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ON THE ROLE OF THE ENERGY FACTOR IN THE KARABAKH CONFLICT: NEW RE-FRAMING?
Sergei Minasyan
http://www.noravank.am/eng/articles/detail.php?ELEMENT_ID=6799
17.12.2012
Ph.D. (History), Head of the Department of the Political Researches of
the Caucasus Institute Back In 1994, in the period of completion of
active military actions in Nagorno-Karabakh conflict, Heidar Aliyev,
while preparing for signing "Contract of the Century" with the
western oil companies on the development of hydrocarbon resources in
Azerbaijani offshore areas of the Caspian Sea, expressed a hope that
this factor would play an essential role in the development of the
processes round the Nagorno-Karabakh conflict in the way advantageous
for Azerbaijan.
Today the situation has not changed much as compared to the one in
1990s. Currently considerable profits from the development of Caspian
energy carriers (oil and gas) are still considered to be the main
financial and economic as well as geopolitical resource of Azerbaijan
in the realization of its policy in the Nagorno-Karabakh conflict.
Petrodollars offer hope to the military and political leadership of
Azerbaijan that it is still possible to gain principle advantage
in military and technical sphere, to stir up the armaments race,
to fund big regional projects bypassing Armenia, to invest or even
make open corruptive financial injections to the third countries and
take other measures in order to attain advantageous for them change
of the processes round Nagorno-Karabakh conflict and to compel the
Armenian parties to make one-sided concessions. At the same time the
oil factor, in the opinion of official Baku, raises the geopolitical
significance of Azerbaijan in the eyes of the regional or even global
actors. But, to all appearance, the role of the oil and gas factor
in the Karabakh strategy of Azerbaijan in the mid-term perspective
can essentially shatter.
Several years ago we turned to the issue of the oil factor in
Karabakh conflict1. But the recent developments, connected with the
considerable decline of the Azerbaijani oil production (as compared
to the previously stated figures and terms), as well as postponing
of putting into operation of the main stage 2 of Azerbaijani gas
production, demand definite revision of this issue in the new reality.
On October 12, 2012 the president of Azerbaijan sharply criticized
the operator of the main Azerbaijani Azeri-Chirag-Guneshli (ACG)
oil field - AIOC (Azerbaijani International Operating Company),
headed by British Petroleum. According to the Azerbaijani president in
consequence of consortium's blunders the oil production at this oil
field has sharply declined in recent years; as a result Azerbaijan
received $8 billion less profit than it was due2. The oil production
in the Azerbaijani sector of the Caspian Sea has been declining
for two years (since 2010), but for the first time Azerbaijani
leadership so sharply reacted to this tendency. The fact that next
year presidential elections will be held in Azerbaijan where Ilham
Aliyev will be nominated for the third presidential term without any
alternative candidate, attaches additional intrigue to this situation.
It seems that the factor of essential decline of oil and gas revenues
will have a serious impact on both financial-economic situation and
prospects of political stability in Azerbaijan which are mainly based
on the inflow of money received from the export of Azerbaijani oil
and gas.
Overall estimate of the Azerbaijani offshore oil and gas reserves
varies, depending on the political affiliations of the researchers,
and it is very difficult to form a fair presentation of the real
hydrocarbon potential of Azerbaijan. At least it should be mentioned
that the oil and gas reserves in the Azerbaijani water area of the
Caspian Sea are though exhaustible but rather considerable. But the
policy of Azerbaijan based on the oil and gas revenues faces serious
problems.
First of all, oil and gas are not a guarantee of either stable economic
growth or political development of the exporter countries, especially
if these countries have only a brief experience of state-building and
take first steps on the way of democratic transformations and formation
of the civil society institutions. Not coincidentally such term as
"oil curse" exists; it rather exactly shows the level of economic,
social and political problems and difficulties when the stream of
money from selling the natural resources befalls on the country. These
problems are the dark side of the facade of the economic prosperity
of the oil-exporting countries.
There are dozens of examples of the countries in the history, in the
fate of which the availability of rich natural resources (first of all
oil and gas) played an perfidious or even fateful role - from Nigeria
to Mexico, from the Spanish Habsburg Empire (in this case cheep silver
from the mines in Latin America) to the USSR. The excessive dependence
of the Azerbaijani economy on the revenues from the energy resources
(which, according to different estimations, directly or indirectly
constitutes up to 85% of the budget receipts and 92% of export) sale
constitute very serious and chronic menace to the stable social and
economic and political development of the country.
On the other hand today it becomes obvious that previously stated by
the Azerbaijani leadership volume of the oil reserves was essentially
exaggerated. By the estimations of a number of experts the main
developer of the hydrocarbons in the Azerbaijani water area of
the Caspian Sea - AIOC - reached the peak of the oil production at
Azeri-Chirag-Guneshli oil field. And this happened in 2010 and not in
2013-2015 as it was mentioned before by the Azerbaijani authorities
(and was not questioned by the British Petroleum - main operator
of the AIOC). Currently oil production in Azerbaijan (taking into
consideration the reserves of the SOCAR) will fluently decline by
10% annually from more than 50 million tons of oil in 2010 (about 45
million tons in 2011) to the level of annual oil production of the
20 million tons in 2018-20193. The AIOC plans to stabilize somehow
the oil production decline at the expense of putting into operation
at the end of 2013 and at the beginning of 2014 of "Western Chirag"
new platform at the same ACG oil field, but its active productive
life will be 4-5 years and it will only allow to preserve a minimum
level of commercial development at this oil field till 2020.
Naturally, Azerbaijan also has a potential on building up its energy
resources production capabilities after the start up of the stage
2 of its main gas field - Shah Deniz. But unenviable fate of highly
publicized "Nabucco" gas pipeline (which has been formerly considered
as the main infrastructure project of supplying Azerbaijani gas
to the European market) proves that the publicized gas reserves in
Azerbaijan are considerably overrated. Potential revenue from the
export of the gas from this field can never compensate the declining
volume of receipts from the export of the oil.
By the most optimistic estimations in case of a start up of the
commercial development of the stage 2 of Shah Deniz, the gas export
from this gas field will not exceed 8-10 billion m3 per year. Taking
into consideration theoretically maximum gas prices, the revenue from
the development of that gas field will not exceed $4 billion annually
which is incomparable with current volume of receipts from oil import
by Azerbaijan (approximately $15-20 billion per year). Let us remind
you that currently the maximum market price for the gas exported
by Azerbaijan is paid by "Gazprom" - about $220-240 per 1 thousand
m3, meanwhile Azerbaijan exports gas to Turkey and Georgia at much
lower price.
At the same time it should be taken into consideration that by 2017
when it is planned to start the gas supply from the stage 2 of Shah
Deniz (it is not excluded that by that time the project will not
be realized) the situation on the gas market can be essentially
adjusted and, as a result, the price for the Azerbaijani gas will
become considerably lower. For example, according to the Turkish
Minister of Energy and Natural Resources Taner Yildiz, in 2013-2014
Turkish energy BOTAS Company plans to renounce Take or Pay principle
in gas purchase from the stage 1 of Shah-Deniz gas field, which gave
preferential terms to the Azerbaijani party4.Besides new volumes of
liquefied and shale gas may appear at the European market which can
also result in the cut in price at the global gas market.
Thus, though in the years to come oil and gas factor will preserve it
role of a main financial and geopolitical resource, which provides
implementation of the Azerbaijani policy in the Nagorno-Karabakh
conflict, nevertheless, its possibilities and significance will
be gradually declining. Of course it will have its impact on the
approaches of official Baku to the Karabakh conflict and these
approaches may undergo serious adjustments. However this factor may
manifest itself in the next two years when the tendency of a declining
curve in the Azerbaijani gas production will become even more obvious.
1 oерCей МEнасян, Нефтяной фактор в карабахской стратеCEE aзербайдOана:
EлE ?
http://www.noravank.am/rus/articles/security/detail.php?ELEMENT_ID=2667,
25.04.2008.
2 , http://www.regnum.ru/news/1580138.html,
11.10.2012.
3 Rasizade, Alec, "Azerbaijan's Chances in the Karabakh
Conflict", Harvard International Review, 18 January 2011,
http://hir.harvard.edu/azerbaijans-chances-in-the-karabakh-conflict?/.
4 , Зеркало,
http://www.zerkalo.az/2012/pravila-igryi-na-gazovom-ryinke-menyayutsya/,
24.10.2012.
"Globus" analytical journal, #11, 2012
Return Another materials of author IRANIAN CRISIS AND "IMMEDIATE"
DETERRENCE IN THE KARABAKH CONFLICT[16.10.2012] PARLIAMENTARY
ELECTIONS: GEORGIA AHEAD OF THE CONTROVERSIAL EVENT[24.09.2012]
THE DYNAMICS AND TENDENCY OF THE RELATIONS BETWEEN THE REPUBLIC OF
ARMENIA AND THE US: CONCEPTUAL ANALYSIS [01.09.2011] POSSIBILITIES
OF INTERNATIONAL PEACEKEEPING IN NAGORNO-KARABAKH CONFLICT: MYTHS AND
REALITIES[14.02.2011] ARMENIAN - GEORGIAN RELATIONS AFTER "FIVE DAYS"
WAR[15.10.2009] ARMENIA-TURKEY: NEW POLITICAL PHASE? [14.05.2009]
Sergei Minasyan
http://www.noravank.am/eng/articles/detail.php?ELEMENT_ID=6799
17.12.2012
Ph.D. (History), Head of the Department of the Political Researches of
the Caucasus Institute Back In 1994, in the period of completion of
active military actions in Nagorno-Karabakh conflict, Heidar Aliyev,
while preparing for signing "Contract of the Century" with the
western oil companies on the development of hydrocarbon resources in
Azerbaijani offshore areas of the Caspian Sea, expressed a hope that
this factor would play an essential role in the development of the
processes round the Nagorno-Karabakh conflict in the way advantageous
for Azerbaijan.
Today the situation has not changed much as compared to the one in
1990s. Currently considerable profits from the development of Caspian
energy carriers (oil and gas) are still considered to be the main
financial and economic as well as geopolitical resource of Azerbaijan
in the realization of its policy in the Nagorno-Karabakh conflict.
Petrodollars offer hope to the military and political leadership of
Azerbaijan that it is still possible to gain principle advantage
in military and technical sphere, to stir up the armaments race,
to fund big regional projects bypassing Armenia, to invest or even
make open corruptive financial injections to the third countries and
take other measures in order to attain advantageous for them change
of the processes round Nagorno-Karabakh conflict and to compel the
Armenian parties to make one-sided concessions. At the same time the
oil factor, in the opinion of official Baku, raises the geopolitical
significance of Azerbaijan in the eyes of the regional or even global
actors. But, to all appearance, the role of the oil and gas factor
in the Karabakh strategy of Azerbaijan in the mid-term perspective
can essentially shatter.
Several years ago we turned to the issue of the oil factor in
Karabakh conflict1. But the recent developments, connected with the
considerable decline of the Azerbaijani oil production (as compared
to the previously stated figures and terms), as well as postponing
of putting into operation of the main stage 2 of Azerbaijani gas
production, demand definite revision of this issue in the new reality.
On October 12, 2012 the president of Azerbaijan sharply criticized
the operator of the main Azerbaijani Azeri-Chirag-Guneshli (ACG)
oil field - AIOC (Azerbaijani International Operating Company),
headed by British Petroleum. According to the Azerbaijani president in
consequence of consortium's blunders the oil production at this oil
field has sharply declined in recent years; as a result Azerbaijan
received $8 billion less profit than it was due2. The oil production
in the Azerbaijani sector of the Caspian Sea has been declining
for two years (since 2010), but for the first time Azerbaijani
leadership so sharply reacted to this tendency. The fact that next
year presidential elections will be held in Azerbaijan where Ilham
Aliyev will be nominated for the third presidential term without any
alternative candidate, attaches additional intrigue to this situation.
It seems that the factor of essential decline of oil and gas revenues
will have a serious impact on both financial-economic situation and
prospects of political stability in Azerbaijan which are mainly based
on the inflow of money received from the export of Azerbaijani oil
and gas.
Overall estimate of the Azerbaijani offshore oil and gas reserves
varies, depending on the political affiliations of the researchers,
and it is very difficult to form a fair presentation of the real
hydrocarbon potential of Azerbaijan. At least it should be mentioned
that the oil and gas reserves in the Azerbaijani water area of the
Caspian Sea are though exhaustible but rather considerable. But the
policy of Azerbaijan based on the oil and gas revenues faces serious
problems.
First of all, oil and gas are not a guarantee of either stable economic
growth or political development of the exporter countries, especially
if these countries have only a brief experience of state-building and
take first steps on the way of democratic transformations and formation
of the civil society institutions. Not coincidentally such term as
"oil curse" exists; it rather exactly shows the level of economic,
social and political problems and difficulties when the stream of
money from selling the natural resources befalls on the country. These
problems are the dark side of the facade of the economic prosperity
of the oil-exporting countries.
There are dozens of examples of the countries in the history, in the
fate of which the availability of rich natural resources (first of all
oil and gas) played an perfidious or even fateful role - from Nigeria
to Mexico, from the Spanish Habsburg Empire (in this case cheep silver
from the mines in Latin America) to the USSR. The excessive dependence
of the Azerbaijani economy on the revenues from the energy resources
(which, according to different estimations, directly or indirectly
constitutes up to 85% of the budget receipts and 92% of export) sale
constitute very serious and chronic menace to the stable social and
economic and political development of the country.
On the other hand today it becomes obvious that previously stated by
the Azerbaijani leadership volume of the oil reserves was essentially
exaggerated. By the estimations of a number of experts the main
developer of the hydrocarbons in the Azerbaijani water area of
the Caspian Sea - AIOC - reached the peak of the oil production at
Azeri-Chirag-Guneshli oil field. And this happened in 2010 and not in
2013-2015 as it was mentioned before by the Azerbaijani authorities
(and was not questioned by the British Petroleum - main operator
of the AIOC). Currently oil production in Azerbaijan (taking into
consideration the reserves of the SOCAR) will fluently decline by
10% annually from more than 50 million tons of oil in 2010 (about 45
million tons in 2011) to the level of annual oil production of the
20 million tons in 2018-20193. The AIOC plans to stabilize somehow
the oil production decline at the expense of putting into operation
at the end of 2013 and at the beginning of 2014 of "Western Chirag"
new platform at the same ACG oil field, but its active productive
life will be 4-5 years and it will only allow to preserve a minimum
level of commercial development at this oil field till 2020.
Naturally, Azerbaijan also has a potential on building up its energy
resources production capabilities after the start up of the stage
2 of its main gas field - Shah Deniz. But unenviable fate of highly
publicized "Nabucco" gas pipeline (which has been formerly considered
as the main infrastructure project of supplying Azerbaijani gas
to the European market) proves that the publicized gas reserves in
Azerbaijan are considerably overrated. Potential revenue from the
export of the gas from this field can never compensate the declining
volume of receipts from the export of the oil.
By the most optimistic estimations in case of a start up of the
commercial development of the stage 2 of Shah Deniz, the gas export
from this gas field will not exceed 8-10 billion m3 per year. Taking
into consideration theoretically maximum gas prices, the revenue from
the development of that gas field will not exceed $4 billion annually
which is incomparable with current volume of receipts from oil import
by Azerbaijan (approximately $15-20 billion per year). Let us remind
you that currently the maximum market price for the gas exported
by Azerbaijan is paid by "Gazprom" - about $220-240 per 1 thousand
m3, meanwhile Azerbaijan exports gas to Turkey and Georgia at much
lower price.
At the same time it should be taken into consideration that by 2017
when it is planned to start the gas supply from the stage 2 of Shah
Deniz (it is not excluded that by that time the project will not
be realized) the situation on the gas market can be essentially
adjusted and, as a result, the price for the Azerbaijani gas will
become considerably lower. For example, according to the Turkish
Minister of Energy and Natural Resources Taner Yildiz, in 2013-2014
Turkish energy BOTAS Company plans to renounce Take or Pay principle
in gas purchase from the stage 1 of Shah-Deniz gas field, which gave
preferential terms to the Azerbaijani party4.Besides new volumes of
liquefied and shale gas may appear at the European market which can
also result in the cut in price at the global gas market.
Thus, though in the years to come oil and gas factor will preserve it
role of a main financial and geopolitical resource, which provides
implementation of the Azerbaijani policy in the Nagorno-Karabakh
conflict, nevertheless, its possibilities and significance will
be gradually declining. Of course it will have its impact on the
approaches of official Baku to the Karabakh conflict and these
approaches may undergo serious adjustments. However this factor may
manifest itself in the next two years when the tendency of a declining
curve in the Azerbaijani gas production will become even more obvious.
1 oерCей МEнасян, Нефтяной фактор в карабахской стратеCEE aзербайдOана:
EлE ?
http://www.noravank.am/rus/articles/security/detail.php?ELEMENT_ID=2667,
25.04.2008.
2 , http://www.regnum.ru/news/1580138.html,
11.10.2012.
3 Rasizade, Alec, "Azerbaijan's Chances in the Karabakh
Conflict", Harvard International Review, 18 January 2011,
http://hir.harvard.edu/azerbaijans-chances-in-the-karabakh-conflict?/.
4 , Зеркало,
http://www.zerkalo.az/2012/pravila-igryi-na-gazovom-ryinke-menyayutsya/,
24.10.2012.
"Globus" analytical journal, #11, 2012
Return Another materials of author IRANIAN CRISIS AND "IMMEDIATE"
DETERRENCE IN THE KARABAKH CONFLICT[16.10.2012] PARLIAMENTARY
ELECTIONS: GEORGIA AHEAD OF THE CONTROVERSIAL EVENT[24.09.2012]
THE DYNAMICS AND TENDENCY OF THE RELATIONS BETWEEN THE REPUBLIC OF
ARMENIA AND THE US: CONCEPTUAL ANALYSIS [01.09.2011] POSSIBILITIES
OF INTERNATIONAL PEACEKEEPING IN NAGORNO-KARABAKH CONFLICT: MYTHS AND
REALITIES[14.02.2011] ARMENIAN - GEORGIAN RELATIONS AFTER "FIVE DAYS"
WAR[15.10.2009] ARMENIA-TURKEY: NEW POLITICAL PHASE? [14.05.2009]