimated at about 400 tcf. Thus even if the Caspian’s oil and natural gas reserves are combined, the area contains nothing approximating the energy resources of the Middle East.
It is possible that from the beginning the inflated reserve projections for the Caspian were never more than a strategic ploy in a US effort to exert downward pressure on OPEC oil prices. It is also possible that some strategists hoped that developing a US dominated petroleum industry in the Caspian would act as a block against any Russian move to gain control over Iranian hydrocarbon resources. These strategic maneuvers however do not mean that at some times over the past decade some in the oil industry did not take the exaggerated USGS figures seriously; hope springs eternal. Still US energy strategy has basically been unwavering since the 1970s. This strategy is two pronged: 1) to find and invest in oil outside OPEC’s control (for example US investments in Nigeria and Libya); 2) and always in the lead, a US determination to maintain control of Middle Eastern oil at all costs and by any means.(19) Five Persian Gulf countries, Saudi Arabia, Iraq, Kuwait, United Arab Emirates and Iran hold approximately 65% of the world’s known oil reserves and because by now the world has been fully seismically mapped for oil there is no realistic prospect that this fact will change.
World oil discoveries peaked in the 1960s and the number of new finds has been decreasing since. Also, newly discovered oil fields have been smaller as time progresses and more costly to exploit. (20) Kazakhstan’s offshore oil discoveries are significant within this context of diminished world availability, and thus are “vast” or “rich” in terms of potential corporate profitability. They are not, however, “vast” in the context of real energy geopolitics.
Readers from outside the oil industry, seeing glowing El Dorado appraisals of Caspian resources, may understandably confuse these two quite different contexts; but this is a serious mistake. After Saudi Arabia, Iraq holds the world’s largest proven oil reserves. Probably the United States invaded Afghanistan, primarily, not because of a possible Afghanistan/Caspian pipeline route, but because the Taliban government represented a center for unifying Islamic fundamentalist resistance to US control of the Middle East. It is significant also that after its bombing of Afghanistan the US did not turn its military might on Kazakhstan, although the Kazakhstani government is not “democratic” and has not been entirely compliant to western corporate interests.(21) Instead, there was the invasion of Iraq. Often repeated ‘truths’ are not necessarily true. It is important that each ‘truth’ be examined with as much critical energy as possible.
Notes
1) Robin Knight, “Is The Caspian An Oil El Dorado, Time Magazine, June 29, 1998, Vol. 151 No.26.
2) “The Role of the USGS in Discovering the 3rd Largest Oil Field in the World”, Silicon Valley Chemist, January 2002, Volume 24 No.1; Cook, H.E., Zempolich, W.G., Zhemchuzhnikov, V.G, Lehmann, P. J., Alexeiev, D.V., and Zhaimina, V. Ya., 2000, “Late Devonian and Carboniferous carbonate platforms in the Bolshoi Karatau (northern Tien-Shan) of southern Kazakhstan: outcrop analogs for coeval north Caspian Basin carbonate reservoirs” [abs.]: SEPM-IAS Permo-Carboniferous Research Conference, May 2000, Program and Abstract Volume, p. 43.
3) Silicon Valley Chemist, January 2002.
4) Council on Foreign Relations, Caspian Sea Overview, 1999; http:www.treemedia.com/cfrlibrary/homepage/overview/q1.html; Robert Ebel, “The Geopolitics of Caspian Oil”, Corporate Briefing Series, Russian and Eurasian Program, CSIS, March 26, 1997, http://www.csis.org/ruseura/cs970326.html; Baker Institute Studies, Number 6, April 1998, http://www.rice.edu/projects/baker/Pubs/studies/bipp_study_6/study_1998_04_01.html; Cooper & Pope, Wall Street Journal, October 12, 1998.
5) Annual Energy Outlook: 1998-2020, Energy Information Administration, Office of Integrated Analysis Forecasting, US Department of Energy, p. 221, second paragraph.
6) Thomas Ahlbrandt, The USGS World Energy Program, USGS Fact Sheet FS-007-97, http://energy.usgs.gov/factsheets/worldenergy/world.html; Jean Laherrere, “Is USGS 2000 Assessment . Reliable?”, cyberconference of the WEC, May 19, 2000, http://energyresource2000.com.
7) EIA June 2000, Azerbaijan Country Analysis Brief, http://www.eia.doe.azerbjan.html.
8) Paul Brown, “Oil Money Threatens to Make Killing Fields of Kazakhstan”, The Guardian, December 4, 2002; “Kazakh Court Fines ChevronTexaco $71 million”, Solid Waste Digest, Nov. 21-Dec. 4, 2002, http://www.wasteinfo.com/news/stories/SW021121.html.
9) W. Zempolich, C. Leo and K. Van Ojik (Offshore Kayakh Int. Oper. Co.), A. Negi (ENI Agip) and A. Verdel (Shell EPTAR), “The Kashagan Discovery: An Example of the Successful Use of a Multidisciplined Approach in Reducing Geological Risk”, VNIGR1/AAPG Reg. Int. Conf (St. Petersburg, Russia, 7/15-18/2001) ABSTR. pap. No. 05-3,2001, Petroleum Abstracts, Issue 0227, July 06, 2002.
10) Steve Levine, “More Evidence Supports Claim of Historic Oil field in Caspian: Huge Output Potential of Kashagan Field Boosts Feasibility of U.S.-Backed Pipeline”, Wall Street Journal, March 5, 2001; Michael Ruppert, “Colin Campbell on Oil”, FTW Exclusive Interview, 10/23/2002, http://www.oilcrash.com/ruppert.htm. “The Soviets found Tengiz in 1979 with about 6Gb of very deep, high sulfur oil in a reef. Chevron took over and is now producing it with difficulty. But offshore they found a huge prospect called Kashagan in a similar geological setting to Tengiz. If it had been full, it could have contained 200Gb, but they have now drilled three deep wells at huge cost, finding that instead of being a single reservoir it, like Tengiz, is made up of reefs. Reserves are now quoted at between 9Gb and 13Gb.”
11) Mark Jones, “Oil and overproduction 3”, Marxism Mailing List Archive, 11 Jan. 2003 20:46:51: 0000, http://archives.econ.utah.edu/archives/marxism/2003w01/msg00220.htm; Rio + Interviews: Colin Campbell, “The Decline of the Petroleum Age”, Global Vision, http://www.global-vision.org/wssd/campbell.html.
12) Thomas S. Ahlbrandt and Peter J. McCabe, “Global Petroleum Resources: A View to the Future”, Geotimes, November 2002, http://www.agiweb.org/geotimes/nov02/feature_oil.html#.
13) Mark Jones, Oil and overproduction 3, Jan 11, 2003.
14) BG News, March 7, 2003 and BG News, March 11, 2003, http://www.bg-group.com/news/archive_2003; Mark Berniker, “Debate Continues over Viability of Baku-Tbilisi-Ceyhan Construction”, Alexander’s Gas & Oil Connections, Volume 7, Issue #4-July 12, 2002 (Global Energy Security Analysis, http://www.gasandoil.com/goc/news/ntc22871.htm); “Chevron Pullout Might Spell Disaster for Astana”, Caspian Business Report, December 15, 2002, http://www.usazerbaijancouncil.org/businessreport/current.html; Sergei Tsinev, “Agip As OKIOC Operator: Does Kashagan Hold More Gas Than Oil?”, Rus Energy.com, http://www.rusenergy.com/eng/caspian/a21022001.htm.
15) “Kerr-McGee to Sell Interests in Kazakhstan to Shell”, Alexander’s Gas & Oil Connections, Volume 8, Issue #5, Thursday, March 06, 2003, http://www.gasandoil.com/goc/company/cnc31047.htm.
16) Michael Lelyveld, “Caspian: Sea’s Oil Reserve Estimate Revised Downward”, http://www.rferl.org/nca/features/2002/04/10042002090808.asp; “Kashagan oil field numbers cause curiosity and controversy”, Alexander’s Gas & Oil Connections, Volume 7, Issue #15, August 8, 2002.
17) “New study says Caspian oil reserve estimates are exaggerated”, Alexander’s Gas & Oil Connections, Volume 7, Issue #13, June 27, 2002.
18) Caspian Sea Regional Country Analysis Brief, US Energy Dept. Report, February 2002, http://home.earthlink.net/~deepakg/US_dept_of_energy_doe.gov.
19) See: Jay E. Hine, Command Historian, CENTCOM, Confronting Continuing Challenges. “Spurred by the rapid diminution of Soviet aggressiveness under Mikhail Gorbachev, Gen. Schwarzkopf worked to supplant USCENTCOM’s primary war plan, which involved a war against the Soviets in Iran, with a more realistic scenario. The strategy of the original plan called for five and two-thirds divisions to march from the Arabian Gulf to the Zagros Mountains and prevent the Red Army from seizing the oil fields of Iran. Instead, Gen. Schwarzkopf began to plan for what he thought was a far more likely situation: Iraq, emerging from eight years of war against Iran with the world’s fourth-largest and most battle-hardened army, moving south to capture the rich oil fields whose output was essential to the industrial world.” http://www.centcom.mil/who_we_are/ccc1.asp.
20) Richard Heinberg, The Party’s Over, Gabriola Island, BC: New Society Publishers, 2003, pp. 92-116.
21) “Increases in investment were expected to bring Western values of democratisation, but the evidence this year has not supported the case. Since the emergence of the opposition movement Democratic Choice of Kazakhstan last November, concern has spread over repression of dissidents and the press. Two of the party’s founders face government charges of embezzlement. Former Energy Minister Mukhtar Abilyazov awaited the verdict of Kazakhstan’s Supreme Court, while former Pavlodar Governor Ghalymzhan Zhaqiyanov remained hospitalized under suspicious circumstances. Kazakhstan’s parliament also passed a new law that could abolish many political parties, despite criticism by the Organization for Security and Cooperation in Europe. International oil companies are often oblivious to such problems in countries where they invest. But there are signs that they too, are struggling against the arbitrary exercise of power.” Alexander’s Gas & Oil Connections, Volume 7, Issue #15, August 8, 2002.
[6 sep 03]