Caspian Pipeline Difficulties

One of the most interesting economic developments since the fall of the Soviet Union is the increasing interest in and ability to extract and sell oil from the Caspian Sea region. In many ways the Caspian is the cradle of the world oil industry, with much European activity in the late 19th century centered on Baku.

Lots of capital expenditure is required to make this future development a reality, including the construction of new pipelines to ship Caspian oil to world markets. This Independent article describes the desires and potential for new drilling and new pipelines:

Two former Soviet states, Azerbaijan and Kazakhstan, between them have oil reserves three times the size of America’s. The “game” is to find the safest way to get that black gold into the petrol tanks of American cars.

The US has been pushing for a new pipeline since Bill Clinton was in office. At first, companies were reluctant, but the rising price of oil, allied to threats in the Persian Gulf and the likelihood of huge reserves of oil and gas worth as much as $4 trillion under the Caspian, has made them increasingly bullish. The US Environment Department estimates that by 2010, the Caspian region could produce 3.7 million barrels per day. This could fill a large hole in world supplies as world oil demand is expected to grow from 76 million a day, in 2000, to 118.9 million by 2020.

Many concerns lay in the path of this development — national boundaries, geopolitical machinations, environmental concerns … this list goes on.

3 thoughts on “Caspian Pipeline Difficulties

  1. I don’t see how anyone could be promoting the development of oil production in a former Soviet satellite state before the development of American oil production in ANWR. Any argument against that development could be used in the Caspian arena as well. It’s way past time we stop letting the pervaricating environuts and their media lapdogs derail this key undertaking.

  2. One key question to ask in making that comparison is production cost: is marginal cost higher or lower in Caspian vs. ANWR? My moderately-informed sense is that the Caspian in general is a lower-cost production area than Alaska, and is likely to be so for quite a few years, given the relative proven reserves and extraction effort.

  3. There was an interesting article vis-a-vis the whole idea of drilling in ANWR by Dwight Lee entitled “To Drill or Not to Drill: Let the Environmentalists Decide” (Indpendent Review, V. VI, N. 2, Fall 2001) which may be of interest to the “educated layperson” not schooled in formal economic theory.

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