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Potential of CARs to Supplement India’s Energy Imports

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Any opinions, findings, conclusions or recommendations expressed in this material are those of the authors and do not necessarily reflect the views of UK Essays.

Published: Tue, 06 Mar 2018

CHAPTER I

INTRODUCTION

Indian economy has grown at a rapid pace in the last five years and so has the demand for energy of a billion people. India imports 70% of its domestic crude oil requirements. The bulk of India’s oil imports come from West Asia. The supply routes pass through the choke point of Strait of Hormuz. Any disruption in these will severely impact our national interest. Hence there is a need to diversify our supply sources in order to reduce our dependence on Gulf oil. Central Asian Region being rich in energy resources and located in our extended neighbourhood offer a tempting prospect.

The CARs situated on the eastern flank of the Caspian Sea have significant oil and natural gas reserves to be considered as a possible source of diversification for countries heavily dependent on energy imports from West Asia and elsewhere . While estimates of reserves vary widely across different sources, there is a consensus that the region has much potential.

Energy is the engine of economic growth. Availability of energy is the key to sustainable development, and has a direct impact in most aspects of our daily life. Inadequacy of energy supply affects very adversely vital and essential requirements of any society. Hence, there is an urgent need to enhance substantially the energy availability at a rapid pace so that aspirations of those who have remained at the fringes of development are able to benefit from access to this important input.

The Central Asian Republics comprising of Kazakhstan, Kyrgyzstan, Uzbekistan, Tajikistan and Turkmenistan encompass the vast geo- political space north of India. When part of the USSR, the region had stability and was thus of little interest to the international world order. Relations with India were determined with the framework of Indo-USSR relations as existed between New Delhi and Moscow. The post – USSR environment has changed all this, requiring New Delhi to re- establish relations with the five newly independent nation- states on the basis of new realities.

It is remarkable that while energy resources are getting increasingly scarce in the rest of the world, new oil fields are being discovered with great regularity in Central Asia. Some experts maintain that Central Asian resources may be difficult to reach because of it is the largest land mass in the world, which is land locked. This is both a challenge and an opportunity, because in today’s technology driven world, it is not always necessary to transport material. This is the logic of investment abroad and organising production facilities there.

India has long-standing historical ties with Central Asia that encompasses the political, cultural, economic and religious dimensions. The impact of regional developments in Central Asia on India’s history has been longstanding and substantial.

According to Mr. Yashwant Sinha, Former Minister of External Affairs, Government of India, “India’s increasing engagement with Central Asia is aimed at promoting peace and mutual prosperity. Central Asia can once again be a bridge between the East and West, if its neighbourhood is peaceful and stable, and if the only interference from outside is one of beneficial economic inputs. The bridge can contribute to peace and prosperity and energy security in the wider world too.”

METHODOLOGY

Statement of the Problem

To examine the potential of CARs to supplement India’s Energy Imports & the possible routes through which Energy could flow to the South Asian Markets.

Hypothesis

Central Asian Republics as a region has been endowed with abundant energy resources. Their significance is due to their Geo-strategic loc as well as its rich energy deposits. The Geo- political developments in the region would perforce have an impact on India. Peace & stability in Central Asia is an imperative to harness the abundant energy resources. The Central Asian region represents a tempting prospect for diversification of supply sources to India, being located in its extended neighbourhood.

Justification of the Study

Indian economy has changed gears after the historic decision of liberalisation in 1991. Globalisation coupled with liberalisation ha s brought about a sea change in our lives .India has made rapid strides in industrialisation , IT industry , Telecom , Education, service industry and infrastructure development. Our energy consumption has far outpaced our domestic production. Most of our crude imports come from Gulf countries. The supply routes are prone to disruption and can severely impact our national interest. Although we have started acquiring energy stakes in Africa we need to diversify our energy sources.

While India is surrounded by energy rich neighbourhood-Pakistan, Bangladesh and Myanmar access to supply energy from these remain elusive. Political compulsions and indifferent relations are an impediment to energy imports through Bangladesh and Pakistan. In Myanmar ONGC has acquired exploration acreages. However any gas finds could make transportation a challenge unless Bangladesh allows transit through its territory.

In view of the above, energy imports from CARs in India’s extended neighbourhood needs to be critically examined in order to optimise the full potential of Indo-CAR energy cooperation.

Scope

This study seeks to focus on the potential of INDO- CAR energy cooperation and identify the possible routes of energy flow from CAR to India.

Methods of Data Collection

The means of data collection has been number of books and papers by various prominent Indian and foreign authors, newspapers and many other wide ranging array of sources. Various internet sites have also been browsed for data collection .Books and websites consulted are listed in the bibliography.

Organisation of the Dissertation

It is proposed to study the subject in the following manner:-

  • Chapter I: Introduction.
  • Chapter II: Emergence of CAR as Nation States and their Geo -Strategic significance.
  • Chapter III: India’s Energy Sources.
  • Chapter IV: Energy Potential of CAR.
  • Chapter V: Interest of Global and Regional Players in Central Asia.
  • Chapter VI: Challenges and Threats to Security of Central Asian Region.
  • Chapter VII: India – Central Asia Energy Cooperation.
  • Chapter VIII: India’s Strategy.
  • Chapter IX: Conclusion.

CHAPTER II

EMERGENCE OF CAR AS NATION STATES AND THEIR GEOSTRATEGIC SIGNIFICANCE

Emergence of CAR as Nation States

Disintegration of former USSR was a momentous occasion unprecedented in scale and unanticipated by any power of the world, which ended the cold war and saw the emergence of a unipolar world. The emergence of newly independent states in Central Asia has changed the balance of power in this region. Due to its geographical proximity to Russia, China, West Asia and South Asia, this region emerged as a distinct geopolitical entity.

Central Asian Republics at the dawn of independence were confronted with the numerous problems of state and nation building in a difficult milieu wherein various power centres competed for political power in a declining economy due to sudden severance of strong economic ties with Russia and consequent stoppages of Union subsidies. Rural unemployment and environmental degradation further contributed to aggravation of inter- ethnic relations. [1]

Central Asian leaders have proved wrong the Western apprehensions of balkanisation of the region. The Central Asian Republics have preserved intact their national independence and sovereignty and carved out a dignified place for themselves in the comity of nations. They have taken several positive diplomatic and political initiatives at the U.N. and other international fora. Their religious beliefs have not come in the way of developing mutually beneficial relations with Israel. The Central Asian Republics have cordial relations with China and India. They are members of Shanghai Cooperation Organisation (SCO) and the Commonwealth of Independent States Collective Security Treaty Organisation (CSTO) with the exception of Uzbekistan, which have contributed greatly to regional security environment. All of them except Turkmenistan are also members of Central Asian Cooperation Organisation (CACO). Their success in resolving the bloody internal conflict in Tajikistan by peacefully integrating the Islamic opposition into the mainstream politics of the republic is no mean feat. They have also evolved a strong joint response together with Russia and China to the threat of cross border terrorism and drugs and arms peddling.”[2]

“Central Asia, a landlocked region in the heart of Asia, is unique because it was the counterpoint of British and Russian empires in 19th century and still has the same importance now, but among the other players. Two decades after independence, Central Asia is not a stable region and some political crisis is still unsolved here. This situation is created by some players which include trans-regional and regional players looking after their own interests. The interaction and countering of the players in the region have resulted in the present situation that created an undeveloped region, while potentially it is significant due its geopolitical, geo-strategic and economic point of view.”[3]

Geostrategic Significance of Central Asian Republics

Central Asian Republics cover an area of 3,994,400 square kilometres. From the eastern shore of the Caspian sea , Central Asia extends eastwards to the Altai mountains along the Chinese border and from the southern border of the Russian Federation southwards upto the Tien Shan mountains and Afghanistan. (Map.1) Geographers have divided the region into four zones starting with the steppe zone of northern Kazakhstan and the Virgin lands (Tselana) ; semi deserts covering the rest of Kazakhstan; the desert zone upto the southern oases; and the southern mountains bordering all the republics which include the Kopet Dag, the Pamirs and the Tien Shan. [4]

From Kushka, the southernmost point of Central Asia, there is a narrow road to Afghanistan. Transit and transportation of goods and passengers between region and Afghanistan can be exchanged via this road. Marine routes of Caspian Sea facilitate the relations between Central Asian Republics with Caucasus, Iran and Russia and by Volga-Don waterway canal they can connect with free waters and many countries. In the north, vast Kazakh plain and lowlands and low-height mountains connect Central Asia via railroad and road network with Russia. This territory located between two great Asian power (China) and Asian-European (Russia) and regional players such as Iran, Pakistan, and India influenced and affected it and play their roles. To enter this land-locked territory one should pass the territory of neighbouring countries. From southwards one should pass Iran or Afghanistan. In the current situation, to cross through mountainous Afghanistan is not viable.[5]

One of the reasons for American presence in Afghanistan in east and Iraq in west of Iran is to surround Iran and Russia and to have access to Central Asia. Central Asia in north is bordered with Russia. Hence, to enter the heart of Russia is possible only via Central Asia and this is why Russia is against the presence of any foreign and trans-regional power in the region. Access to this territory from eastward is available by passing China’s western part (XinJiang Uighur Region). China will never allow any trans-regional power to enter in its critical, geopolitically very important western region and from there to Central Asian territory at all. The only passage to enter Central Asia by foreign powers is Caucasus in the west of region which will be available via Caspian Sea. This is why Caucasus region has got a gateway situation and the Caspian Sea itself changed to the gate of Central Asia. Georgia in the west of Caucasus is located in the mouth of Caucasian natural corridor and is a gateway to enter Caucasus. During Cold War era, it was strongly defended by Soviet Union and Warsaw Pact powers. After the collapse of Soviet Union, Russia attempted hard to preserve it, but after one decade, the western powers by execution of Rose Revolution headed by Mikhail Saakashvili in2003 changed this position and allowed west to enter Caucasus. The formation of Shanghai Cooperation Organization in the territory of Central Asia and neighbouring countries is the outcome of this geo-strategic challenge between East and West. This seems to be counterweight against America’s hegemonic movements.[6]

There are two movements in Central Asia and beyond. One is led by the West in west-east direction from Black Sea towards Central Asia through Caucasus, Caspian Sea and the other from North to South led by Russia in the vertical direction which cuts the west-east axis. The counter point of these two is Caspian Sea. This is why the Caspian Sea has vital importance for both sides.[7]

Russia within security and economic regional organizations has attempted to remove the American influence in the region and already has its effective means that America doesn’t have. There are some initiatives in the region which plays basic roles on security and geo-strategic environment of Central Asia. In fact, the future of Central Asia depends on the outcome of the New Great Game between America and Russia. Economic, geopolitics and geo-strategy of the Central Asia are very complicated.[8]

CHAPTER III

INDIA’S ENERGY SOURCES

With 16 percent of the world’s population and an emerging economy, India has become a significant consumer of energy resources. The majority of India energy needs are coal dependent . The shortage in supply of energy is met by energy imports from other countries. India is the world’s eleventh-largest energy producer, with 2.4 percent of energy production, and the world’s sixth-largest consumer, with 3.5 percent of global energy consumption. Domestic coal reserves account for 70 percent of India’s energy needs. The remaining 30 percent is met by oil, with more than 65 percent of that oil being imported. Demand for energy is expected to double by 2025; by then, 90 percent of India’s petroleum will be imported.[9]

Energy Sources

Coal. Coal accounts for more than half of India’s total energy consumption followed by oil, which comprises 31% of total energy consumption. Natural gas and hydroelectric power accounts for 8 and 6 % of consumption respectively.[10] (Refer Figure.1) Nuclear power comprises a very small percentage of total energy consumption at present. Domestic supplies satisfy most of India’s coal demand. According to the 2008 BP Statistical Energy Survey, India had 2007 coal consumption of 208 million tonnes oil equivalent. Unfortunately most of India’s coal is characterised by high ash content, but the quality has other useful qualities such as low sulphur content (generally 0.5%), low iron content in ash, low refractory nature of ash, low chlorine content and low trace element concentration.[11] With 7 percent of the world’s coal India has the fourth largest coal reserves. The Carbon Sequestration Leadership Forum (CSLF) estimates that at the current level of consumption and production, India’s coal reserves will last for more than 200 years.[12]

Oil. According to Oil and Gas Journal (OGJ), India had 5.6 billion barrels of proven oil reserves as of January 2009, the second largest amount in the Asia- Pacific region after China. India produced roughly 880 thousand billion barrels per day (bbl/d) in 2008.In 2007 India consumed approximately 2.8million bbl/d making it the fifth largest consumer of oil in the world.[13] (Refer Figure .2) India’s largest crude oil import partner is Saudi Arabia, followed by Iran. Nearly three-fourths of India’s crude oil imports come from Middle East.[14] (Figure 3).

Natural Gas. According to Oil and Gas Journal (OGJ), India had 38 trillion cubic feet (Tcf) of proven natural Gas reserves as of Jan 2009. The EIA estimates that India produced 1.1 Tcf of natural gas in 2007, up only slightly from 2006 production levels. Although India’s natural gas production has consistently increased, demand has outstripped supply making the country a net importer of natural gas since 2004.[15] (Refer Figure .4) India imports natural gas via Liquefied natural gas (LNG). LNG has not figured prominently in the energy mix, but is slowly increasing. Experts estimate that by 2012 India’s LNG imports will be on par with Japan’s current LNG imports of 60 million tonnes per annum. Although the Gas Authority of India Ltd. (GAIL) has already begun work on a National Gas Grid, there is considerable technological progress that has to be made in terms of extraction, transportation and delivery of LNG. It is estimated that once the grid is fully functional, LNG could offset a significant portion of India’s energy demand.[16] Fuel-wise energy production iis given in Figure.5.

New Exploration Licensing Policy and New Discoveries. Exploration blocks were put on offer under the New Exploration-Licensing-Policy(NELP) in1999 in order to try and attract private investment. India has offered 110 oil and gas blocks and 16 coal-bed-methane blocks for exploration in an attempt to raise domestic energy production and reduce import dependence.[17] Under NELP, 71 oil and gas discoveries have been made in 21 exploration blocks.[18] Hydrocarbon accretion has been more than 600 million tonnes of oil equivalent.[19] Cairn Energy has made 25 discoveries in Rajasthan and currently has six fields under development. Initial attention is being concentrated on Mangala, Bhagyam and Aishwariya (MBA). Production from Mangala is scheduled to begin in third quarter 2009. Output from the MBA fields is estimated to peak at 175,000 barrels per day, which would represent at least 20% of India’s total oil production[20].

Nuclear Power. India has a largely indigenous nuclear power programme and expects to have 20,000 megawatt electricity (MWe) nuclear capacity on line by 2020 and 63,000 MWe by 2032. It aims to supply 25% of electricity from nuclear power by 2050. Due to India’s Nuclear isolation post 1974,for 34years India was largely excluded from trade in nuclear plant or materials, which has hampered its development of civil nuclear energy until the signing of Indo US Nuclear Deal in 2008. Due to these trade bans and lack of indigenous uranium, India has uniquely been developing a nuclear cycle to exploit its reserves of thorium. [21].

Nuclear PowerGeneration Capacity. India’s present 2,720 MWe nuclear power plants include 14 reactors at 6 sites(Tarapur,Rawatbhatta, Kalapakkam,Narora,Kakrapar and Kaiga); ongoing 3,960 MWe nuclear power plants include 8 reactors at 4 sites (Tarapur,Kaiga, Rawatbhata and Kudankulam); and future nuclear plant include one Adwanced Heavy Water Reactor (AWHR) having a rating of 300MWe and a mix of 500MWe Fast Breeder Reactors,680 MWe Pressurised Heavy Water Reactors and 1000 MWe LWRs so as to reach a total of 20,000 MWe by 2020.[22]

Hydro Electricity. India has a large hydro-potential estimated at 84000 megawatt (MW) at 60% load factor. Less than one fourth of that has been tapped. Large hydro projects are also being stiffly opposed by environmentalist all over the country.[23]

India’s Energy Policy. The India’s energy policy states that the energy needs to be utilized not just from the conventional energy resources but also from other non-conventional sources like wind, water, geothermal, biomass etc. The India energy policy act emphasizes the need to develop newer energy sources that are more efficient and non-perishable. Since the energy sources levels are dropping with each passing day the energy of light (energy of a photon), energy of motion from the flowing water and geothermal energy and energy of an electron in chemical energy and other forms is the new energy units tapping solutions.[24]

CHAPTER IV

ENERGY POTENTIAL OF CAR

The CAR is abundantly endowed with energy resources (Refer Table.1) The hydrocarbon reserves are unevenly distributed among the five CARs (Refer Fig.6) and includes a number of petroleum basins that are different in their geological development, reservoir and hydrocarbon types and quantity of resources. Various sources have reported that the postulated oil resources of the region are comparable with those of Saudi Arabia and that the potential gas resources are equal to Iran’s. Central Asia has been described as “one of the world’s most strategic zones , between Russia , China and a troubled Middle East- a region coveted both by its larger neighbours and major world powers .”[25]

Energy Potential

Kazakhstan. It is the second largest producer of petroleum in CIS after Russia. The Kashagan deposit on Caspian seabed was discovered recently and is estimated to contain 13 billion barrels of oil. US and China have already signed deals to exploit the same. The most significant deposits of gas are at Karachaganak (black hole) in northwest Kazakhstan. It is estimated that production of gas will touch 36.1 billion cubic metres (bcm) by 2010. [27]

Kazakhstan’s Gas Potential

Kazakhstan’s Proven Reserves. BP estimates of 2008 place Kazakhstan’s proven reserves at 1.90 trillion cubic metres (tcm) (1.1% of global share). There are two other gas producing nations in the former Soviet Union that surpass Kazakhstan in terms of proven gas reserves: Russia with its 44.65 tcm (25.5% of global share) and Turkmenistan with 2.67tcm (1.5% of global share).[28] While published figures vary widely, rising as high as 3 380 bcm in the 2007 reserves report from the BGR, it may be of some significance that Oil & Gas Journal’s latest tabulation of world gas reserves (December 2008) shows a decrease in Kazakhstan from 2 832 bcm at 1 January 2008 to 2 407 bcm at 1 January 2009.[29]

Production Growth. Over the past decade, Kazakhstan’s gas sector has achieved considerable production growth, from 4.34 bcm in 1994 to 29.63 bcm in 2007 (see Figure 7). Production in January-July 2008was 19.74 bcm, up 13% year-on-year, and full-year production could potentially exceed the energy ministry’s estimate of 33.7 bcm . (Refer Figure 7)[30]

Kazakhstan’s Oil Potential

Proven Hydrocarbon Reserves .Kazakhstan’s combined onshore and offshore proven hydrocarbon reserves have been estimated between 9 and 40 billion barrels.[31]

Oil Production and Consumption. Kazakhstan produced approximately 1.45 million barrels per day (bbl/d) of oil in 2007 and consumed 250,000 bbl/d, resulting in petroleum net exports of around 1.2 million bbl/d. (Refer Figure.8)

Major Oil fields. Energy Information Authority expects oil production in Kazakhstan to average 1.54 and 1.71 million bbl/d in 2008 and 2009, respectively. Major producers include Karachaganak (250,000 bbl/d), Tengiz (280,000 bbl/d), CNPC-Aktobemunaigas (120,000 bbl/d), Uzenmunaigas (135,000 bbl/d), Mangistaumunaigas (115,000 bbl/d), and Kumkol (70,000 bbl/d). These producers account for 1million bbl/d (or around 70 percent) of liquids production in the country. Other production is centered in smaller fields.[32]

Nuclear Fuel Potential

Uranium. Kazakhstan has been an important source of uranium for more than fifty years. Over 2001-2008 production rose from 2000 to 8521 tonnes U per year, and further mine development is under way with a view to increase annual production upto18,000 tU/yr by 2010 and 30,000 tU by 2018. Production in 2009 is expected to be about 14,000 tU. Kazatompromis the national atomic company set up in 1997 and owned by the government. It controls all uranium exploration and mining as well as other nuclear-related activities, including imports and exports of nuclear materials. It announced in 2008 that it aims to supply 30% of the world uranium by 2015, and through joint ventures: 12% of uranium conversion market, 6% of enrichment, and 30% of the fuel fabrication market by then.[33]

Energy Potential of Uzbekistan

Uzbekistan. Uzbekistan is unique among the CARs as being the only republic that shares a border with the other four Kazakhstan to the north and west, Tajikstan and Kyrigzstan to the east and Turkmenistan to the south. . Uzbekistan currently produces 60 bcm of natural gas annually, an amount nearly equal to Turkmenistan’s production. Uzbekistan’s reserves are primarily concentrated in Qashqadaryo province and near Bukhara in the country’s south-central region. During the 1970s Uzbekistan’s largest natural gas deposit at Boyangora-Gadzhak was discovered in Surkhandaryia province north of the Afghan border.[34] Uzbekistan also has small coal reserves, located mainly near Angren, east of Tashkent. In 1990 the total coal yield was 6 million tons. Oil production has likewise been small; Uzbekistan has relied on Russia and Kazakstan for most of its supply.[35]According to Eshref F Trushin of the Institute of Macro Economics and Social Research (Uzbekistan), the Republic is fifth in the world in uranium production. It also produced 60 tonnes of Gold in 1996. However Capisani reports the 1996 production at between 80 to 110 tonnes. Gold deposits are found in the Fergana Valley at Altynkan and Kochbulak, in Uchkuduk(Zeravshan) and at Murantau. In February 1992, a protocol was signed with the Canadian firm , Newmont Gold for the development of Murantau deposit. Copper is extracted in the Almalyk region, as also iron minerals, zinc, lead , tungsten, molybdenum and uranium.[36]

Energy Potential of Turkmenistan

Turkmenistan’s Oil Potential. Turkmenistan produces around 200,000 barrels per day of crude and is the biggest gas producer in the former Soviet Union after Russia with exports of around 50 billion cubic metres of gas a year, mainly to Russia and Ukraine. The country says its gas reserves are currently heavily underestimated and it can easily double and even triple production to supply gas to Europe and Asia.[37] According to U.S Energy Information Administration total oil production in the country in 2008 was 189.40 barrels per day. The crude oil production reached 170.26 barrels per day whereas the consumption of petroleum products and direct consumption of crude oil was 103 thousand barrels per day. The refining capacity is 237 million barrels per day and the Turkmenistan ranks world no 57 in its refining capacity. The proven reserves are 600 million barrels (Refer Table 2).

Turkmenistan’s Gas Reserves. The production of natural gas in 2007 was 2,432 billion Cubic Feet as compared to domestic consumption of 688 Billion Cubic Feet. The country exported 1,745 Billion Cubic Feet Natural Gas in 2007. The Net proven reserves amount to huge 100,000 Billion Cubic Feet.[38]

Energy Potential of Kyrgyzstan

Kyrgyzstan. Kyrgyzstan currently does not have enough energy to provide reliable light and heat to its residents and factories. Although the country relies heavily on domestic sources of hydropower for much of its electricity, recent droughts and mismanagement drastically cut these supplies. Kyrgyzstan is increasingly seeking to identify and bring on line new sources of energy. The country currently imports most of the natural gas, petroleum products and coal that it consumes. At the same time, beyond hydro power, Kyrgyzstan has essentially no alternative energy production. Kyrgyzstan faces a variety of challenges in developing its energy sector. In the foreign policy sphere, Kyrgyzstan confronts problems that are a consequence of the extremely complex and volatile political landscape in Central Asia. Domestically, issues of economic crisis, organizational dysfunction, poorly written laws, and corruption hinder reform.[39]

Energy Potential of Tajikistan

Tajikistan’s Proven Oil Reserves. Tajikistan has proven reserves of 12 million barrels of oil (Refer Table.2), most of which are located in the northern part of the country in the Leninobod Soghd Region. The national oil company is Tajikneftegaz, which handles oil exploration, drilling, and production. In 2001, Tajik oil production was only 350 barrels per day (b/d). There has been a long period of production decline since Tajikistan produced 1,311 b/d in 1992. This decrease has been attributed to the 1992-1997 civil war, economic troubles, and lack of investment in the oil infrastructure. Tajikistan consumes 29,000 b/d of oil products, almost all of which are imported. The main source is Uzbekistan, which provides 70% of Tajikistan’s oil product imports. [40]

Tajikistan Gas Reserves. Tajikistan has 200 billion cubic feet (Bcf) of natural gas reserves, comprised of several fields. In 2000, Tajikistan began operations in the Khoja Sartez field in the southern Khatlon Region, and has also increased its activity in the Qizil Tumshuq deposit in the Kolkhozobod District of the southern Khatlon Region. Tajikistan has also tried to increase its own gas production, in 2000, by exploratory drilling in the Khatlon region. Apparently, some of the drilling has been successful enough to interest China in future drilling activities. The total natural gas production for Tajikistan in 2000 was 1.4 Bcf. With its small domestic production, Tajikistan must rely on imports for 95% of the natural gas it consumes. [41]

Viability of CARs to Serve as an Alternative to West Asia

If the CARs are to provide a viable source of supply diversification for energy importers, they must have an environment that sets them apart from the Gulf countries that currently supply bulk of the oil. The oil importers’ sense of vulnerability stems from the fear of emergence of militant Islam in West Asia.[42]

Factors Affecting Viability. In this context, the CARs ability to provide a viable alternate to West Asia is subject to a variety of factors as under:-[43]

  1. Proven Reserves. The known and proven reserves of West Asian oil account for 66%of global deposits whereas the proven and possible reserves of the entire Former Soviet Union (FSU) region are no more than 5.5%, of which Central Asia ‘s share is even less. When it comes of natural gas the FSU region of which Russia constitutes the chunk , accounts for 39%of global reserves but Central Asian share is only around 6%. Only about 3%of the global energy trade is accounted for by the Caspian region and the share of CARs is even less. Thus the CARs can only supplement, not supplant West Asian suppliers, whether it is oil or gas.
  2. Drilling Costs. Drilling oil in CARs costs three to six times as much as it does in West Asia. While it can be as low as $1per barrel in Iraq or Saudi Arabia, it would cost up to $5 to produce a barrel of oil from the Northern Caspian. This implies that it is economically attractive to produce oil in CARs only when global oil prices reign above a certain threshold level and being a marginal producer the Caspian region will have to follow the prices set by OPEC and that they will not be in a position to influence prices to any significant extent. While gas production in the region is competitive with the rest of the world, the need to ferry it by long pipelines through difficult terrain offsets the cost advantages.
  3. Connectivity. Unlike West Asia, which enjoys excellent connectivity with energy consumers all over the globe through well established sea routes and tanker infrastructure, the CARS are constrained by geography that limits not only existing ,but also future transit routes to global market.
  4. Quality. The quality of crude from some wells in Caspian region demands extensive processing before it can be consumed. Not all refineries have the processing capacity which constrains the range of consumers who can buy CARs oil even when it is available.
  5. Insurgency. Incipient insurgency in some parts of CARs renders them less attractive as an alternate source of supply. Uneven development of the different countries of the region and the ethnic diversities , instability in Chechnya

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