Caspian Oil and Gas Leverages Strengths To Survive in a Low-Carbon World

Nearly 30 years ago as the Soviet Union lay in tatters, Azerbaijan and Kazakhstan signed off on the Caspian’s first oil and gas megaprojects, hoping to guarantee their independence by transforming the region’s energy landscape and their role in it. Nursultan Nazarbayev, then president of Kazakhstan, took the first step in April 1993 by creating Tengizchevroil (TCO), a joint venture between Chevron and Kazakh state oil company KazMunaiGaz, to develop the super-giant Tengiz oil field and nearby Korolev field. Today, Chevron still holds 50% of the venture, ExxonMobil controls 25%, KazMunaiGaz, 20%, and LukArco, a subsidiary of Russia’s Lukoil, 5%. A year and a half later, in September 1994, Azerbaijan’s president, the late Heydar Aliyev, signed a production-sharing agreement (PSA) to develop the deepwater reserves of the Azeri, Chirag, and Gunashli (ACG) fields, attracting the participation of a “who’s who” of the world’s oil and gas elite—13 global companies representing eight countries. These and other signings had a knock-on effect as more upstream megaprojects popped up across the region in the late 1990s and throughout the early 2000s, attracting more international participation and the need to develop midstream infrastructure such as Azerbaijan’s Baku-Tbilisi-Ceyhan pipeline (BTC) export line to Turkey and Kazakhstan’s Caspian Pipeline Consortium (CPC) to Russia’s oil export terminal at Novorossiysk, as landlocked Central Asia devised ways to get its crude oil to market. For a generation, the Caspian’s top-heavy “bigger is better” way of doing things, led by global majors, did a good job of attracting upstream investment. But what about the next generation as those same supermajors rebrand and shift their portfolios to produce more energy with less carbon? Ashley Sherman, research director at Wood Mackenzie for upstream oil and gas, predicted in June that Caspian oil and gas production will continue to grow in this decade as already-committed oil and gas investments percolate through the system (Fig. 1). These investments, however, target expansion and optimization of existing operations. Thus, by 2030, upstream capital expenditures are likely to be at only half of their 2019 levels, Sherman wrote. BP and Socar’s (the state oil company of the Azerbaijan Republic) deepwater Shafag Asiman discovery in Azerbaijan may be an exception, but while a first exploration well drilled and completed in March detected gas condensate, the well was suspended pending further evaluation and possible drilling of a sidetrack appraisal well, BP said in a news release. The block lies 125 km (78 miles) southeast of Baku in an unexplored area in 650-to-800 m water depths. It is likely that tomorrow’s Caspian upstream will look a lot like today’s Caspian upstream, which is dominated by five projects: the onshore Tengizchevroil and Karachaganak projects in Kazakhstan; shallow-water offshore Kashagan, also in Kazakhstan; and Azerbaijan’s offshore deepwater ACG and the Shah Deniz gas field. While each of these projects elicits a definite “wow” factor in terms of sheer size, it is worth noting that the PSAs on which most of the projects are based will expire in the 2030s, though some remain in effect into the 2040s.