Today in Washington I met with Zeyno Baran, Senior Fellow and Director at the Center for Eurasian Policy at the Hudson Institute. Zeyno is an expert on energy and Central Asia, among other topics, and here I post a few excerpts from a briefing she delivered to the House Committee on International Relations on July 25, 2006. It was a pleasure to meet Zeyno, I look forward to following her work and that of Hudson Institute closely. On securing U.S. energy interests in Central Asia:
More recently, the trans-Caspian gas pipeline idea was revived by the US Administration, but this time starting with Kazakhstan. According to the new strategy, Turkmen gas will be added only later, if at all. The logic is that there is already plenty of flared gas (gas released as a byproduct of industrial operations, and which would otherwise be wasted) in Kazakhstan that could instead be transported to Western markets. Given Kazakhstan’s pragmatic energy development policy and demonstrated interest in the East-West corridor, this option seems to be the best way forward. Yet this too may not materialize unless the US is seriously committed to changing the energy dynamics in Eurasia, which ultimately means confrontation with Russia’s regional energy strategy. To come up with a coherent and pragmatic strategy, it is necessary to look at the broader Eurasian energy picture – specifically at the activities and plans of Gazprom. While many have wanted to turn a blind eye to the possibility that the US and Russia may not have a “win-win” option in Central Asian energy, it is clear that Russia is playing to win it all, regardless of US interests. This makes sense from Russian perspective: Gazprom’s basic strategy is to maintain its monopoly in the region, with which it can purchase Central Asian gas at below world-market prices, channel it to lower-paying Russian customers, and sell its own domestic reserves to Western Europe at high prices. It can further protect its lucrative European markets by freezing out independent Central Asian suppliers. By maintaining and strengthening its monopoly power, Gazprom will strengthen its leverage (and that of the Russian government) over European gas consumers. To do this, Gazprom desperately needs continued supplies of Central Asian gas (primarily from Turkmenistan and to a lesser degree Kazakhstan) in order to meet its supply commitments.
On converging interests with Kazakhstan:
Kazakhstan not only has the largest recoverable oil supplies in the region; it also has the largest gas production. It has approximately 2,000 bcm of explored natural gas reserves, with unexplored reserves (including Caspian offshore potential) estimated at 8,300 bcm. In recent years, domestic gas production has averaged 12 bcm annually; by 2020, Kazakhstan hopes to produce 40 bcm per year. Given Gazprom’s Central Asian gas strategy, and following Cheney’s visit to Kazakhstan, Russia refocused its attention on the country – specifically on its gas sector. Russia has sought to lock in Kazakh supplies for the long run, thus preventing their independent transport to Europe – by way of, for example, a trans-Caspian gas pipeline. President Putin invited Nazarbayev to the G8 summit; subsequently, on July 17, they created a joint venture to process natural gas from Kazakhstan’s Karachaganak gas field (which is one of the world’s largest gas condensate fields, located on the Russian-Kazakh border). Moves such as this one make clear that the US should no longer take Kazakhstan and its pro-Western orientation for granted.
To devise an effective energy strategy for Central Asia, dynamics in the Caucasus, Black Sea region and EU markets must be considered. We know that Russia will increase the gas price to Ukraine—it delayed such a move in order to avoid a headache at the G8, and to wait await the formation of a new Ukrainian government. If the pro-Russian Yanukovych becomes the Prime Minister, then the price increase may be more gradual, if a pro-Western leader takes power, then the price may be tripled. We also know from last year’s gas cutoff to Ukraine that there is a direct link between Central Asian gas and Europe’s own energy security. The markets are indirectly connected, but it would be benefited by a direct connection. To accomplish this, the US (together with the EU) needs to be more effectively involved in the success of post-revolutionary Ukraine and Georgia—first by recognizing that the Kremlin does not want them to succeed (and in fact is actively trying to undermine both states’ reform process) and also by helping them with their own energy-diversification and institution building efforts.