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Central Asia's new, pivotal role

by Arabian Oil & Gas Staff on Oct 18, 2016

Colin Chapman is the president of Euro Petroleum Consultants.
Colin Chapman is the president of Euro Petroleum Consultants.

The Central Asia region (CAR) includes six republics of the former Soviet Union: Kazakhstan, Turkmenistan, Azerbaijan, Uzbekistan, Kyrgyzstan and Tajikistan. It is sometimes referred to as Middle Asia.

The region stretches from the Caspian Sea in the west to China in the east, and from Afghanistan in the south to Russia in the north.

It has become recognised in global oil and gas circles as a prospective producer of energy and fuels, and as an important transportation link between different parts of Eurasia.

Many countries in the CAR have turned eastwards when considering investment, joint projects execution, trading, and other business activities, in recognition of the importance of these growth markets. This hasn’t always been the case, however. Until recently, Central Asia had been overshadowed by larger countries in the region, such as India and China, and by emerging economies in Africa.

The CAR is rich in natural resources, with estimated reserves of between 110 billion and 240 billion barrels of crude oil, at around $4tn in value.

The largest oil producer in Central Asia is Kazakhstan and, together with one of the biggest oil suppliers in Western Asia, Azerbaijan, may be home to reserves as much as three times greater than those of the US. These countries have a strategic location, but geopolitical risks, lack of industrial and civil infrastructure, and demographic problems have all held back the development of their oil and gas sectors.

Presently, almost all European consumers have close long-term supply relations with partners from Russia and the Middle East and, as such, it is unlikely that they will become a final point of trade for Central Asian countries in the foreseeable future. However, due to the location of the region, the most important clients will likely be India and China, the highest-growth countries when it comes to energy demand.

This fact could ensure that the CAR receives more financing for projects, and will be a further incentive to develop the required infrastructure in these countries.

China has been participating in different projects in Central Asia for some time now, particularly in Kazakhstan, investing in construction works and supplying technology and equipment, with a focus mainly on the upstream sector. The key reason for this is China’s motivation to expand and diversify the sources of its energy imports.

The Chinese strategy is to feed its growing refining and petrochemicals industry in order to first meet domestic demand, and then to export high-value products to other regions. Another goal is to stabilise the internal energy balance by having long-term contracts with reliable oil producers in the Middle East, Africa and, now, the CAR.

For Central Asia, the first step in looking to provide crude oil to external markets is to further develop its oil and gas fields, and to implement thorough geological surveys in order to confirm and sustain levels of proven oil reserves and production. There are already many joint ventures (JV) with oil majors such as ExxonMobil, Shell, Chevron, Conoco, Eni, and others. These companies bring to the table the latest techniques and know-how, which result in a rapid increase in oil and gas field development.

This strategy has been in place for several years, and there has been a surge of oil crude and condensate production volumes, but the CAR has been particularly vulnerable to the uncertainties caused by the low crude price environment and global stagnation. In 2014-15, the oil extraction rates fell to a very low level, making it even more difficult for local companies to survive and overcome the present market situation.

Infrastructure expansion has been significant in the last decade; the existing pipeline network supports only two routes (northern and western), but as soon as all expected oil pipelines are constructed and commissioned, the CAR will become an important hub that connects many regions and directions, including Europe, China, Russia, India, and the Caspian and Caucasus regions. In terms of gas transportation networks, there needs to be more agreements made in order to allow the implementation of a similar kind of pipeline network.


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