House of Commons - Foreign Affairs

Select Committee on Foreign Affairs Minutes of Evidence

Written evidence submitted by John Roberts, Energy Security Specialist, Platts

BRIEF INTRODUCTION TO AUTHOR

John Roberts is the Energy Security Specialist for Platts, the world's largest independent source of energy information. Platts is part of the McGraw-Hill publishing group. Mr Roberts has specialised in Caspian energy issues for 15 years. He has written and delivered numerous papers and presentations on Caspian energy issues and the roles played by both Russia and Turkey as gatekeepers for Caspian oil and gas seeking access to European markets. In 1996 he wrote Caspian Pipelines for the Royal Institute of International Affairs. He is currently completing Pipeline Politics: The Caspian and Global Energy Security for the RIIA (Chatham House). He is the author of Visions & Mirages: The Middle East in a New Era (Mainstream, Edinburgh 1994).

A BRIEF NOTE ON PLATTS

Platts, a division of The McGraw-Hill Companies (NYSE: MHP), is the world's largest source of independent energy information. For nearly a century Platts has furnished independent industry news and price benchmarks, thus helping global energy markets to enhance their performance. Platts has 15 offices worldwide and covers the oil, natural gas, electricity, nuclear power, coal, petrochemical and metals markets. Additional information on Platts real-time news and price assessment services, publications, databases, geospatial tools, conferences, magazines, research and analytical services and energy financial services is available at www.platts.com.

DISCLAIMER

The views expressed in this testimony are those of the author and should not be taken to represent the opinion of Platts or any of the other McGraw-Hill companies.

PREAMBLE:

— This evidence essentially focuses on the first set of questions posed in the background briefing to witnesses. This runs:

Energy security:

A general concept.

RUSSIA, THE CASPIAN AND THE EU: AN ENERGY SECURITY PERSPECTIVE

Russia

1. Russia and the EU. Russia is the world's biggest gas producer whilst the European Union is the world's second biggest gas consumer (see Table One: Key Gas figures for Europe and Leading Suppliers). The concept of an energy partnership between the two is thus logical, providing one can be developed that operates under a common set of rules.

2. Russian reliability as an EU supplier. Russia has been, and will seek to remain, a reliable supplier of oil and gas to its core EU customers. This may appear paradoxical given its reputation as a supplier to various non-EU countries, notably Belarus, Estonia, Georgia, Lithuania and Ukraine. Russia, however, appears to see no contradiction between honouring its commitments to major European customers and using energy as a weapon against fellow members of the Commonwealth of Independent States or against the former Soviet-ruled republics in the Baltic which declined to join the CIS. EU President José Manuel Barroso stressed Russian reliability at the end of the EU-Russia summit at Sochi in May 2006 while President Putin likewise stressed his commitment to honouring Russian supply commitments to Europe whilst simultaneously advocating the development of new export markets for Russian oil and gas to counter EU efforts to diversify supply sources.[2] The logical conclusion is that Russia both operates its energy policy according to what it considers to be realpolitik and expects its major European customers to understand this. It may not understand that its use of energy as a weapon against any state—and one study cites as many as 50 such instances, including many conducted against the Baltic states before they joined the EU—and as a tool of foreign policy in general has contributed greatly to consumer concerns.[3] The more Russia behaves in this fashion, the more some of its major current or prospective customers might wish to ensure that they did not rely overmuch on Russian hydrocarbons. This goes for China, as much as for Europe.

3. Energy Charter issues. European concerns would be considerably alleviated were Russia to ratify the Energy Charter Treaty, to which it is a signatory, and to sign up to the current draft of the Energy Charter's Transit Protocol (which remains a draft and incapable of actual implementation until there is an agreement with Russia). Russia has said that while it respects the principles of the Energy Charter Treaty it cannot ratify the Treaty, which it regards as a relic of a bygone era—the 1990s—when Russia's position in energy issues was much weaker than it is today. The EU is currently seeking to see whether it can overcome this impasse by including the key principles of the Energy Charter Treaty and the Transit Protocol in a new Partnership and Cooperation Agreement which it would like to see replace the current PCA due to expire in November.

4. The question of a new EU-Russia PCA. Formal negotiations on this new PCA, however, have yet to start. In addition there is the question as to whether what is required is not so much an agreement as a formal treaty, binding both sides to honour what they have agreed. Two major consequences of Russian implementation of Energy Charter principles would be that Caspian producers would gain access to Russia's pipeline system on a basis that was both commercial and regulated whilst Russia would have to maintain supplies to customers even in the event of significant disputes with them. It remains extraordinarily difficult to see how such an agreement can be negotiated under present circumstances.

5. Different approaches to energy security. Although the G8's St Petersburg energy declaration in July 2006 resulted in Russia and the EU, along with the other participants such as the US and Japan, agreeing that energy security was a concept that embraced Russia's concern for security of demand and well as the concerns of many of its G8 colleagues for security of supply—the declaration talks of "enhanced dialogue on relevant stakeholders' perspectives on growing interdependence, security of supply and demand issues"—there are still fundamental differences of approach that stand in the way of developing a successful energy partnership.[4] In particular, whilst the EU and its member states tend to view energy security in terms of interdependence, Russia, appears to view it in terms of control. Russia exerts control, in the energy sphere in several ways, not least by the creation or backing of strong state-owned energy companies and limits to the ability of independent companies, whether Russian or foreign, to operate freely. The Sakhalin takeover and the difficulties that the TNK-BP operation is facing demonstrate this. So does the Russian effort to wrest effective control of the operations of the Caspian Pipeline Consortium (CPC) from the private investors who financed it. In a broader context, the way Russia runs its gas industry and handles transit arrangements for other countries have long been a source of concern in Europe. In 2004, Dr Ria Kemper, the Energy Charter Secretariat's Secretary General, characterised the situation regarding transit to the east of the EU—"in particular in the Russian Federation," as follows: "There, the gas sector, in particular, remains characterised by a lack of transparency over cost structures and the terms of access to pipelines, uncertainty over how transit tariffs are to be set in those cases where transit shippers are given access to the network, and a general unwillingness to alter substantially the present status quo, under which Gazprom's dominant influence as operator of the pipeline system and simultaneously the country's main producer remains effectively unchecked."[5] In practical terms, EU and Russian attitudes to market practices remain poles apart. Gazprom wants direct access to European customers and is quite capable of buying major European companies to achieve its aim. But whilst Gazprom can secure downstream stakes in EU markets, European companies are under assault over their upstream stakes in Russia. The presumption that any PCA would have to be based on reciprocity would be sorely tested.

RUSSIAN POLICY FOR ITS OWN RESOURCES: DIVERSIFICATION OF EXPORT ROUTES NOT AUGMENTATION OF SUPPLY

6. Russian export capabilities. A major concern of the European Union at this time—and of Britain, as it moves towards an increasingly heavy reliance on imported gas—is Russia's ability and determination to develop gas exports, and, specifically gas exports aimed at the European market. In practice, what's happening is a major focus by Russia's Gazprom, which has a monopoly of all Russian pipeline gas exports, on development of new export pipeline routes to core European markets, rather than on production increases capable of filling these pipelines. Lack of transparency makes it hard to calculate just what course Russian gas production will take, not least because so much Russian production is required to meet domestic demand—amounting to 405 bcm out of total production of 597 bcm in 2005 (see Table One: Key Gas figures for Europe and Leading Supplier). Moreover, that demand is highly profligate, with Russian consumers using three times as much gas per head as their EU counterparts (see Table Two—Russian and EU Energy Consumption 2004-05).

7. Khristenko on gas export volumes. What can be said is that the Russian authorities themselves only anticipate a small increase in the availability of gas for export westwards. On 9 October 2006 Energy and Industry Minister Viktor Khristenko delivered what appeared to be at first sight an encouraging comment on Russian export production when he said that "by 2015, Russia's gas exports will grow 52% to 257 billion cubic meters." A closer look at Khristenko's statement, however, reveals a notable problem for Europe. The minister's figures indicate that in 2005 Russia's exports amounted to 169 bcm—a figure roughly in line with western estimates.[6] Khristenko thus envisaged an overall, increase in Russian exports of 88 bcm. But since he also said that by that time the structure of Russian gas exports would change, and that the share of LNG bound for Asia-Pacific markets would increase to 61 bcm, in practice he was reported as only anticipating an increase in pipeline gas availability of just 27 bcm.[7] Moreover, it should be borne in mind that, depending on which new fields are developed between now and 2015, some of this 27 bcm might be bound for China and the Far East, rather than Europe. This figure can also be compared to estimates in Russia's last official plan, drawn up in 2003, which foresaw a 30 bcm increase in exports to hard cash markets in Europe from 150 cm in 2005 to 180 bcm in 2010 and to 200 bcm in 2020.[8] Christian Cleutinx, the European Commission Coordinator of the EU-Russia Energy Dialogue, has noted that this 50 bcm increase is not just for European markets but for others as well. The EU, considering Russian ambitions to meet Europe's anticipated surge in gas imports, considers that: "if they want to increase exports by 100 mtoe (million tonnes of oil equivalent—about 90 bcm) by 2020, they need to invest $250 billion between now and then." The official who said this added: "If Russia is to maintain its energy exports then domestic consumption should be reduced by 20-30% by 2011-12."[9] With Russia's economy currently booming, however, there are reasonable expectations that Russian domestic gas demand will rise, rather than fall. Whether Russia will seek, to curb its own domestic consumption in order to increase export levels remains uncertain. With the Russian economy currently booming, there are logical reasons to suppose domestic gas demand will actually increase. One Russian analyst has posited that in 2020 Russia could find itself having to choose how to distribute whatever gas it is producing between five very different markets. These were: Russia itself (564 bcm); Europe (405 bcm); CIS countries (100 bcm); North-East Asia (185 bcm); and LNG to Atlantic customers (215 bcm).[10]

8. Russia's transit policy. Russia is currently implementing a policy of pipeline development expressly designed to reduce its reliance on transit states. In January President Putin himself declared: "Russia will extend her network for hydrocarbons transportation in all directions to lessen her dependence on transit states."[11] In oil, it has developed the Baltic Pipeline System which enables it to export crude direct from the Baltic port of Primorsk, thus alleviating reliance on the Druzhba system which transits Belarus and Poland (northern branch) and Belarus and Ukraine (southern branch). In gas, it first developed the Yamal-Europe pipeline via Belarus, in part to reduce reliance on Ukraine, and in 2004 committed itself to construction of a line designed to ensure that Russian gas can reach its biggest EU customer, Germany, without transitting any other country. The Nordstream (North Stream) project, formerly known as the North European Pipeline, is openly intended to reduce any leverage that Belarus and Poland can have in their energy relations with Russia.

9. Southstream. Gazprom is currently considering the development of a new pipeline stream—sometimes called Southstream—to carry Russian gas from Turkey to central Europe. Unlike Nordstream, for which detailed studies are available and on which preliminary work has started, it is still not clear whether Gazprom has actually begun feasibility studies for Southstream. But there are strong indications that it is intended as a spoiler for the EU-backed Nabucco pipeline system, on which detailed studies have been carried out by its promoters. These indications include the initial announcement in June 2006 that Hungary's MOL gas company, a partner in the Nabucco project, had signed an agreement to extend Gazprom's Blue Stream line from Russia to Turkey up through the Balkans to western Hungary (indeed Southstream is sometimes dubbed Blue Stream II), further efforts to woo Hungary to break with Nabucco; declarations that Gazprom is studying the expansion of the Blue Stream system to Turkey from 16-32 bcm; and direct approaches by Gazprom to Bulgaria and other potential gas purchasers along the Nabucco route. The €5 billion Nabucco system (see below, Nabucco) aims to deliver some 25 bcm of gas (though its technical capacity is put at 30 bcm) through a line running from eastern Turkey through to Bulgaria, Romania and Hungary to a commercial hub at Baumgarten in Austria, with around a third of the gas delivered to transit countries en route. Gazprom's Southstream, according to 2007 World Bank data, would run from Turkey through Bulgaria, Serbia, Bosnia-Herzegovina, Croatia and Slovenia to northern Italy. This may be an indication of failure to secure MOL's cooperation; it does indicate the importance of Bulgaria in Russian energy export planning, and, in part, may explain Russia's determination to press ahead with its "Bosphorus bypass" oil pipeline from Bourgas in Bulgaria to Alexandroupolis in Greece. A designated termination point in Italy appears to be an attempt to woo Italy's Eni, which is a 50-50 partner in the original Blue Stream pipeline and which is envisaged as a major vehicle for implementation of a Russian-Italian strategic energy accord negotiated in November 2006 and March 2007.

10. Gazprom interest in pipelines developed by other companies. While Gazprom has discussed with Egypt and Algeria the idea that it might join in gas development projects aimed at supplying Europe, it does not appear to have made any real progress towards this end. It has successfully secured a stake in Iran's pipeline to Armenia—with its involvement leading to a reduction in the scale of the project, thus ensuring it can only be used to supply a portion of Armenia's need, with there being no question of spare capacity available to carry further supplies of Iranian gas to destinations beyond Armenia, such as Georgia and perhaps even Ukraine and Central Europe. Gazprom has, however, sought—so far unsuccessfully—to join the project to develop a 30 bcm/y gasline from Iran to India and Pakistan as prospective planner, contractor and investor. But then the Iran-Pakistan-India pipeline would help direct Iranian gas away from Russia's European markets.

11. Russia's relations with transit states. Russia has difficult with relations with two states through which Russian oil and gas transit, Ukraine and Belarus, and with another state, Georgia, which serves a transit nation for hydrocarbons that pose a competitive challenge to Russian oil and gas exports. In January and February 2004, Russia suspended gas supplies to Belarus; on 1 and 2 January 2006 it suspended gas supplies to Ukraine; and in January 2007 it suspended oil supplies to Belarus. Whilst Russia had legitimate concerns regarding payments and alleged illegal use of some oil and gas supplied to or through these countries, the methods it chose to deal with the problem have proved counterproductive in terms of its reputation as a reliable supplier of hydrocarbons.

12. Russia and the Caspian. In the Caspian context, Russia serves as both monopoly and monopsony. It has a monopoly over much current oil and gas transportation from the eastern shores of the Caspian—Kazakhstan, Turkmenistan and Uzbekistan—and a monopsony as purchaser of gas from these countries. It sees nothing wrong in this, arguing that its geographical and historical position justify the existence of what it terms natural monopolies. In oil, it uses its own pipelines—and is also seeking to use the only foreign company-developed pipeline in a similar fashion—to secure higher returns for Russia than would be justified under non-monopolistic conditions. In gas, it secures even greater returns, acquiring gas from Turkmenistan at an agreed price of $100 per thousand cubic metres ($/tcm) and from Kazakhstan at around $135/tcm whilst selling gas to Europe at prices that often come close to $300/tcm. Some of the gas that Gazprom supplies to Germany in fact originates in Turkmenistan. Russia's gas export policy is predicated to a very considerable extent on continued access to—in relative terms—low-cost gas purchases from Central Asian producers.

The Caspian

13. European interests. There are two main reasons for the European interest in the Caspian region/Central Asia. One is that its oil is generally available for development by international oil companies in a way that most oil in the OPEC countries (which hold three-quarters of the world's proven oil reserves) are not. The other is that the next 25 years or so should see the Caspian produce some 20-25% of the additional production of oil by non-Opec member states—essentially those states in which IOCs have the greatest operational freedom states (see Table Three—The Caspian Role in Int'l Energy Increases 2003-2030). One specific US estimate—used essentially for illustrative purposes—is that non-OPEC production might be expected to grow from 48.2 million barrels a day (mb/d) in 2003 to 72 mb/d in 2030 with Caspian oil growing from 1.9 mb/d to 7.4 mb/d over the same period. In other words, a projected Caspian increase of 5.5 mb/d would account for just over 23% of a projected 23.8 mb/d increase in overall non-Opec production.[12]

14. Specific UK interests and concerns. As noted above, the significance of the Caspian lies in the fact that its reserves are essentially available for development by international oil companies on a profit-sharing basis whereas those of the Gulf, by and large, are not. In terms of the Caspian's importance for international oil companies and thus for European energy companies —notably BP, Royal Dutch Shell, Total, Eni, BG and a cluster of smaller energy and energy service companies—this makes the Caspian a very important area indeed. The four projects headed by BP in Azerbaijan, for example, entail some $20 billion in near-term investment. And, precisely because Caspian crude is being developed by commercial companies, this has a profound impact on development of regional, European and global energy markets.

15. Separating oil and gas issues. Because oil and gas are generally developed, marketed and often transported in very different manners, consideration of Caspian gas issues will be separated out from those of oil, with only a general point made at this stage, that potentially the availability or non-availability of Caspian gas may play an even greater role that Caspian oil in shaping Europe's energy future. Oil is an essentially fungible commodity that can be transported, and thus marketed, in a number of ways. Whilst usually delivered by pipeline or maritime tanker, it can also be transported by rail or even, in extremis, by truck. If one route is closed, alternatives can commonly be found, though this may take some months or even years to achieve. Essentially, however, oil will always seep out. There may be an additional tariff to pay for passage via monopoly pipeline operators, but, at worst, this increases the overall purchase price of the crude by only a small percentage. Gas is different. It commonly requires long-term contracts linking both producer and consumer, and connections between the two on a non-interruptible basis. If a particular oil flow gets cut off, whether by accident or deliberately, it's a nuisance but the refineries or plants dependent on it can either switch to an alternative source or wait out the problem. If a gas source is cut off, it's more likely to pose a crisis, particularly if there was no time to implement a structured shut down of the industrial and domestic consumer outlets reliant on that source.

16. Why focus on gas? It is gas—not oil—that makes the region of particular current interest. The European Union anticipates considerable increases in demand for imported gas (see Table Four—Three Scenarios for the European Gas Balance). But gas, whilst possessing some environmental advantages, also poses distinct problems. Oil can be transported to markets even if pipelines are blocked by other means—albeit at higher prices. Gas, by and large, needs a fixed infrastructure and its transport routes are far less flexible. That is why Russia with its pipeline monopoly can charge two-to-three times as much to European customers as it is prepared to pay to Turkmenistan, Uzbekistan and Kazakhstan for gas imported from those countries. In general, gas development in the Caspian requires greater political input than oil.

17. The Caspian reserve base. The Caspian is a region on in which existing reserves are still be evaluated and in which, as a result of continuing exploration, new discoveries may yet be made. A bottom line assessment is that the region—comprising Azerbaijan, Kazakhstan, Turkmenistan, Uzbekistan and the immediate Caspian regions of Iran and Russia can be reasonably assumed to possess proven hydrocarbon reserves consisting of around 50 billion barrels (or around seven billion tonnes) of crude oil and around 320 trillion cubic feet (around 9.1 trillion cubic metres) of natural gas (This amounts to around 4.3% of the world's total proven oil reserves and around 4.5% of its total proven gas reserves (see Table Five—Caspian Oil and Gas Reserves at End-2005)[13] Oil production stood at around 2.1 mb/d in 2001 and has now risen to close to 2.5 mb/d. These figures are dwarfed by both the reserves and output of the Persian/Arabian Gulf. Even in the reasonably likely event that the next ten years or so might well see a doubling of both regional proven reserves and of actual production as exploration and development efforts intensify, the Gulf will continue to be a vastly greater global hydrocarbons reservoirs and a very much larger producer of both oil and gas.

18. What direction? Europe is potentially in a good position regarding both oil and gas from Central Asia. Despite the fact that the world's fastest growing energy markets are to be found in the Asia-Pacific region, to the East and South of the Caspian, and fully taking into account the likelihood that China will proceed with developing new oil and gas pipelines from Central Asia, oil will continue to flow to the North and West in the near future with the bulk of the next generation of oil transportation systems built in that direction. The region's three biggest oilfields—Kazakhstan's onshore Tengiz field, Kazakhstan's offshore Kashagan field and Azerbaijan's offshore Azeri-Chirag-Guneshli complex—are all being developed on the basis that most of the output will flow west. Existing gas flows, mainly from Turkmenistan, effectively flow west, albeit via Russia. These will be maintained and will constitute the bulk of the region's gas exports for some years to come.

19. Caspian issues—Oil. Transit problems impact producer countries far more than their consumers. As noted above, oil is fungible, if produced it will get to market somehow. But Russian blocking of the expansion of the Caspian Pipeline Consortium's line (from Atyrau in Kazakhstan to Novorossiysk on Russia's Black Sea coast) means delays to Caspian projects intending to use that line to reach global markets. A trans-Caspian Pipeline for oil has long been envisaged but Russia opposes trans-Caspian pipelines and probably has both the means and determination to stop them. This does not constitute a crucial setback for producers on the eastern shores of the Caspian, however, since they can ship crude oil across the Caspian by tanker and then use the newly completed Baku-Tbilisi-Ceyhan pipeline to reach the Mediterranean. Kazakhstan and Azerbaijan have already signed a preliminary agreement covering delivery of up to 500,000 b/d in this fashion. Although commercial sense would indicate that a pipeline would be cheaper for volumes above this level, and Kazakh exports via BTC could well exceed 1.0 mb/d in ten years or so, the cost of continuing reliance on tankers for this leg of the export route would likely be considered acceptable—annoying, but necessary.

20. Caspian issues—Gas. Gas is much less fungible, much more tied to both specific producers and specific consumers. Transit problems thus impact on both producers and consumers. Getting gas across the Caspian—essential if a way is to be found to get Caspian gas from either Kazakhstan or Turkmenistan to Europe without transitting Russia—poses particularly complex problems. Until now, the focus has always been on a trans-Caspian pipeline, a project strongly opposed by Russia. The EU is currently commissioning a feasibility study to study the relative merits of a trans-Caspian pipeline and shipping across the Caspian by means of either liquefied natural gas (LNG) or compressed natural gas (CNG). In practice, given the political complications that a pipeline would entail and the presumed high expense of LNG, the focus is very much on trying to ascertain whether CNG is a viable option.

21. The status of the Caspian Sea. Although there is no consensus agreement on how the Caspian's resources might be either shared or divided up between its five littoral states—Azerbaijan, Iran, Kazakhstan, Russia and Turkmenistan—in practice the problem is less troublesome than might be expected. A series of bilateral agreements have enabled Azerbaijan, Russia and Kazakhstan either both to develop already proven offshore resources and to explore for further resources in the Caspian on the basis of division of sub-sea mineral resources along what they term a modified median line. In addition, Russia's agreements with its two Caspian neighbours provide for joint development of fields straddling the line. A similar formula is almost certainly acceptable to Azerbaijan in terms of resolving its own boundary issues with Turkmenistan and this may well prove to be the approach that enables Turkmenistan to agree delimitation lines with both Kazakhstan and Azerbaijan, and perhaps with Iran as well. The most problematic outstanding issue may turn out to concern Iranian claims over the prospect which Azerbaijan terms Alov and to which Iran sent a gunboat in July 2001 to stop BP's exploration activity under an Azerbaijani contract. However, whilst none of the states have objections in principle to one kind of sub-sea line—production lines connecting offshore oilfields to onshore facilities—Russia, backed by Iran, vehemently opposes development of trans-Caspian transit pipelines so long as the formal question of the Caspian Sea's legal status remains unresolved. This raises the possibility that Russia might take some form of action, possibly akin to that carried out by Iran in July 2001, to prevent such a pipeline being made. In legal terms, the Caspian's lack of agreed status neither permits nor prohibits the laying of such lines.

22. Lines to China. China is studying the import of gas from both Turkmenistan and Kazakhstan and currently seems to be considering whether the best solution would be to merge the projects into a single line from Turkmenistan to Kazakhstan to China, which would not only link the two countries, but also Kazakhstan's producer and consumer regions. Together with a similar plan for a 20 mt/y (400,000 b/d) oil pipeline from Kazakhstan's Caspian producing regions to link up with the recently completed line connecting eastern Kazakhstan with western China, this would ensure that Kazakhstan's own oil and gas could reach the country's industrial southern and eastern regions directly, rather than relaying on financially disadvantageous transit via Russia, or swaps with Russia. Kazakh officials have said that they expect a decision on both projects this year. Actual pipelaying for the oil pipeline, expected to take 18-24 months to complete, could start later this year, enabling the line to enter service in 2009, with actual pipelaying started in 2008 and the lines to be operational in or around late 2009.

23. Kazakhstan's stance. There are particular problems for Kazakhstan concerning energy development, particularly regarding Russian opposition to trans-Caspian pipelines. Kazakhstan feels that it cannot say no to Russia on anything until it can say no to Russia on everything. To seriously develop a trans-Caspian pipeline project Kazakhstan needs very strong EU political support, and financial commitments to actual pipeline construction costs. Kazakhstan will be careful not to damage its relations with Russia until it believes that the EU is committed to do more than financing studies. In the meantime, under a 2006 agreement with Azerbaijan, Kazakhstan is to increase its tanker fleet so that it can export up to 500,000 b/d of crude across the Caspian to the Azerbaijani terminal at Sangachal, near Baku. The assumption is that after that level is reached, a pipeline will be put in place to link the two countries. But although that would be the most economic solution, expansion of tanker traffic will remain a possible alternative. In practical terms, Kazakhstan's oil and gas production is set to grow from current levels of around 1.3 mb/d (total 2006 production was 64.8 million tonnes) to around 2.5 mb/d (about 125 million tonnes) in 2015. It should reach 3.0 mb/d a few years later and eventually could well exceed 4.0 mb/d.

24. Turkmenistan's stance. Developing Turkmenistan's gas used to be considered impossible because of the poor investment climate under Niyazov. After Niyazov's death, whilst signalling its commitment to honouring its existing agreements with Russia and China, Turkmenistan has said it is looking to expand gas sales to Iran, is considering a project developed by the Asian Development Bank to construct a gas pipeline across Afghanistan to Pakistan and India and will explore trans-Caspian pipeline projects. Its acknowledgement that it needs foreign investment to ensure expanded production and its interest in securing an audit of some key gas reserves indicate that the new administration of President Gurbanguly Berdymukhammedov is seriously trying to develop a coherent oil and gas development policy. Turkmenistan's ambitions for increasing its gas output are very considerable. It produced 64.9 bcm in 2006, is aiming to produce 78.8 bcm this year and has set targets of producing 120 bcm in 2010 and 250 bcm in 2030. It probably possesses the reserves that would justify such an increase—although specific field audits are definitely required. But the real question is whether it can secure the necessary capital investment. Turkmenistan is committed to supplying Russia with 50-60 bcm this year, whilst Iranian exports are expected to total 7-8 bcm. A framework agreement with Russia commits Turkmenistan to supplying up to 80 bcm a year to 2028.

25. Azerbaijan's stance. Azerbaijan wants to cooperate with the EU (and with Turkey and the United States as well) in energy issues. New oil and gas pipelines link Azerbaijan with external markets in a manner that avoids Russia and enables Azerbaijan to sell its hydrocarbons at competitive prices on the open market. The principal new pipelines are the 1.0 mb/d Baku-Tbilisi-Ceyhan pipeline to Turkey's Mediterranean coast (which is capable of being expanded to 1.6 or even 1.8 mb/d) and its twin, the Baku-Tbilisi-Erzurum gas pipeline, which has a maximum practical capacity of around 20 bcm/y. Azerbaijani production is expected to reach 1.0 mb/d in 2008 and will probably reach a plateau of around 1.2 mb/d or 1.3 mb/d in 2010-11.

26. Azerbaijani gas. Azerbaijan's immediate concern, not least as a result of its failure to agree price terms in December 2006 for continuation of Russian gas supplies, is the further development of its own gas resources. In particular, it wants to meet its 6.6 bcm/y export commitment to Turkey, to supply increased volumes of perhaps 0.8 bcm/y to Georgia to help Georgia overcome its own Russian-related gas problems and to start to implement further commercial gas exports to Greece via the soon-to-be completed Karacabey-Komotimi pipeline from Turkey to Greece (due to open in July), and its subsequent extension to Italy. The next two years or so will be crucial in two respects, as this is the period in which likely production volumes from the second phase of development at Azerbaijan's giant Shah Deniz should become known; at the same time Azerbaijan should be able to reach agreements on test drilling for new sources of gas believed to lie under the giant Azeri-Chirag-Guneshli oilfield complex. Development of new sources of gas could prove critical for the Nabucco project, since the limited availability of gas from the first phase of Shah Deniz means Azerbaijan's gas export development is not sufficiently advanced that it can provide enough gas to kick-start both the Turkey-Greece-Italy interconnector and the planned Nabucco pipeline from Turkey to Central Europe within the timeframe of Nabucco's planned start up in 2011-12. This means the Nabucco project might either have to be postponed, or else it will have to secure input from other producers, with Iran the keenest prospective supplier and Russia as a dark horse.

27. Tajikistan and Kyrgyzstan. This is a region in Russia can play a highly positive role by helping to develop hydropower. Russian investment in the actual power projects coupled with Russia as an end-user for the electricity produced would likely prove sufficient to overcome current transit problems which have, in particular, seen Uzbekistan block Tajik hydropower exports regularly during the last 15 years. Development of Tajikistan in particular would help Afghanistan, with which it shares a 450-km border, as at least one US-backed hydropower project is aimed at transmitting electricity from Tajikistan to Afghanistan and later, if circumstances permit, to Pakistan and India.

THE EU AND CASPIAN GAS SUPPLIES

28. Augmenting Caspian gas supplies. In theory, Europe can look to the development of a plethora of pipelines serving an arc of prospective suppliers to Europe from Russia through the Caspian to the major Middle East producers (see Table Six—Potential Eurasian Gas Suppliers to the EU Market). In practice, the focus is on the Caspian with the European Council considering that Caspian gas should play a major role in its policy of diversifying its energy resources. However since current Russian policy remains predicated on its own access to cheap Caspian gas, Russia feels threatened by any opening of Caspian gas to hard cash markets, posing considerable energy security questions. The issue of augmenting gas supplies from the Caspian essentially falls into three parts: physical interconnectors between Turkey and the EU, combined with expansion of Turkey's main east-west gas trunkline; suppliers for EU diversification routes; and new connections from Central Asian producers to existing pipelines or pipeline corridors reaching Turkey or other Black Sea states with onward pipeline connections to the EU.

29. Physical interconnectors between Turkey and the EU. For both Azerbaijan and Iran, onward connections to EU markets are very much in prospect, with physical construction of a pipeline from Turkey to Greece under way (the first stage of a planned Turkey-Greece-Italy interconnector) and advanced preparations for a gasline from Turkey to Austria (the Nabucco project). A line through the west Balkans is also under consideration, but is best considered at this stage as a proposal, rather than a project.

30. The Turkey-Greece-Interconnector (TGI). The TGI interconnector has long been backed by the EU (Chris Patten was an early proponent) and little more needs to be done in terms of either moral or financial support. However, one issue might be worth considering. Albania has suggested re-routing the Greece-Italy leg to include Albania, voicing two arguments in favour of this amendment: a shorter and easier crossing under the Adriatic Sea and the use of Albania's depleted gas fields as a strategic gas storage facility for Europe, to be filled with gas from the pipeline.[14] This proposal is too late to be put into action for the first Greek-Italy interconnector but, with gas storage considered a vital part of energy security, might perhaps be considered in discussions on whether, or how, to develop a planned West Balkans gas pipeline, which currently postulates a line running from Greece to Austria, serving Macedonia, Serbia, Bosnia and Herzegovina, and Croatia en route. Another possibility would be creation of a direct east-west connection from northern Greece to Albania, with an onward connection to Italy.

31. Nabucco. If there is one project that holds the key towards major EU diversification from specific dependence on Russian supply it is Nabucco. In essence, Nabucco is a €5 billion project which can carry up to 30 bcm/y of gas from a multiplicity of prospective or potential suppliers via Turkey to core EU markets by means of a terminal at Baumgarten in Austria. There are two main customers in mind—and a third is a logical prospect. The first customers are the countries through which the line passes: Bulgaria, Romania and Hungary. Supplies by Nabucco would, initially, not so much replace Russian deliveries as take care of prospective demand increases. In the long-term, however, Nabucco offers a real prospect of reducing Russia's share of this market. The second group of customers are commercial offtakers at Baumgarten. Current efforts are focussed on smaller gas consumers but, as the line develops, major purchasers can be expected to join the bidding. The third, logical, customer is Ukraine (and Moldova). A spur from Romania to Ukraine, possibly involving little more than a reversal of current Ukraine-Romania gas connections, would provide Ukraine with its best—and cheapest (in terms of development cost). One great advantage of the Nabucco project is that it can be developed in two clear stages. The first relies essentially on existing capacity through the Turkish pipeline system and thus reduces initial expenditures to construction of the line from Turkish Thrace to Austria. A second phase will involve expansion of Turkey's East-West trunkline, in effect, laying of a new parallel pipe, and expansion of the Turkey-Austria sections by means of new pressure stations. Nabucco is already far advanced in terms of detailed planning and feasibility studies. But strong EU support in terms of financing—the EIB might be an appropriate vehicle—would clearly help.

32. The Ukraine option. In particular, a clear indication that the EU would sponsor studies into a connector to Ukraine is worth considering. By the time Nabucco might be ready to start delivering gas to Bulgaria and Romania, in or around 2011-12, Ukraine will be paying full European market prices or something close to them. In 2005, the Ukrainian government's entire budget amounted to just $18.35 billion, but in 2006 the sum due for gas imports alone exceeded $4.85 billion. And if Ukraine were to import 51 bcm in 2007 (the same as its planned 2006 imports) and were to pay the full $230/tcm for those imports that it paid for the Russian proportion of its 2006 imports, the bill would amount to $11.73 billion. That's a sum that amounts to around one-sixth of the country's entire GDP. As Ukraine moves reluctantly towards gas payments made on an essentially free market basis, it has an obvious interest in promoting competition between suppliers in order to maximise downward pressure on prices. Indeed, it can be argued that no other major European market has such an acute interest in supply diversification.

33. The pipeline development paradox. In considering the development of new pipelines, the EU needs to note there is a fundamental paradox. The development of the energy infrastructure used to import oil, gas and electricity is essentially organised on a national basis (sometimes, with groups of EU member states). There is a major potential weakness in this: pipelines or import facilities developed on an essentially bilateral basis may squeeze out pipelines and facilities intended to serve multiple suppliers and multiple customers, which have a greater potential for lower import costs.

34. Suppliers for EU diversification routes. Both TGI and Nabucco are essentially predicated on the same combination of supply sources. The first is Turkey's excess imports, since for the next several years Turkey's agreed import volumes will continue to exceed actual or projected consumption. Much depends on the terms of various specific import contracts. Current Turkish imports from Iran are—from an Iranian perspective—almost certainly available for re-export from Turkey and, indeed, Iran has held talks with Greece on this subject. However, imports from Russia are likely to prove more complex to export. The issue of Turkish re-exports goes to the heart of EU concepts of a single integrated market and the extension of the Energy Community in South East Europe to include Turkey. The second supply source is Azerbaijan, which is due to start delivering gas to Turkey towards the end of this year. Deliveries are due to reach a plateau of 6.6 bcm in 2008-9 and will stay at that level until around 2012, which is when Stage Two of Azerbaijan's Shakh Deniz gasfield is due to come on stream, potentially doubling output through the SCP pipeline.

35. Iran as supplier. Should the nuclear issue be resolved, Iran could well become a major European gas supplier. It has memoranda of understanding to supply gas to Switzerland and Austria in five years or so—presumably via Nabucco—and has recently intensified talks with Turkey on transit of much greater volumes of Iranian gas to and through Turkey than its current 10 bcm/y deliveries.

36. New connections from Central Asian producers. The three Central Asian countries—Kazakhstan, Turkmenistan and Uzbekistan—all produce gas, and are all looking to secure new export routes. At present only Turkmenistan has an alternative to Russia, in that it is able to export some 6-7 bcm/y to Iran by means of a 12 bcm/y capacity gas pipeline along its Caspian coast which connects to Iran's main east-west Caspian system. Turkmenistan is the key to potential gas connections to Europe that bypass Russia (and which can also bypass Iran). That is because any pipeline designed to avoid both Russia and Iran would have to enter Europe via Azerbaijan—and by far the easiest crossing of the Caspian is to be found between Turkmenistan and Azerbaijan. Although Kazakhstan and Azerbaijan share a common maritime seabed boundary, thus making a trans-Caspian pipeline politically feasible, the route is both much deeper and more beset by mud volcanoes and difficult geological conditions. In 1999, Turkmenistan signed an agreement to supply 30 bcm of gas to Turkey—with 16 bcm going to Turkey itself and 14 bcm for onward throughput to Europe—via a trans-Caspian pipeline that would have then crossed Azerbaijan and Georgia before entering Turkey. The agreement is only due to take effect as and when Turkmenistan is in a position to deliver gas to the Turkish border. In 2000, Turkmenistan's President Niyazov rejected detailed proposals for such a line, not least because he had failed to secure a substantial up-front payment from the project's promoters, which included Royal Dutch Shell, of at least $300 million.

37. Reviving a TCP from Turkmenistan. Revival of this project is now favoured by a broad array of external parties, with the new government of President Gurbanguly Berdymukhammedov specifically expressing interest in it. Azerbaijan's Industry and Energy Minister Natiq Aliev has said a trans-Caspian gas pipeline would be able to carry gas from both Turkmenistan and Kazakhstan via Azerbaijan and Georgia to European markets. Aliev has urged Turkmenistan and Kazakhstan to back the project, declaring that opposition to the pipeline was political, not technical, and that a revived TCP "would ensure Europe's energy security and protect it from Russian monopolism." On 8 May 2008, Azeri deputy Foreign Minister Araz Azimov said "if the project is implemented, Azerbaijan will take part with great pleasure."[15] Turkey specifically endorses the concept of a revived trans-Caspian gasline from Turkmenistan, arguing that it is the only factor that can ensure Nabucco gets off the ground on schedule.[16]

38. EU Strategy and Turkey's role. The external aspects of the EU's energy strategy focus on importing more gas from North Africa and opening gas import routes from the Caspian that would avoid Russia. In effect this means going through Turkey. A pipeline from the Caspian region via Georgia to Ukraine, in technical and engineering terms, is feasible. But, despite some assertions, Ukraine is not suitable candidate because it is not a market economy and remains distinctly vulnerable to Russian pressure. Turkey, however, also poses problems. Turkey has strong relations with Russia, from which it receives 65% of its vital gas imports, and will have to think very carefully before snubbing Russia, which would like to use Russian gas deliveries to and through Turkey as a way of pre-empting transit from other has producers hoping to reach the European market via Turkey. There is considerable official sentiment in Turkey for development of a privileged partnership relationship between Russia and Turkey, modelled on the kind of relationship which former German Chancellor Gerhard Schroeder developed with Gazprom. But while this would appear to be the approach currently favoured in Ankara, Turkey probably remains amenable to a counter proposal for favoured partnerships with Caspian producers, if accompanied by a genuine warming of relations with the European Union. Nothing has yet been decided but the time is fast approaching when the EU and Turkey will have to make some very tough choices. If the EU is serious about wanting to develop a corridor for Caspian gas, then it has show that it genuinely values Turkey—and the only way it can really prove this point is by becoming positively enthusiastic about Turkish entry into the EU. On the other hand if Turkey wants to accede to the EU, then in order to cooperate with the EU's Caspian gas energy strategy it will have to face down Russia by denying Gazprom the kind of access to Turkish lines that it would like to secure.

39. Conclusion. Projects concerning Caspian energy development obviously need to be both commercially and politically practical. But political approval may not be sufficient; Russian opposition to Caspian energy developments directed toward Europe mean they are also likely to require strong political advocacy.

John Roberts

8 May 2007

Table One

KEY GAS FIGURES FOR EUROPE AND LEADING SUPPLIERS (IN BILLIONS OF CUBIC METRES—BCM; OR IN BILLIONS OF CUBIC METRES PER YEAR—BCM/Y)

Key Demand, Production & Supply in 2005 (for EU-25)

Demand Production Supply

EU-25 471.2 EU-25 199.7 EU-25 Net imports 271.5

Russia 405.1 Russia 598.0 From Russia 123.0

Ukraine 72.9 Norway 85.0 From non-Russia 148.5

Turkey 27.4 Algeria 87.8 — From Norway 79.6

— From Algeria 56.8

Source: BP.

EU Additional Gas Supplies 2000-2030

Russia An extra 79 bcm/y

Central Asia An extra 51 bcm/y

Middle East An extra 157 bcm

West and North Africa An extra136 bcm

Americas (mainly Trinidad & Tobago) An extra 18 bcm/y

Source: Dr Fatih Birol, Chief Economist for the International Energy Agency. Presentation to the seminar on Natural Gas in South East Europe: Investment, Transit, Trade. Istanbul 5-6 May 2004.

Russia's Gas Balance in 2005

Production: 598.0

Consumption: 405.1

Available for export: 192.9

— Actual exports by pipeline: 151.28 bcm.*

* This is essentially a hard-cash export market figure. Other exports went to former Soviet countries.

Source: BP.

Gas traded in 2005

World Europe

Pipeline 532.6 c.225.5

LNG 188.8 46.0

Total 721.4 271.5

Source: BP.

Table Two

RUSSIAN AND EU ENERGY CONSUMPTION 2004-05

	EU-25	Russia
	mtoe	mtoe
TPES—2005	1715.1	679.6
Gas—2005	424.1	364.6
	EU-30	Russia
Population—2004 (m)	575.64	143.5
*TPES—2004 (mtoe)	1,931.0	670.5
Gas—2004 (mtoe)	462.0	361.7
Per capita gas use—2004 (mtoe)	0.803	2.521
TPES—2005 (mtoe)	1,937.8	679.6
Gas—2005 (mtoe)	474.0	364.6

Sources: IEA for population, BP for consumption.

*Mtoe—million tonnes of oil equivalent; TPES—total primary energy sources.

In effect, Russian per capita gas use is some three times higher than in the EU. Overall energy efficiency is also much worse, with German analysts specifically calculating that Russia uses three times as much energy as Germany per unit of output (an energy intensity of 0.52% for Russia against 0.17% for Germany).

Table Three

THE CASPIAN ROLE IN INTERNATIONAL ENERGY INCREASES, 2003-2030 (IN MILLIONS OF BARRELS PER DAY, UNLESS OTHERWISE NOTED)

International Petroleum Output and Exports

2003 2004 2005 2010 2015 2020 2025 2030 2004-30
% increase
per year

Caspian 1.92 2.32 2.36 2.99 4.18 5.46 6.25 7.43 4.6%

Opec 29.50 30.78 32.15 36.67 38.34 40.27 42.82 45.82 1.5%

Non-Opec 50.39 51.68 52.03 54.33 58.56 64.43 68.62 71.98 1.3%

Net Eurasia Exports 5.44 6.31 6.64 6.67 8.02 9.40 10.75 11.60 2.4%

Source: Energy Information Administration, Annual Energy Outlook 2006, Washington DC. Department of Energy, January 2006.

Table Four

THREE SCENARIOS FOR THE EUROPEAN GAS BALANCE (IN BILLIONS OF CUBIC METRES—BCM)

1. BALANCE TO 2015 AND 2030—INTERNATIONAL ENERGY AGENCY—ALTERNATIVE SCENARIO

Demand Production

2005 2015 2030 2005 2015 2030

EU-25 471.2 542 581 EU-25 199.7 250 200

Russia 405.1 434 463 Russia 598.0 n/a n/a

Ukraine 72.9 n/a n/a Norway 85.0 80 90

Turkey 27.4 54.5 (63.2 in 2020) Algeria 87.8 55 60

EU-25 Net Imports

2005 2015 2030

272.5 292 381

Source: International Energy Agency—Alternative Scenario—2005.

Botas forecasts used for Turkey in 2015 and 2020.

2.  BALANCE TO 2020 (EDISON)

2005 2020

EU-30 demand 575 700-750

EU-30 own supply* 330 220

Net EU-30 imports 245 480-530

—  Russia pipe 150 210

—  N. Africa pipe 40 75

—  Caspian 10 50

—  LNG 45 150-200

*  (including Norway).

Source: Edison.

3.  BALANCE TO 2030 (OME)

2005 2030

Europe Demand 502 816

—  Europe—own supply 211 163

—  Norway 79 100

—  Russia 126 221

—  Algeria 56 115

—  Others 31 217

Europe defined as EU 25 plus Balkan states plus Switzerland.

Source: Observatoire Méditeranéen de l'energie 2006.

Table Five

CASPIAN OIL AND GAS RESERVES AT END-2005

	Billion barrels	MT	% of World	TCF	TCM	% of World
Azerbaijan	7.0	1.0	0.60	48.4	1.4	0.8
Kazakhstan	39.6	5.4	3.30	105.9	3.0	1.7
Iran*	0.1	0.0	0.00	n/a	n/a	0.0
Russia*	2.7	0.4	0.04	n/a	n/a	0.1
Turkmenistan	0.5	0.1	0.04	102.4	2.9	1.6
Uzbekistan	0.6	0.1	0.05	65.3	1.9	0.3
Caspian Total	49.1	7.0	4.30	322.0	9.1	4.5
Russia	74.4	10.2	6.20	1688.0	47.8	26.6
Iran	137.5	18.9	11.50	943.9	26.7	14.9
World	1,200.7	163.6	100.00	6,348.1	179.8	100.0

Oil in billions of barrels and millions of tonnes; gas in trillions of cubic feet and trillions of cubic metres.

Primary Source: BP Statistical Summary.

* US EIA; refers to Caspian regions only.

Table Six

POTENTIAL EURASIAN GAS SUPPLIERS TO THE EU MARKET (BY PIPELINE)

1. SUPPLY POTENTIAL AS OF 2010

Country Volume Transit Potential increase to: Existing

Iran 10 bcm Turkey 20-30bcm 3-10 bcm

Turkmenistan 13 bcm Iran/Turkey 30 bcm 13 bcm

Turkmenistan 34-80 bcm Russia 80 bcm 50 bcm

Turkmenistan 10-36 bcm Russia/Ukraine 36 bcm 36 bcm

Azerbaijan 7 bcm Turkey 20 bcm 6-20 bcm

Iraq 10 bcm Turkey 20 bcm none

Egypt 4 bcm Jordan/Syria 10-12 bcm Link to Jordan/Syria*

* Egypt-Jordan gasline has now reached central Syria

2. ADDITIONAL SUPPLY POTENTIAL POST-2015

Country Volume Transit Country Existing System

Qatar 20-30 bcm Kuwait/Iraq/Turkey None

Egypt 10-12 bcm Jordan/Syria Link to Syria

Saudi Arabia unknown Jordan/Syria/Turkey None

Kazakhstan 10-20 bcm Azerbaijan/Turkey None

Turkmenistan 20-30 bcm Azerbaijan/Turkey None

Turkmenistan 30-36 bcm Iran/Turkey Limited connections*

Uzbekistan 5-10 bcm Turkmenistan/Azer/Turkey None

* Turkmenistan's Caspian shore gasfields are already linked into the Iranian network via the 12 bcm/y capacity line from Korpedzhe to Kurt-Kui, but there are no significant connections to Iran from Turkmenistan's main central and south-eastern gasfields.

3. POTENTIAL GAS PIPELINES FROM TURKEY TO CURRENT EU MEMBER STATES

Route Initial LT capacity Comments

Turkey-Greece 0.75bcm 3-11 bcm Due to open July 2007

Greece-Italy Interconnector 22 bcm 22 bcm Under study. Possible opening 2009

Turkey-Austria (Nabucco) 3-5 bcm 25-30 bcm Under study. Possible opening 2011

Greece-Western Balkans- Hungary-Austria ?? 10-20 bcm?? Preliminary proposal

Southstream ?? 20-30 ?? Proposed by Gazprom; talks with MOL

Greece, Albania, Italy (Trans-Adriatic) ?? c. 12 bcm? Proposed construction 2008-2010.

Source: IEA, John Roberts.

Note: Gazprom's Southstream is included because its route coincides in part with other prospective Eurasian pipelines.

Table Seven

INTERNATIONAL PETROLEUM SUPPLY AND DISPOSITION SUMMARY (IN MILLIONS OF BARRELS PER DAY, UNLESS OTHERWISE NOTED)

	2004	2005	2010	2015	2020	2025	2030	Growth pa
Crude Oil Prices (2005 dollars per barrel)1
Imported Low Sulfur Light Crude Oil	42.87	56.76	57.47	49.87	52.04	56.37	59.12	0.2%
Imported Crude Oil	37.09	49.19	51.20	44.61	46.47	49.57	51.63	0.2%
Conventional Production (Conventional)2
OPEC3
Asia	1.18	1.17	1.11	1.10	1.09	1.08	1.10	-0.2%
Middle East	22.60	22.96	22.23	24.03	26.60	29.72	33.20	1.5%
North Africa	3.55	3.78	4.29	4.51	4.24	4.07	3.93	0.2%
West Africa	2.47	2.78	3.07	3.81	4.10	4.32	4.48	1.9%
South America	2.75	2.71	2.59	2.42	2.30	2.24	2.24	-0.8%
Total OPEC	32.55	33.41	33.30	35.87	38.33	41.44	44.95	1.2%
Non-OPEC
OECD
United States (50 states)	8.46	8.03	8.98	9.45	9.48	9.18	9.12	0.5%
Canada	2.12	2.12	1.93	2.01	1.89	1.76	1.62	-1.1%
Mexico	3.85	3.78	3.15	3.01	3.18	3.35	3.52	-0.3%
OECD Europe4	6.39	5.96	5.73	4.91	4.22	3.64	3.16	-2.5%
Japan	0.12	0.10	0.10	0.10	0.10	0.10	0.10	0.0%
Australia and New Zealand	0.58	0.60	0.56	0.51	0.51	0.55	0.60	-0.0%
Total OECD	21.53	20.59	20.45	20.00	19.39	18.57	18.12	-0.5%
Non-OECD
Russia	9.27	9.51	9.98	10.30	10.79	11.23	11.54	0.8%
Other Eurasia5	2.21	2.48	3.98	4.91	5.41	5.99	6.55	4.0%
China	3.64	3.74	3.53	3.20	3.30	3.30	3.20	-0.6%
Other Asia6	2.80	2.53	2.29	2.50	2.60	2.60	2.50	-0.1%
Middle East7	1.68	1.67	2.00	2.20	2.40	2.70	2.90	2.2%
Africa	3.40	3.59	5.19	6.45	7.38	8.51	9.83	4.1%
Brazil	1.58	1.76	2.39	2.90	3.20	3.50	3.90	3.2%
Other Central and South America	2.35	2.31	2.32	2.54	2.66	2.75	2.90	0.9%
Total Non-OECD	26.94	27.59	31.67	35.00	37.75	40.59	43.32	1.8%
Total Conventional Production	81.01	81.59	85.42	90.86	95.47	100.59	106.40	1.1%
Unconventional Production8
United States (50 states)	0.22	0.25	0.71	0.81	0.91	1.20	1.37	7.0%
Other North America	1.09	1.09	1.91	2.32	2.74	3.25	3.66	5.0%
OECD Europe3	0.04	0.08	0.15	0.18	0.19	0.23	0.27	5.1%
Middle East7	0.08	0.02	0.57	0.64	0.75	0.89	1.11	16.8%
Africa	0.16	0.16	0.32	0.42	0.52	0.62	0.73	6.3%
Central and South America	0.83	0.93	1.35	1.59	1.81	2.18	2.40	3.9%
Other	0.02	0.28	0.62	0.81	0.90	1.05	1.41	6.7%
Total Unconventional Production	2.44	2.80	5.63	6.78	7.83	9.42	10.93	5.6%
Total Production	83.45	84.39	91.05	97.64	103.29	110.01	117.33	1.3%
Source: Energy Information Administration, Annual Energy Outlook 2007, Table A20 (reference case annual growth).
Footnotes:
1 Weighted average price delivered to US refiners.
2 Includes production of crude oil (including lease condensates), natural gas plant liquids, other hydrogen and hydrocarbons for refinery feedstocks, alcohol and other sources, and refinery gains.
3 OPEC = Organization of Petroleum Exporting Countries—Algeria, Indonesia, Iran, Iraq, Kuwait, Libya, Nigeria, Qatar, Saudi Arabia, the United Arab Emirates and Venezuela. Does not include Angola which was admitted as a full member to OPEC on 14 December 2006.
4 OECD Europe = Organization for Economic Cooperation and Development—Austria, Belgium, Czech Republic, Denmark, Finland, France, Germany, Greece, Hungary, Iceland, Ireland, Italy, Luxembourg, the Netherlands, Norway, Poland, Portugal, Slovakia, Spain, Sweden, Switzerland, Turkey and the United Kingdom.
5 Eurasia consists of Armenia, Azerbaijan, Belarus, Estonia, Georgia, Kazakhstan, Krygyzstan, Latvia, Lithuania, Moldova, Russia, Tajikistan, Turkmenistan, Ukraine and Uzbekistan.
6 Other Asia = Afghanistan, Bangladesh, Bhutan, Brunei, Cambodia (Kampuchea), Fiji, French Polynesia, Guam, Hong Kong, Indonesia, Kiribati, Laos, Malaysia, Macau, Maldives, Mongolia, Myanmar (Burma), Nauru, New Caledonia, Niue, North Korea, Pakistan, Papua New Guinea, Philippines, Samoa, Singapore, Solomon Islands, Sri Lanka, Taiwan, Thailand, Tonga, Vanuatu and Vietnam.
7 Non-OPEC Middle East includes Turkey.
8 Includes liquids produced from energy crops, natural gas, coal, oil sands and shale. Includes both OPEC and non-OPEC producers in the regional breakdown.
Note: Totals may not equal sum of components due to independent rounding. Data for 2004 and 2005 are model results and may differ slightly from official EIA data reports.