Transcript No Slide Title

Eurasia - Caspian Region
– Dynamics and Implications –
Franz B. Ehrhardt
Conoco Eurasia Inc., Istanbul, Turkey
Middle East Petroleum & Gas Conference, Bahrain
Contents
I.
Facts, Data, and Estimates
II. Political Complexity
III. Available Markets
IV. Competitive Challenges
V. Regional Interconnections
VI. Energy Investor’s Views
VII. What’s Needed (For Success)
VIII. Summary
July 16, 2015
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2
Impact Region
- Caspian Province
July 16, 2015
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3
Data, Facts, and Estimates
• Wide range of reserve estimates, could be as much as the North
Sea (… or much less)
• Surrounded by 60 - 70 % of World energy supply that is much
closer to markets
• Landlocked location with significant transportation challenges
• Probably more Gas than Crude
• Very low internal energy use
July 16, 2015
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4
Political Complexity
• Transition phase from Soviet Union status to independence and
democracies
• Uncertain political leadership succession
• Considerable amount of conflicts with direct and indirect regional
implications
• Powerful and persisting USA initiatives to promote select
(strategic) projects
• Strong Russian and Iranian strategic interests in the Region
July 16, 2015
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5
Political Conflict Situations
July 16, 2015
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6
Available Gas Markets
INTERNAL
KAZAKHSTAN
EUROPE
TURKEY
AFGANISTAN
IRAN
PAKISTAN
INDIA
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Natural Gas Supply
Options for Turkey
16
14
KAZAKHSTAN
12
16 - 30
TURKEY
8
ALL
LNG
10
10
10 - 12
AFGANISTAN
IRAN
28 - 30
PAKISTAN
INDIA
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Turkey
• Present Demand 14 - 15 Bcm,
– 2010 Projection:
45 - 55 Bcm
• Envisioned Supply
– (Firmly contracted and MoUs) by 2010 =
120 - 130 Bcm
• Attractive Market because of vicinity to Iraq, Iran, Azerbaijan,
Russia, and Egypt
• Also a potential, though high transportation cost, market for
Turkmenistan
• Anticipated over-supply will provide Turkey with low cost gas in
the long term
• Thus, Turkey will be highly competitive for supplier
July 16, 2015
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9
Europe
• Significant increase in future demand
• Strong present and future supply base from the North Sea and
North Africa (growing)
• Position of established gas companies create high barriers to
entry into direct marketing
• Highly price-competitive for gas supplier
• Physical supply from Caspian Region non-competitive because
of distance and required new infrastructure
• Inter-Regional swaps could open options for certain volumes
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Supply and Demand:
Pakistan/India
Demand
79 Bcm
Year 1999
Demand
159 Bcm
Year 2010
62
23
56
97
Supply India
Supply Pakistan
Shortfall
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Natural Gas Market
- Pakistan/India -
Routes and Distances
KAZAKHSTAN
TURKEY
AFGANISTAN
SWAP
IRAN
PAKISTAN
INDIA
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Pakistan/India
• Very significant (and growing) supply shortfall for both markets
• Similar distance from most Turkmen gas fields to Pakistan-India
than to Turkey and on to Europe
• Very few competing direct supply possibilities from other
sources
• Certain gas swaps with Iran can further improve economics of
transportation
• Pakistan-India market can absorb the “free” supply capability of
Turkmenistan and Iran
• True “win-win” potential
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Internal Growth
• Internal consumption will provide highest energy net-backs
• High-energy use (e.g. smelters), and raw material use industries
(e.g. petro-chemical) could produce high added-value products
• Higher value products can easier neutralize incremental
transportation costs to markets
• Industrial and commercial developments will create jobs (internal
economic stability), as well as …
• ... Economic diversification away from energy (reduced reliance)
• Energy companies may become partners
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Regional Crude Interlinks
And Export Routs
KAZAKHSTAN
TURKEY
SWAP
AFGANISTAN
IRAN
PAKISTAN
INDIA
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Energy Investor’s Views
• Economic attractiveness initially palatable, conditions getting worse
• Gold-Rush mentality, emerging disappointments and exists
• Increase in challenging host government expectations
• Higher production and transportation costs than surrounding energy
supplies
• Heavy competitive pressure from outside of Region, especially with
political normalization in the Region
• Uncertain legal status; laws and legal systems not transparent;
uncertain assets protection
• Corruption and bureaucratic inefficiency a major factor
• BUT … One of very few remaining energy provinces that welcome
foreign full equity participation in Upstream, and
• …Promising indicators for general environmental improvement
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What’s Needed
(for Success)?
• Contrary to many views and desires (political and other), cost
competitiveness will be THE decisive factor for success
• With highly innovative approaches, certain political preferences can
still be fulfilled, while delivering cost-competitive infra-structures
• Development of transparent and reliable long term unilateral and and
multilateral energy strategies and and policies
• Host Government expectations and performances have to be focused
on cost competitiveness in the energy market place
• For transportation infrastructures, establishment of a multi-lateral
legal system and economically competitive tariff , tax, and transit
conditions on the basis of consistency and compatibility is critical
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What’s Needed
(for Success)?
• Recognition of Turkey’s concern about Bosphorus transit and
development of solution.
• Development of multiple energy export option to maximize
economic and risk-prevention flexibility
• Regional political stability and solution of conflict situations
• The ineffective unilateral sanction policy of the US Government
towards Iran has to be discontinued and exchanged for bi- and
multilateral economic growth-enhancing policies and programs
• Improved long term political succession planning
• Improved bureaucratic effectiveness
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What’s Needed
(for Success)?
• Effective measures to combat corruption
• Establishment of general, transparent, manageable, and enforceable,
legal systems with international arbitration is needed
• Full exploitation of economics-based inner-regional links with Russia
in the North and the Middle East in the South is essential
• Development of Turkey as an economic power house based on
surplus availability of natural gas
• Strong emphasis on inner-regional industrial & commercial
development that adds significant value based on local energy supply
• Strong focus on the development of other gas markets that offer a
competitive position, e.g.: Pakistan/India
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Summary
• High respect for those countries of the Region that have emerged
from the break-up of the FSU in the face of tremendous challenges
and fundamental transition changes
• Cautious optimism that conflict solution and political stability can be
achieved over time with visionary approaches
• Although disadvantaged by high transportation cost for crude and
gas, highly innovative and cooperative concepts may neutralize many
negative aspects
• Only stronger crude and gas prices, a determined focus on cost
competitiveness, and broad, Regional cooperative approaches ,
coupled with political goodwill will decide if the Caspian Region can
become a long term major energy player.
July 16, 2015
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