Order Code RS21190
April 9, 2002
CRS Report for Congress
Received through the CRS Web
Caspian Oil and Gas: Production & Prospects1
Bernard A. Gelb
Specialist in Industry Economics
Resources, Science, and Industry Division
Summary
There is a prospect of exceedingly large reserves of crude oil and natural gas in the
Caspian Sea region, and a consequent large increase in the production of oil and gas
from that area. Because diversity of energy sources is a consideration in Congressional
deliberations on energy policy, this prospect could play a role in policy discussions.
However, there are notable obstacles to increases in Caspian Sea region production of
oil and gas both now and in the future that may slow development.
The Caspian Sea is a 700-mile-long body of water in central Asia, landlocked
between Azerbaijan, Iran, Kazakhstan, Russia and Turkmenistan. While not a littoral
state,2 nearby Uzbekistan is included by some as in the Caspian Sea region in view of its
energy resources. Of the six countries, only Iran is a member of the Organization of
Petroleum Exporting Countries (OPEC). Azerbaijan, Kazakhstan, Turkmenistan, and
Uzbekistan are former members of the Soviet Union, which became independent in 1991.
The Caspian Sea region historically has been an oil and gas producer, but many believe
that the region contains very large resources of oil and gas capable of much greater output.
Current Production and Proven Reserves
The Caspian Sea region presently is a significant, but not major, supplier of crude oil
to world markets, based upon estimates by BP Amoco and the U.S. Energy Information
Administration, U.S. Department of Energy. The Caspian region produced an estimated
1.4–1.5 million barrels per day (bbls/day) including natural gas liquids in 2001, or 1.9%
of total world output (table 1).3 More than a dozen non-Caspian countries each produce
1 This report briefly updates parts of CRS Report RL30693, Caspian Sea Region: Potential Oil
and Gas Supply to World Oil Markets, by Terry Rano Twyman. September 28, 2000. That report
contains more extensive presentation and discussion of facts and issues.
2 In this context, littoral means “situated ..... on or near a shore,” as per Merriam-Webster’s
Collegiate Dictionary, on line at www.m-w.com/cgi-bin/dictionary.
3 This report includes Uzbekistan in the Caspian Sea Region. In the cases of Iran and Russia, only
output from areas near the Caspian Sea is included.
Congressional Research Service ˜ The Library of Congress

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more than 1.5 million bbls/day. Caspian region production has been higher, but suffered
during the collapse of the Soviet Union and the years following. Kazakhstan accounts for
55% and Azerbaijan for about 20% of current regional oil output.
Caspian region oil production emanates from proven (economically recoverable)
reserves of 18-34 billion bbls, based upon BP Amoco, EIA, and Wall Street Journal
estimates (table 2). This is equal to 1.8%–3.3% of total world proven reserves and
comparable to U.S. and North Sea reserves of 22 billion and 17 billion bbls, respectively.
The larger proportion of reserves than production could be taken to indicate that, even at
present, there is potential for greater output. However, as suggested by analysis later in
this report, there are obstacles to increases in production both now and in the future.
The Caspian Sea region’s relative contribution to world supplies of natural gas is
larger than that for oil. With gas output of about four trillion cubic feet per year (tcf/yr),
it accounts for 4.7-4.8% of world production (table 1). As with oil, gas production has
been higher, but suffered during the collapse of the Soviet Union and the following years.
Uzbekistan and Turkmenistan are the heavily predominant producers; with production of
1.8-2.0 tcf/yr and 1.5-1.7 tcf/yr, respectively, they together account for 85-90% of the
region’s gas output, depending upon the estimating source.
Table 1. Oil and Gas Production in the Caspian Sea Region
Crude Oila
Natural Gas
(thousands of barrels per day)
(trillion cubic feet per year)
Country
EIA
BP Amoco
EIA
EIA
BP Amoco
EIA
2001
2000
2010b
2000
2000
2010b
Azerbaijan
317
300
1,200
0.212
0.187
1.100
Iranc
- 0 -
n.a.
- 0 -
- 0 -
n.a.
- 0 -
Kazakhstan
804
745
2,000
0.170
0.378
1.100
Russiac
11
n.a.
300
0.030
n.a..
n.a.
Turkmenistan
148
150
200
1.660
1,547
3,900
Uzbekistan
152
175
n.a.
1.960d
1.843
3.000e
Total Caspian Seaf
1,450
1,400
3,900
4.050
4.000
9.100
WORLD
76,821
74,510
118,300
84.690d
85.500
162.000
a Includes natural gas liquids.
b “Possible production,” as estimated by the Energy Information Administration.
c Only regions near the Caspian Sea are included. d 1999 data.
e CRS projection assuming same rate of growth between 1999 and 2010 as between 1992 and 1999.
f Rounded; in some cases, includes small quantities, estimated by author, for countries for which data are
not available from the cited sources.
Sources: BP Amoco. BP Statistical Review of World Energy, 2001, June 2001; U.S. Department of
Energy, Energy Information Administration (EIA). Caspian Sea Region Country Analysis Brief, February
2002; EIA. Caspian Sea Region: Tables and Graphs, February 2002; EIA. International Energy Annual
1999, February 2001; EIA. International Energy Outlook 2002, March 2002; EIA. Uzbekistan Country
Analysis Brief, March 2001; EIA. [http://www.eia.doe.gov].

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Also as with oil, the region’s proven reserves of natural gas are a higher proportion
of the world total than is its natural gas production. In some important instances,
exploration efforts hoping to find oil have found almost entirely gas instead. Proven
reserves of natural gas in the Caspian Sea Region total about 240-260 tcf, or 4.7%–4.9%
of the world total. However, increases in Caspian Region gas production face obstacles
somewhat similar to those that challenge further oil development and production.
Table 2. Estimates of Oil and Gas Reserves and Resources, 2000
(oil in billions of barrels; gas in trillions of cubic feet)
Proven Reservesa
Possible Reservesb
Oil/Natural Gas
Oil/Natural Gas
Region
Country
EIA BP Amoco
EIA
Azerbaijan
4-13/11
7/30
32/35
Iranc
0.1 /- 0
n.a./n.a.
15/11
Kazakhstan
10-18/65-70
8/65
92/88
Caspian
Russiac
2.7/n.a.
n.a./n.a.
14/n.a.
Sea
Turkmenistan
0.6/101
0.5/101
80/159
Region
Uzbekistan
0.6/66
0.6/66
n.a.
TOTAL
18-34/243-248
16/262
293/300
United States
22/177
30/295
177/1,430d
North Seae
17/68
n.a.
n.a..
Reference
Areas
Saudi Arabia
264/220
262/214
n.a.
OPEC
800/2,175
814/2,344
n.a.
WORLD
1,017/5,150f
1,046/5,304
n.a.
n.a. - Not available from sources listed below.
a For Caspian Sea Region countries; defined by EIA as 90% probable.
b Excludes proven reserves. For Caspian Sea Region countries, defined by EIA as 50% probable.
c Only regions near the Caspian Sea are included.
d For both oil and gas, technically recoverable resources.
e Includes Denmark, Germany, Netherlands, Norway, and United Kingdom; data are as of January 1,
2002.
f Data from Oil & Gas Journal (see citation below) as published in EIA Annual Energy Review.
Sources: BP. BP Statistical Review of World Energy 2001. June 2001; Penwell Publishing Company. Oil
& Gas Journal. December 20, 1999; U.S. Department of Energy, Energy Information Administration
(EIA). Annual Energy Review 2000, August 2001; Caspian Sea Region: Tables and Graphs, February
2002; EIA. U.S. Crude Oil, Natural Gas, and Natural Gas Liquids Reserves, 2000 Annual Report.
December 2001; EIA. North Sea Fact Sheet, February 2002; EIA, Saudi Arabia Country Analysis Brief,
January 2002; EIA. Uzbekistan Country Analysis Brief, March 2001;
Resource and Production Prospects
There is a likelihood of much greater additional reserves of crude oil and natural gas
being found in the Caspian Sea Region. Much of the known reserves have not been
developed yet, and development usually leads to discovery that prospects are larger than

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originally believed. Moreover, many areas remain unexplored. The EIA estimates that
there is a 50% chance that an additional 293 billion barrels in proven crude oil reserves
are ascertainable,4 which would increase the present Regional total by 9 to 16 times.
Proven reserves of this additional quantity would rival the amount now held by Saudi
Arabia (table 2) and could come to 20-25% of total world proven reserves. Of course,
there would be some depletion of reserves in the meantime; EIA estimates that Caspian
Sea region oil production will more than double by 2010 – to about 3.9 million bbls/day.
Additional proven reserves of natural gas also are in prospect – a smaller gain in
relative terms than in oil but still very large. EIA estimates that there is a 50% chance of
an additional 300 tcf of natural gas reserves in the region – more than the present amount
of regional proven reserves. Should this be the case, total Caspian region proven reserves
of natural gas would double, and at least equal present U.S. and Saudi Arabian reserves
combined even after accounting for depletion from likely production in the interim. EIA
estimates that Caspian Region natural gas output will exceed nine 9 tcf by 2010.
Present and Prospective Markets
In view of the above, Caspian region countries potentially are large exporters of oil
and gas. Caspian Sea region oil and gas has several markets now and a wider variety of
potential markets. These include nations trying to meet their economies’ demand for
energy and those that also wish to reduce their dependence on Persian Gulf energy.
Now, nearly all Caspian crude oil goes west, largely via pipeline to and/or through
Russia to European markets; some also goes by tanker through the Bosporus straits to
Western European markets via the Mediterranean sea. Caspian natural gas also mainly
goes west through Russia. Russia collects transit fees on Caspian energy shipped through
its transportation network, and sells its own oil and gas output to harder currency West
European countries while sending Caspian product to countries with currencies in less
demand (e.g., Eastern Europe). Also, because energy competes on a delivered-cost basis,
reflecting transit fees, Caspian energy wellhead prices suffer. Caspian countries thus have
incentives to avoid long transits through Russia in reaching European, and other, markets.
Caspian energy sources are attractive to Turkey: they are close and they offer an
opportunity for Turkey to offset part of its energy import bill through transit fees it could
charge for oil and gas shipments across its territory. Turkey’s energy consumption is
growing much faster than its production, making it a rapidly growing importer of both oil
and gas; it already is a substantial market for Russian natural gas. Also, Turkey has very
good relations with Caspian and Central Asian countries.
East Asian countries also are potentially attractive markets. Japan already imports
a significant quantity of gas; China’s proven oil and gas reserves are small compared with
the potential size of its economy; and energy consumption in India and Pakistan is
increasing rapidly.
4 Caspian Sea Region: Tables and Graphs, February 2002.

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Challenges to Further Development
There are, however, inter-related geographical, political, economic, technological,
legal, and psychological obstacles to the further exploration for and development of
Caspian Sea region energy resources.
The Caspian Sea is landlocked and the surrounding nations are distant from the
largest energy markets. Transportation must at least begin by pipeline, followed in many
cases by tanker travel through the shallow and already congested Bosporus straits. All
pipelines from the Caspian region completed before 1997, except those in northern Iran,
were routed to Russia and designed to link the former Soviet Union internally. The several
pipelines now operating have sufficient capacity to handle present production, but very
little more, as may be concluded from table 3.5 The completion of the CPC pipeline6 in
2001 from Kazakhstan’s Tengiz oilfield to Novorossiisk (Russia) on the Black Sea is
notable. The operating pipelines listed in table 3 have a total current capacity of about 1.2
million bbls/day, and there are plans to double that by 2015. However, effective current
and future planned capacity of the CPC line, and that of others, may be constrained by
limits on tanker passage through the Bosporus.7 New pipelines to serve east Asian
markets have economic potential but could be lengthy and entail transit through
Afghanistan, Iran, and/or Pakistan. Routes to east Asian markets via Iran would include
shipping via the Persian Gulf.
It is deducible from the above that deciding upon pipeline routes that have a
reasonable assurance of security and are politically acceptable to parties with influence in
the region are hurdles in the development of Caspian Sea region energy resources.
On the economic side, the longer the pipeline route, the less attractive it is to
producers, other things being equal, inasmuch as energy competes on a delivered-cost
basis and transit fees (based upon distance) effectively lower the wellhead price received
by producers. Because transit fees are a source of revenue to governments, politics as well
as economics come into play in pipeline route selection.
In addition, much of Caspian energy resources are offshore, requiring special large
drilling rigs for offshore operations. Very limited rig production capacity in the relatively
isolated region makes the acquisition of rigs expensive and logistically difficult, hampering
development of Caspian energy resources.
5 Table 3 does not purport to be a complete list, but the locations and total capacity of other
pipelines and means of transit are unsuitable and/or too small to adequately access target markets.
6 Caspian Pipeline Consortium.
7 Depth limitations, environmental considerations, and an already large amount of traffic have
resulted in restrictions by Turkish authorities on ship travel through the Bosporus straits. A
planned pipeline from Baku (Azerbaijan) to Ceyhan (a Turkish Mediterranean Sea port) would be
advantageous in that Ceyhan can handle very large carriers, while the ports of Supsa (Georgia) and
Novorossisk (Russia) are restricted to smaller tankers (which can transit the Bosporus). Also,
Ceyhan can remain open all year, whereas Novorossiisk is closed up to 2 months per year..

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Full realization of the energy potential of the region also is impeded by the unresolved
legal status of the Caspian Sea. Despite a number of efforts, there is no agreement among
the littoral states that delineates ownership of the Sea’s resources or their rights of
development. Potential wealth from development heightens the stakes for each country,
leading to conflicts over claims to promising regions.
Investment enthusiasm has slackened somewhat after the surge of production-sharing
agreements during the early and mid 1990s. Some recent exploration efforts have had
disappointing results, particularly with respect to oil. Somewhat reduced activity, from
less investment, has reduced the rate of discovery, with a further psychological effect.

Despite the obstacles discussed above, energy development in the Caspian Sea region
is proceeding and is likely to proceed further given the widely perceived prospect of very
large energy resources in the Caspian Sea region. The pace of development, however,
may be less rapid than might be the case with fewer hurdles.
Table 3. Capacities of Selected Oil Pipelines from Caspian Sea
Region, 2001-2015
Length
Capacity (bbls/day)
Pipeline
Route
(Miles)
2001/2002 2010/2015
Operating
Atyrau-Samara
Atyrau, Kazakhstan,
432
310,000
310,000
to Samara, Russia
Baku-
Baku, Azerbaijan, to Novorossiisk,
868
100,000
300,000
Novorossiisk
Russia/Black Sea (northern route)
(planned)
Baku-
Baku to Novorossiisk via
204
120,000
360,000
Novorossiisk
Dagestan, Russia
(planned)
Baku- Supsa
Baku to Supsa, Georgia/Black Sea
515
100,000
100,000
Caspian Pipeline
Tengiz oil field, Kazakhstan, to
990
565,000
1,340,000
Consortium
Novorossiisk Russia/Black Sea
(planned)
Under Construction, Planned, or Proposed
Iran Oil Swap
Neka, Iran, to Tehran, Iran, where
208
105,000
150,000
(under
oil will be swapped for equivalent
construction)
amount at Persian Gulf coast.
Baku-Ceyhan
Baku to Tbilisi, Georgia, to
1,040
1,000,000
1,000,000
(planned)
Ceyhan, Turkey/Black Sea
Kazakhstan-
Kazakhstan to Kharg Island, Iran,
930
1,000,000
1,000,000
Turkmenistan-
on Persian Gulf, via Turkmenistan
Iran (proposed)
Sources: Pennwell Publishing Company. Oil & Gas Journal, February 4, 2002; U.S. Department
of Energy, Energy Information Administration (EIA), Caspian Sea Region Country Analysis Brief.
February 2002; EIA. Caspian Sea Region: Tables and Graphs, February 2002; EIA. Russia: Oil
and Gas Export Pipelines, October 2001.

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