Select Committee on Foreign Affairs Appendices to the Minutes of Evidence - Sixth Report


Memorandum submitted by the Royal Dutch Shell Group


  Shell has the following investment interests in the region:

  Kazakhstan:  Temir. Onshore Exploration joint venture. 60 per cent Shell, 40 per cent Veba. OKIOC. Offshore North Caspian Exploration joint venture. 14.3 per cent Shell. CPC. Consortium constructing oil evacuation pipeline from Kazakhstan to Black Sea. Rosneft/Shell 7.5 per cent.

  Representation in Azerbaijan, Turkmenistan & Turkey plus office in Uzbekistan.


  In addition to its existing investments in Kazakhstan:

    —  Shell trades (or is discussing trade) crude oil in or through all the countries of the Caspian littoral.

    —  Shell is interested in the export of gas from the Central Asian states to Turkey, Europe and other potential markets in Asia. In pursuing this interest, Shell carried out in 1998 a majority study into the feasibility of alternative routes for the export of Turkmen gas to Turkey and beyond into Europe. The Government of Turkmenistan has recently awarded a mandate to pursue the construction of a Trans-Caspian gas pipeline (TCT), to PSG, (a 50/50 joint venture between the US companies Bechtel and GE Capital), but is still expressing keenness for Shell to be involved.

    —  Shell has also had discussions with a range of parties in all the other countries of the region. In particular, it has recently signed an agreement with the Government of Uzbekistan to study options for developing certain gas fields in that country and in conjunction with a number of other companies is undertaking a study of options for evacuating oil production from Kazahkstan.

    —  Shell has recently reinforced its position in Turkey in response to other regional developments involving Shell and/or its partners. InterGen (a 50/50 JV between Shell & Bechtel) has been awarded the tender to develop three large base load power gas fired power generation plants. It is doing this in conjunction with the Turkish company, Enka. This business anticipates further significant opportunities in Turkey.

    —  Shell has worked with SOCAR in Azerbaijan on options to optimise utilisation of Azerbaijani gas, and has also discussed the possibility of involvement in the proposed Baku-Ceyhan oil line. At present this has a low priority until such time as Shell acquires an adequate position in oil reserves. Shell has no current interests in exploration and production in Azerbaijan, following unsuccessful bidding on concessions, but it will want to rectify that situation at some point in the future.


  Over the last five years, Shell has benefited from contact with the DTI and the FCO, in London, Washington and Central Asia. Particular support was offered by the FCO in the context of the visit to the UK by President Aliyev of Azerbaijan in summer 1998. These contacts have involved specific support in obtaining access to key figures, as well as information-exchange. UK officials have always shown willingness to help. Their ability to offer country knowledge/analysis has been appreciated, although inevitably constrained by limited resources.

  UK Ministers, including the Prime Minister, have also offered strong support. Given the importance attached by a number of countries of Central Asia to the development of political relations with major Western governments, such contacts will remain highly influential in enabling UK companies to compete with others (see below).


  The oil price level and expectations about its future movement will have a major influence on the timing and scale of development of the hydrocarbon reserves of Central Asia. The requirement of high levels of initial capital investment will inhibit the pace of infrastructure development as long as oil prices remain low. Nevertheless the scale of the reserves in the region is such that they are likely to be required at some point. This may require a phased, incremental approach to development of the region. For the Central Asian States themselves, early revenue streams from development of the reserves are needed to help underpin the evolution of post-independence economies. Shell considers itself well placed to co-ordinate and progress such incremental development, building on its influence through various regional and extra-regional alliances and established country positions.

  It has good relations with the Governments and industry in Turkey, Iran and the Central Asian states, as well as the USA. It also has a strategic alliance with Gazprom. This last relationship makes Shell unique amongst the major Western oil companies and may well be a significant factor in operating successfully in a sensitive region, where there is a need to recognise and balance the interests of the three traditional regional powers (Turkey, Iran and Russia) and major external players (such as the USA and key EU countries), if commercially viable and politically acceptable solutions to regional energy exploitation are to be found.

  Accordingly Shell wishes to maintain good relations with all the states of Central Asia and believes that the UK government has and should continue to make a significant contribution to achieving this.


  The UK government appears to devote fewer resources to Central Asia than the US, German, French and other governments. The US Government, in particular, is committing substantial effort to building political and strategic links with the Central Asian states, and is using the resulting influence to advance US commercial interests. US government lobbying had a key influence in Turkmenistan's decision on leadership of the Trans-Caspian pipeline consortium. Such lobbying is likely to continue and is likely to have the effect of giving US companies disproportionate success, if not offset by similar efforts by other Governments on behalf of their national companies.

  The EU is very keen to make an impact in the region and encourage business efforts especially through its INOGATE, TRACECA and TACIS programmes. Some co-operation is afforded through Brussels, but improvements in access and communications would undoubtedly be beneficial to both Shell, and the EU's resultant standing in Central Asia and the Caucasus, from the point of view of energy exploitation.

  Other EU member countries make good use of their placement of energy representatives in Brussels to advance the interests of their national industries in Central Asia and the Caucasus.

March 1999

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