Emerging Frontiers: Focus on the Caspian
Authors: Spath Jeff 
Published: February 2015

President's column

For my fourth column on emerging oil and gas frontier regions, I want to focus on the area surrounding the Caspian Sea, the world’s largest inland water body and one of the oldest oil-producing regions. So how does this area qualify as “emerging”? First, only in recent years have significant volumes of Caspian oil begun to reach world export markets. Second, the Caspian region is rapidly emerging as an important new source of natural gas. Third, the region’s—if not the globe’s—most publicized, most prolific oil and gas project, Kashagan, entered Phase 1 of production just a few months ago, after being discovered in 2000.

Production History

Five countries border the Caspian Sea—Azerbaijan, Iran, Kazakhstan, Russia, and Turkmenistan. Much of Uzbekistan also lies within the geological basins that make up the broader Caspian oil and gas region. However, apart from early oil production in Azerbaijan, Caspian hydrocarbons remained largely untapped until the 1990s.

According to historical records, primitive methods of oil extraction date back several hundred years near Baku on the Absheron peninsula, which juts into the Caspian Sea. Modern oil exploration and development began there in the early 1870s. By the early 20th century, Baku, which had more than 3,000 oil wells, was known as one of the “black gold” capitals of the world. In the 1920s, Azerbaijan’s entire oil industry came under the control of the Soviet Union, and remained so until the USSR’s collapse in the early 1990s. At that time, several newly independent Caspian states opened the region to international investment and development.

The region has significant oil and gas reserves in both onshore and offshore fields. In 2012, the US Energy Information Administration (EIA) estimated proved and probable reserves of 48 billion bbl of oil and 292 Tcf of natural gas within the basins that make up the Caspian region. The US Geological Survey estimates another 20 billion bbl of oil and 243 Tcf of gas in as-yet-undiscovered, technically recoverable resources.

In 2012, the Caspian region produced an average of 2.6 million B/D of oil and condensate, roughly 3.4% of total world supply. While the majority of Caspian oil production to date has come from onshore fields, much of the future growth lies in offshore fields, which have been relatively undeveloped until recently. For example, Azerbaijan’s Shah Deniz field—the largest gas field in the Caspian Sea—came online in 2006. And Kazakhstan’s Kashagan field in the northern Caspian Sea—perhaps the world’s largest oil field outside the Middle East—just began producing oil in 2013. According to the EIA, offshore fields account for 41% of total Caspian oil reserves and 36% of natural gas.

Caspian fields are still relatively distant from export markets such as Europe, China, and south Asia, where demand continues to rise. Historically, Caspian oil and gas went through Soviet infrastructure to Russia. In recent years, however, a number of major new pipelines have come online and others are in development, significantly boosting the region’s export capacity. Nevertheless, large investments in additional infrastructure will be required in the years to come.