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Energy Security and Regional Conflicts in Caucasus

Submitted by on Sunday, 13 May 2012.    2,113 views No Comment
Energy Security and Regional Conflicts in Caucasus

Thank you very much for an honor and a chance to give you my presentation at the University of a country which is very close to my heart and to which my family had a lot of sympathy for many generations.

Using this chance I would like to offer to your library a book written by one of my ancestors Mr. Adam Michałowski “TRZY LETNI POBYT NA WSCHODZIE” (Three years on the East) published in 1857 in London. Author of this book was a President of Polish Association of Self Aid and Charity (Polskiego Towarzystwa Wzajemnej Pomocy i Dobroczynności) acting in Turkey over 150 years ago. I found his grave in Polonezkoy (Polish village in Turkey).In autumn last year EU Energy Conference was held in Warsaw. One of most important conclusions from this conference was: “Energy is one of the greatest challenges Europe has to face”. It it also hard to refuse the right to the statement made by the advisor to President of Russia stating that “nowadays geopolitics is being replaced by energy” When we talk about geopolitics we should stand on real foundations of our civilization. History which during many centuries is exposed to different forms of manipulations. Civilization we leave in is not only Greco-Roman, Judeo – Christian origin. Inhabitants of European continent lost in the woods were civilized by the nomads of Great Steep and tribes migrating from east to west leaving behind Ararat Mountains and Anatolia region. It is worth to mention that the idea of Asiopa – the union based on religious tolerance remained after Gyngis Khan and his successors. After many centuries last Mongolian Khan Baron von Ungern-Sternberg tried to come back to this idea while fighting with red Russians. We have to realize the fact that unfortunately main reason for decline and degeneration of European civilization are different types of bestial financial institutions and unfortunately Christian churches of many confessions. Their priests are responsible for raising of new generation of believers were not in a position to prevent from genocide accompanied with religious wars, crusades, “conversion” of native Australians and Americans, starvation of millions of Irish peasants, massacre in Wandea, bestiality of October Revolution. Opium Wars, two world wars, massacre of Jews and folk Holocaust which caused a death of over 60 million of people not mentioning recent homicide performed on the inhabitants of Caucasus in Chechnya.

No one doubts that biggest shame of a white man is…. Colonialism, which in a little bit transformed form is still dominant in Siberia. Its victims are different Turkish origin nations. I have mentioned about this fact during international congress held in Baku (in 2008) to the President of Azerbaijan Mr. Ilcham Alijew. Independently from political opinions and believes there is a colonialism of XXI country, Age of internet, iPods, space travel hard to accept.

It can and should end by change of our approach to the use of natural resources, oil and gas in a first place. Before it will happen it is worth to remind about few basic facts.

First license for search and exploration of mineral resources in Iran issued by Szach in 1827 was granted to Baron Julius de Reuter. Future father of press agencies. Security of stable supplies of crude oil for British Navy was paramount. First 43k tones of Iranian crude oil were exported almost 100 years ago in 1914.

Russia becoming no 1 player on world energy resources market tries to secure its full control also on the routes of the pipelines. While controlling only 19% of Caspian Sea coast Moscow decision makers acquired recently full control on the routes of transportation of energy media from this region – having perfect location from the perspective of the access to European, Middle East and central Asia markets. This region contains at least 200 bill oil barrels and 6 trillion cubic meters of gas. Until the end of the decade production may reach the level of 5 mill bpd

Our growing dependency of natural gas supplies from Russia increases also our dependency on supplies of oil from that country in the quantities, which exceed significantly level of energy safety. Moreover, based on American analysts Russia is becoming major and biggest exporter of oil in the world with 7.7 mill bpd (barrels per day) Considering this level of oil production Russian reserves will expire around year 2020. Russia is becoming a major player on the world energy sources market due to the fact that they control 1/3 oil reserves in Caspian Sea region, at least half of natural gas and having possibilities to control reserves of Persian Gulf counties finally by possessing its own reserves. It is extremely dangerous for global stabilization.

USSR in the most glorious days of their history was never able to achieve such position.

Caspian Sea basin has perfect location considering access to European, Middle East, and even Central Asia markets. It contains at least 15% of known reserves of earth carbohydrates in the amount of 200 billion barrels of oil and 6 trillion m/3 of natural gas. By the end of this decade production from this basin may reach 4.5 mill bpd, which is more than present production from North Sea. It seems clear to many people that such reserves, which are enough at least for 70 years after, startup of new pipelines, natural gas and oil from this region will dominate European market.

This is a reason why a few years ago I asked to justify, diversification project, which is a construction of oil pipeline system running from north Iraq and supplying oil to Odessa – Brody – Plock oil pipeline. Supplier of Caspian oil in economically required quantities are becoming more and more problematic. This idea could be realized by Polish – Ukrainian – Turkish consortium, which together with American companies would be able to construct 750 km oil pipeline connecting north of Iraq with Black Sea shore. Assuming oil tankers loading in Hopa region (Turkish harbor close to Georgia border) and offloading terminal in Piwdenne close to Odessa, it would be the shortest transportation route of Iraqi oil to EU markets. Construction of Mosul – Hopa pipeline could facilitate in repossession of significant amount of Iraqi liabilities to Poland and could strength Ukraine independency .It could also ease significantly tension between Turks and Kurds, since transit fees would be paid to Turkey budget and protection of new pipeline system, road constructions, earth works, would be given to members of local Kurdish tribes.

In the autumn of 1994 report made by well-known group of experts from BROWN & ROOT has been published. This report presents many different routes for transit of oil from Caspian Sea basin. Ordered of this report was Caspian Petroleum Consortium (CPC) in which Russian companies had at least 25% of shares. Originally in the variant mostly preferable by Americans, Caspian oil was to reach Black Sea shore by Baku – Supsa pipeline. Decision to extend this pipeline system further to the west was caused by political reasons.

It is worth to quote an opinion of Professor Marjorie Cohn “By reincarnation and enlargement of NAO and by expanding sphere of influence to the east United States of America intends to establish domination of West over rich deposits of oil in Caspian Sea basin. West Europe must extend its influence to their east in order to ensure safety access to Caspian oil. USA intends to control this process. Otherwise why would ZUSA spend billions of dollars for bombing Kosovo, if that region would not hold strategic position between extremely reach deposits of oil and their European allies?” (Chicago Tribune dated 20.05.1999).

Military operations in Chechnya had and still have very similar cause. Moscow is securing pipeline Baku – Tichoreck in such a way, the only way, through which in last decades, it was possible to transport oil produced in south cliffs of Caspian Sea to Russia. Extension of pipeline transport of Caspian oil alongside northern shore of Turkey through Samsun to Europe did not come into life due to the lack of political stabilization in Balkan states .It was decided to construct pipeline, crossing Anatolia region to Ceyhan – off loading terminal on Mediterranean Sea. Thanks to this decision Straits of Bosporus were avoided with its limitations off quantity and size of tankers, which could pass those straits per day. Transportation capacity of this water is being used in at least 95%. It is also very danger due to the fact that oil tankers are passing hears or Istanbul only by few hundred meters. Oil from Kazakhstan field (Tengiz – North West region of Caspian Sea basin) is being transported at the moment to European markets by modernized pipeline system through Samara and using DRUZBA pipeline system with well-known consequences.

In 2003 Russia has signed 25 years contract for supply of natural gas with Turkmenistan. It was announced as biggest contract in the history with value exceeding 600 billion USD. BY this action Russia managed to block American initiatives in that region. Turkmenistan intend to increase natural gas production in coming 7 years to the level of 120 bill m/e p.a. Moscow didn’t even had to make significant pressure to achieve the situation in which all east Caspian counties accepted common transit policy and unified energy balance.

For the transit fee they will charge about 3.3 USD / 1000 m/3 for every 100 km

After startup of BLUE STREAM pipeline (constructed across Black Sea) for some time Turkey was dependent in 90% on natural gas supplies from Russia. This occasion was used by the supplier, which raised a price to the maximum. Turkey threaten that they will go with this case to international arbitrary court and they were victories. Only after signing long-term natural gas supply contract with Iran (from Shah Deniz – southern part of Caspian cliff).

In Iran, which have over 5% share in the global market of oil production, Russian companies are searching in Khuzestan, simultaneously they are also selling to this country equipment and know – how mandatory to use nuclear energy. Value of this trade is estimated for 7 billion USD.

In Iraq, second largest producer of oil in the world, which possess biggest natural gas deposits in the area, just after USA intervention, Russian companies’ monopolized production of natural gas, using reserves which were generated during period of economic sanctions after invasion in Kuwait and signing contracts for search of new deposits. Their value is estimated for 3.5 bill USD. Presently this value is much higher.

Russia was the biggest purchase of Iraqi oil even in the beginning war. This was a main reason why only Russia was able to make efficient tension on Saddam Hussein actions.

Azibidjan is becoming a very attractive country for new investments, not only in petrochemical business. This country is recovering from economic disaster. Azibidjan is also one out of 6 main investments domains of AMOCO/BP concern, which uses Mr. Zbigniew Brzeziński as an advisor. This concern spends about 10 mill USD per day for realization of four grate projects:

a.) Exploration of Azeri – Chirag – Guanaszli fields (ACG),

b.) Exploration of Shah Deniz cliff fields,

c.) Construction of Southern Caucasus pipeline (SCP),

d.) Construction of Baku – Tbilisi – Ceyhan (BTC) pipeline

Caucasus (northern part)

At the moment Russia controls only 19% of sea shore line of Caspian Sea, but they are becoming no. 1 player on the global market of energy materials by having a control over transportation routes of energy medias from that region.

With investment of slightly above 3 bill USD they expect to produce 2.2 billion barrels of oil and at least 300 billion m/3 of natural gas. Most advanced drilling machine DSS – 20, which costs about 250 mill USD, will be utilized. Drilling hole will start at depth of about 1.000 m and will finish at depth of 9.000 m.

It is also very probable that Kazakhstan and Azibidjan, inspired by Russia, will construct Aktau – Baku pipeline. This pipeline is intended to cooperate with BTC pipeline system and should also allow transporting Kazakh oil to world markets. It is very probable that, as soon as last “golden sew” will be made, direction of o0il flow may be reversed. It would be a similar scenario to this played on Odessa – Brody pipeline. It would also mean giant loses of the BTC investors, which will have no medium to transport.

Mosul – Hopa pipeline Northern Iraq is located about 750 km from the shore of Black Sea. If oil pipeline would initiate in the area of Al Mausil (Mosul) its route could be located alongside road no. 430 to Sirnak in Turkey and passing Siirt, Bitlis and along northern slopes of Toroslar mountains to Mus, Varto and Erzurum – ancient Byzantine Teodozjopilis and would continue alongside road no. 950 in the valley of Artvin to the region of small harbor in Hopa twenty something km from the Georgia border. Mountain terrains of eastern Turkey are inhabited by Kurds. Until recent times, it was a main reason for Baku Supsa pipeline to be constructed along seashore to Samsun and extend it by few hundred km to the west. Kurds are one out of few Islamic nations, which have some sympathy for the “boys from the other side of the sea”. Considering change of the political situation in the region, caused by presence of coalition army in Iraq it is possible to minimize risk related with terrorist’s attacks on pipelines. 32” diameter pipe (813 mm) connecting Iraqi oil deposits with shore of Black Sea should allow transport of at least 24 MTA (million tons of oil per annum). It’s cost will probably not be higher than 700 mill USD

Iraq -Turkish- Poland oil route

Odessa – Brody pipeline system has been planned to transport 40 MTA. It was to become backbone of Ukrainian energy independence. It does not operate still. Ukraine suffers loses. Russians announced that they would like to use it but for transport of oil from DRUZBA pipeline system in opposite direction than originally planned. It is in their economic interest. Taking into consideration loading of oil into tankers and of loading in Piwdenne next to Odessa would be shorter by 4.000 km and cheaper by 15% transportation route of this medium to Central Europe and Baltic Sea basin. Production cost of one barrel in Iraq is one of the cheapest in the world.

In Azibidjan, “country of fire”, on the verge of small town called Janan Dag, which in Turkish language means „A mountain on fire” in rocks slots the fire was incinerating forever. Followers of Zoroastrian use to come to this place from India, Afghanistan, and Iran. In XIX country oil deposits in Surachanach drew the attention of Mr. Dymitr Mendelejew. The laboratory building made of stone was erected for him. Now devastated ruins are occupied by the refugees from Kara Bach escaping the hands of Armenian executioners. In the glory days more than half of world oil production was produced in Baku region. It is also worth to mention that pioneer in the application of technology allowing for offshore production of oil were two poles: Mr. Witold Zglenicki and count Paweł Potocki.

War in Chechnya had a similar cause. Moscow was securing its control over Baku – Tichoreck pipeline which by the way was constructed by merchant Bagirow in 1914. The only pipeline which over the last few decades allowed transport of oil inside Russian territory. Thanks to the determination of power of will of Mr. Haidar Alijew former President of Azerbaijan, USA and Turkey jointed its forces and created Baku –Tbilisi – Ceyhan pipeline which travestying Anatolia to the Mediterranean Sea harbor bypass straits of Bosporus. Limitation of the quantity and size of oil tankers passing only several hundred meters from the downtown of Istanbul is mandatory. Transport capacity of this waterway is being used in almost 100%. At once appeared also Moscow driven inspirers of different type of terrorist acts in east Turkey which aimed to attack BTC pipeline trunk line. In order to prevent from the scenario which allegedly resulted in Armenian man slaughter operator of this pipeline is forced to spent significant military forces for the protection of this pipeline. It is worth to mention that best man for this job would play proven in battle Chechens. Mr. Zakayew a politician from this country shared the same opinion with me a few time ago.

Today Poland pays over 500 USD for 1000 m/3 of natural gas. Almost 35% more than Germany and twice as much as Chinese. Despite of the fact that Gazprom does not pay for the transit of natural gas through our territory significant amount of 1.5 bill USD p.a. (using the rate of 2.75 USD/1000 m3/100 km). It is worth to mention that rates for natural gas and oil transit over the territories controlled by Moscow have nothing in common with economical calculation, its real costs of production or the necessity to designate certain amounts for the protection and restoration of natural environment. It is “haracz” (tribute), what else could we name the fact of quite recent sale to EU of natural gas from Turkmenistan with 350% commission. A form of haracz is also nonpayment of a transit fee.

After commissioning of new refinery in Iran pipeline supplies from Kazakhstan could reach the level of up to50 MTA (million tons per annum). It is possible to shorten the route of this pipeline by 150 km under the condition that it will be constructed between Tengiz and Uzen in shallow shelf of east bank of Caspian Sea. Some time ago an agreement on construction of 200 km long section running forms the area of oil fields explored by Chinese consortium of CNPC to the border of Turkmenistan. China is becoming growing importer of Caspian oil. Transport with use of oil tankers from Gulf of Persia to Chinese terminals located on the Yellow sea may be cheaper than payment of the interest from the loans needed to cover the cost of TENGIZ-LANCZOU pipeline construction running through Dzungaria gate and Sink yang desert estimated for 10 bill USD. Negotiations with Chinese focused mainly on the problems which may result for the territories located in Irtysh and Ilia river basins, if the plan to reverse the flow of those rivers will be realized in order to intensify production of oil and gas in Takla Makan desert area.

Turfan area experiences exploration drillings from over 90 years now and Tengiz-Kharg pipeline was to be constructed long time ago. Main obstacle is short sight of some of American decision makers. In total to the south and west about 40% of Caspian production of oil will be able to flow.

Tengiz – Black Sea harbor pipeline trunk line was supposed to transport 67 MTA. Americans postponed its approval for the participation of their companies in this investment maintaining the condition that Russia should refrain from sale of nuclear technologies to Iran. Standstill occurred. It was overcome by the events occurring in the foreground of Caucasus Mountains. Pipeline from Tengiz to Black Sea terminal in a safe distance from Chechnya become a necessity. 745 km pipeline section of 40” diameter from Astrakhan to new oil terminal in Novosibirsk has been constructed in record time. Transport capacity of CPC pipeline trunk line were reserved for the needs of oil companies operating in the region of Karachaganak – AGIP, British Gas, Texaco and Lukoil.

Moscow secured until the commissioning of BTC_Baku Tbilisi-Ceyhan pipeline full control over the transportation routes of energy media from Caspian Sea basin – having perfect location from the perspective of access to European, Middle East and Central Asia markets. With the reserves sufficient for at least half of century Caspian oil may play a dominant role on European market. The cheapest and most convenient way to transport it to the east, to China, through the territory of Kazakhstan.

Turkmenistan and Uzbekistan are not taking an active role in the gas – oil carnival. Their political elites are reluctant toward foreign investors for a long time now. Only recently the natural gas from Turkmenistan started to compete with the gas produced by Gazprom in northern territories of Siberia. Since the pipelines belong to Gazprom, the gas from Turkmenistan was cut out from the access to the world market with all the consequences resulting form that fact. Uzbekistan to the contrary secured increase in production by bypassing the system of Russian pipelines and concentration on internal demand and neighboring markets. It was a third biggest producer of natural gas in WNP (Union of Independent Countries) and one of top ten in the world.

Uzbek-Nefte-Gaz did not record significant success in the cooperation with international investors.

Confirmed oil reserves in the basin of Caspian Sea are about 5% of global reserves. Division of north part of the sea bed into three not equal sectors. Kazakhstan obtained 27%, Russia 19%, Azerbiajan 18% of coastal line (nie daje 100%). Estimation of the reserves varies from 17 to 33 bill barrels. Following the forecast for 2015 in Kazakhstan exploration of oil fields in Tengiz and Kulsary shall allow for increase of oil production to the level of 2.6 bill bpd. Azerbiajan oil deposits Azeri and Chirag including deep water Gunashli to the end of current decade shall allow for production of ca. 1 mill bpd. Second “Caspian oil rush” is just starting.

Maybe it is worth to propose other scenarios such as creation of international consortium for the purpose to construct the pipeline from the coast of Caspian Sea through Azerbiajan, Georgia, Black Sea and Ukraine to Przemysl gate located on Polish border. In straight line it will be at least two times shorten in comparison to the pipeline from Jamal peninsula. Deposits of Shah Deniz gas fields are sufficient to provide energy security for Ukraine and Poland until mid of this century.

Gas potential of the Caspian Sea basin may have much bigger importance than its oil deposits in the future. Gas deposits located there may be compared to the deposits in Saudi Arabia. Governments of Caspian countries and companies active there are much more interested in the oil now. Production of gas from those deposits requires much bigger investments.

Some time ago Caspian Business News informed that the contract between Lukoil Overseas Holding Ltd. and Azerbaijan concern SOCAR for exploration of Zykh – Hovsan deposits in the region of Dagestan border has been terminated. Russians refused to pay the costs related with protection of natural environment. Future of the oil transportation route to the north of Caucasus becomes questionable. Baku – Grozny – Tichorek – Noworosyjsk pipeline was decomissioned. Every year Transnieft use to transport up to 5 mill tons of oil using this pipeline. Almost half of Azerbiajan production. Sale it for 15.67 USD for each tone of this oil. Perfect quality product known on the international stock exchanges as azeri light was blended with heavy sulfur oil of ural or rebco types. Loos on one tone of such blended product was from 4 to 5 USD some 5 USD per tone shall be also added as a cost of loading to the tankers in Novosibirsk and fee for the pass of Bosporus straits. Transit fee for the oil transported by BTC (Baku – Tbilisi – Ceyhan) pipeline is ca. 23 USD per ton. Russians are not more competitive. By the end of this decade production of oil in the basin of Caspian Sea will reach the level of at least 4,5 mill bpd .(to check). Following the decrease of efficiency of oil deposits on the world, importance of the production from new fields located in the countries which are not OPEC members will rise. With the reserves sufficient for at least next 70 years, this is the reason I suppose why gas and oil from this region will dominate European market. Competition from Arica and Middle East will be left far behind. Following the increase of global demand for the energy this area becomes the playground for big international players of world markets. Few years ago while presenting its speech in Baku during Caspian Oil & Gas Exhibition minister of oil and mineral resources of the Kingdom of Saudi Arabia Mr. Ali Al-Naimi stated that: „It is estimated that global demand for oil until 2020 will be increasing by 1 – 1.5 mill of barrels per day which will cause at least 40% increase of the production in the world. Azerbiajan is extremely interesting country for the location of new business”. I believe that he was right. Russia becoming no. 1 player in international markets of energy resources attempts to secure full control over the routes of pipelines also. We have to remember that principia of their foreign policy remained unchanged for many centuries. Such as:

-acqusition of new land,

-elimination of local elites,

-absolute rusification,

-barbaric exploitation of natural resources.

In order to be able to maintain the control and administrate in the territories of Far East and Siberia which quite recently were belonging to China and demand the „right” for exploration of oil and gas located in the areas close to North Ocean Moscow decision makers have to control multi million, vulnerable for russification human mass. This is the reason why they will try, for every price, to keep Ukraine and Russia within the sphere of influence. It is visible in many ways that in the east of European continent apart from those two former soviet republics only Poland and Turkey realizes this fact. Taking Russia – having colonial control over the Siberia and Caucasus – to the group of civilized nations is misunderstanding. It may end in a catastrophe if we take into consideration very popular opinions among Moscow geo-politicians that natural border line of Azjopa (which lords of Kremlin would like to rule) is January isotherm running alongside Rhine river bed. It is worth to mention that 90 years ago the same dream had last Mongolian Khan baron Roman von Ungern Sternberg, considered as insane man by some of the people. I have devoted few of my books to this man. If there is anyone who doubts how Russian civilization mission looks like it is worth to compare live standard of the inhabitants of current Siberia and Canada which from geographical perspective are quite similar. That is why if in some circled there is an anxiety from too big increase of China potential, if China would to regain the territories previously stolen from them by car’s Russia in Far East we should give our hand to the nations of Yakutia, Tuva, Buryatia, Khakassia, Altai and the Land of Krasnoyarsk Krai, Dagestan, Ingushetia, Chechnya and many other demanding independence and share in the profits from exploration of natural resources including proper care of natural environment . It is also beyond any doubt that all free countries of the world independently from political systems and religious believes shall support Georgia in their fight for freedom and independence from the dictate of Moscow oligarchy. Free Georgia is one of main warrantors of Caucasus energy safety and trouble-free transfer of Caspian oil with use of BTC pipeline.

Far East Republic with its capital in Chita existed in 1920. Lenin in his Works wrote many lines that nations of Siberia shall regain its freedom and shall be able to create independent state. It is worth to remember it.Already in the middle of this century to have hydrocarbon resources of the liquid and gaseous fuels and related to the geopolitics of pipeline location will face competition accompanying the rational exploitation of geothermal energy and methane hydrates deposits. Only the synergy of energy guarantees conflict-free development and progress in most countries of the globe. The key to it is located in the Caucasus.

It is most probable that in coming decade oil and natural gas will maintain a position of basic energy fuel in global scale. Unlimited access to those fuels as well as participation in free trade will be a proof of energy independence and warranty for balanced economic development of any country and his position in EU. According to some prognosis in middle of this century both fuels will give field to methane hydrates and hydrogen.Globally, natural gas and crude oil will remain much longer primary energy resources and the opportunity to participate in a free market, their market will guarantee sustainable economic development of each country. It is undoubtedly take the analysis Study on the establishment of the zone of peace, friendship and security of the peoples of Europe and Asia. Zone in which a particular role will have to play very strong GM and similarly almost as numerous as the Slavic peoples of Turkey. Therefore I believe that the axis PARIS-BERLIN-WARSAW-MOSCOW-KIEV-ANKARA-BAKU–TEHRAN-ALMATY-BEJIN will remain and the capital of EURAZIA will be in ANKARA.

Witold Stanisław Michałowski
Editor in Chief of RUROCIĄGI (Polish Pipeline Journal)

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