Caspian Energy Producers in the 'New Oil Order': Neglected by the West, Looking East

Abstract

The shale revolution and the transition to a low-carbon economy in the industrialized West have ushered in a new era of energy. The Trump administration in the U.S. has pushed a new ‘America first’ energy policy aimed at transforming the U.S. into a global energy superpower. The rise in shale gas production has brought energy prices tumbling down. Traditional oil producers have been hit hard by low oil prices. The new energy order also means a lower demand in the West for Caspian fossil fuels. International oil companies have shown no interest in investing in new Caspian energy developments, and the idea of building a seabed Trans Caspian Pipeline (TCP) to connect Central Asia to Azerbaijan remains stuck on paper. In this article, I examine the impacts of these macro-structural changes on Azerbaijan, Kazakhstan and Turkmenistan. I argue that in the absence of Western oil company investments, and given the lack of U.S. and EU leadership in developing new energy projects, Caspian energy producers, with the exception of those in Azerbaijan, are looking to China and other Asian countries for export markets. Turkmenistan already ships almost all its gas exports to China and is pressing ahead with a new pipeline (TAPI) to deliver gas to Pakistan and India. With substantial Chinese investments in its energy sector and an existing pipeline connection to China, Kazakhstan has increased its gas exports to China. In the case of limited capacity of Kazakhstan’s westbound pipelines, the country is considering plans for diverting some of its growing oil output to China. Azerbaijan has the biggest stake in a TCP because of the urgency of switching to gas. Baku has borrowed billions of dollars to build a network of pipelines (the Southern Gas Corridor) to ship its gas to southern Europe. However, there is currently not enough gas available to make this pipeline project commercially viable.