Ado about Nothing -- Whither the Caspian Riches?
Over the Last 24 Months Hoped For Caspian
Oil Bonanza Has Vanished
With Each New Well Drilled -- Global Implications Are
Dale Allen Pfeiffer, FTW Contributing Editor for
[© Copyright, 2002, From The Wilderness
Publications, www.fromthewilderness.com. All rights
May be copied, distributed or posted on the Internet
for non-profit purposes only.]
[Ed. Note: The unfolding drama since
9-11-01 has been closely paralleled by another, perhaps
more threatening one. Evolving more quietly, unmentioned
and ignored by the major media, is a coming hydrocarbon
energy crisis of civilization-threatening significance.
Peak oil production is a reality, and it is happening
now. What was once heralded as an oil bonanza in Central
Asia -- and given life by ludicrous economic and political
assertions insisting that demand always creates supply
-- has proven itself to be an enormous bust. As Caspian
reserve estimates have been continually revised lower
-- from 200 billion barrels, to 100 billion barrels, to
around 20 billion barrels -- the world has witnessed a
dramatic shift in U.S. foreign policy toward belligerent
and unilateral doctrines aimed at Iraq and Saudi Arabia.
In the meantime, both politicians and economists perpetuate
a dangerous fallacy which says that if you lock scientists
up in a bank vault and give them enough money and enough
demand, they can produce a hot dog with mustard and relish.
And conversion to hydrogen energy,
as promoted by the Department of Energy, is an impractical
myth; a palliative meant to calm fears rather than solve
problems. Not until technologies are made available
manufacture hydrogen at the point of use will hydrogen
technologies present even a viable partial solution
the critical challenges posed by peak oil.
has said for more than a year, the "war which will
not end in our lifetimes" is proving itself to be
a sequential war to control the last remaining oil reserves
on the planet, especially those which have not yet peaked.
Dec. 5, 2002, 16:00 PST (FTW) -- What
ever happened to all the talk of a new oil utopia in the
Caspian Sea and Central Asia? Word was that Caspian-Central
Asian oil reserves would dwarf the Middle East.
Yet, in the year since the Afghan War began, it seems that all the rumors
of Caspian riches have died out and the center of oil
interest has returned once again to Saudi Arabia and Iraq.
In his exclusive FTW interview (http://www.fromthewilderness.com/free/ww3/102302_campbell.html),
noted petroleum geologist Colin Campbell states that exploration
in the Caspian region has been very disappointing, with
the discoveries being much smaller than predicted and
much of the oil discovered being of poor quality.
But the Energy Information Agency (EIA)
predicted that the Caspian region would contain in excess
of 200 billion barrels of oil. So what is being said elsewhere
about the results of Caspian oil exploration?
At a recent event hosted by the Associated Press and the Harriman Institute,
Steven Mann, the director of the State Department's Caspian
Basin Energy Policy Office stated that the Caspian Sea
contains only 50 billion barrels of proven reserves, a
far cry from the EIA's projections. "Caspian Oil
represents 4 percent of the world's reserves. It will
never dominate the world's markets..."1
Likewise, a study published in PetroStrategies last July stated that the
Caspian Sea contains only 39.4 billion barrels of proven
oil reserves. The study, conducted by consultants from
Wood MacKenzie, criticized IEA figures for the region
as being severely inflated and unrealistic.2
The study states that oil production from the Caspian region should peak
at 3.8 million barrels per day (bpd) by 2015, but be considerably
less if the region remains politically unstable. Future
discoveries might result in a production plateau extending
Only four fields are expected to make
up 57 percent of production by 2010. Of these four fields,
three are located in Kazakhstan: Tengiz, Karachaganak
and Kashagan. The fourth field is the Azeri-Chirac-Guneshli
complex in Azerbaijan.
Total Azerbaijan reserves are estimated at 6.6 billion barrels. However,
drilling activity in the area has been disappointing,
indicating that oil reserves are likely dispersed in small
The Tengiz field is estimated to contain
between 6 and 9 billion barrels of recoverable reserves.
In 1993, Chevron paid $20 billion to Kazakhstan for the
right to develop this field, resulting in the TengizChevrOil
joint venture. Chevron expects production at Tengiz to
peak at 750,000 bpd by 2010. Azeri-Chirac-Guneshli proven
reserves are estimated at between 3 and 5 billion barrels.
They are being developed by the Azerbaijan International Operating Company,
and are expected to peak at 800,000 bpd by the end of
With reserves estimated at 10 billion barrels, the Kashagan
field accounts for 25 percent of the regional total.6 This area is being developed by the Agip Kazakhstan
North Caspian Operating Company (Agip KCO, formerly OKIOC),
lead by the Italian oil major Agip.
Though Agip has been disappointed by exploration, in June of 2002 they
stated there might be as much as 38 billion in probable
reserves yet to be found in the Kashagan region.7
This author has been unable to locate
data on the proven Karachaganak reserves, but the literature
would seem to indicate that they are probably a little
smaller than the Tengiz reserves.
Even the EIA has revised its report on the Caspian region, stating that
although it is not another Middle East, it is... "comparable
to the North Sea in its hydrocarbon potential."8
Additional discoveries have been reported in recent months, most notably
by ExxonMobil9 and Nelson Resources.10
However, none of these discoveries are of sufficient size
to alter the picture presented here.
In contrast, ExxonMobil does seem to be growing more cautious about the
region. ExxonMobil announced in June that it was closing
one of its Caspian offshore projects, the Oguz oil field,
due to the poor results of exploratory drilling.11
As this article went to press, there
are several new reports about oil investments in the
region. ChevronTexaco is withdrawing from the Tengizchevroil
venture. Corporate representatives and Kazakh government
officials have offered contradicting explanations for
the failure of this enterprise.
The nominal reasons for the move involve
financial disagreements between ChevronTexaco and the
Kazakh government. Disputes seem to center around distribution
and reinvestment of profits and taxation.
Obviously, there are some hard feelings between Chevron and the Kazakh
government. But the contradictory explanations offered
by both sides may indicate that -- beneath all the disputes
-- the venture simply isn't profitable enough.12
The Tengiz field has proven very expensive to pump and deliver to market.
Aside from the engineering problems of extraction and
transport, Tengiz oil has a high sulfur content (as much
as 16 percent). Disposal of the waste sulfur has proven
to be a major headache.13
Furthermore, following on the announcement that Chevron was shelving any
further development of Tengiz, Kerr McGee has announced
its intention to sell off all of its interest in various
Caspian region projects, including mineral rights in the
Kazakh sector of the Caspian Sea shelf and its interest
in the Caspian Pipeline Consortium (1.56 percent). The
company explained that it is seeking to rid itself of
inactive profiles and leave projects where it only holds
a minority investment.14
Finally, Agip KCO is also reported to be considering a delay in developing
the Kashagan oil field.15
BP-Statoil has already withdrawn from the project, leaving
Italian Agip to soldier on in the lead role. The Kashagan
oil deposits also have a high sulfur content, and the
geology of the deposits indicates that the oil may very
well be contained in many small deposits as opposed to
one large platform.16
When all of this is added to ExxonMobil's
withdrawal from Azerbaijan and Russian Lukoil's recent
announcement that it intends to sell its interest in the
Azeri-Chirac-Guneshli complex, one has to wonder why all
the major oil companies are leaving the Caspian region.
What About the Pipelines?
There has been very little talk lately about the trans-Afghanistan pipeline.
This project seems to be floundering due to continuing
instability in Afghanistan, and diminishing interest in
the region's oil prospects. It has also been reported
that the Caspian Pipeline from the Tengiz fields to the
Russian port of Novorossiisk has been hit by a number
of high costs, including port charges, taxes, and tariffs.17
The one pipeline which has remained in
the news is the Baku-Ceyhan pipeline. Estimated to cost
about $2.9 billion, this 1,090-mile pipeline network will
link an existing pipeline from Azerbaijan to the Turkish
Mediterranean Port of Ceyhan. To reach its destination,
this pipeline will have to cross high mountain ranges
and traverse territory occupied by disaffected Kurds,
who may prove hostile to the project.
Critics have questioned whether there are sufficient oil reserves in the
Caspian Sea to support the pipeline. It is also possible
that heavy tariffs will render the oil transported along
this pipeline uneconomical. ExxonMobil, ChevronTexaco
and Russia's Lukoil have all declined offers to join the
Baku-Tbilisi-Ceyhan (BTC) construction consortium.18
The project did receive a boost when BP announced that the Azeri fields
held more oil than previously believed and would be sufficient
to fill the link. Following this announcement, ConocoPhillip's
and French TotalFinaElf both bought into the project.19 However, even
with the increased reserves in the Azari, the BTC pipeline
would have to rely on exports from Kazakhstan in order
to be viable over the long-term.
Kazakhstan has vacillated in its support for the pipeline. Kazakh President
Nursultan Nazarbayev has stated that he believes the best
way to transfer Kazakh oil and gas to market is via Turkmenistan
and Iran.20 President Nazarbayev has at various times indicated
that Kazakhstan would pledge oil to the BTC pipeline,
but has backpedaled afterwards.
During a speech at the James A. Baker III Institute for Public Policy at
Rice University in Houston in late-December 2001, the
Kazakh president stated that the efficiency of the BTC
pipeline was not proven and that oil companies would choose
the export route for Kashagan oil. This speech reflects
the opinions of the Agip KCO consortium, which believes
that the Iran route is the most cost-efficient way to
transport Kashagan oil to market.21
The Kazakh President finds himself in
a very difficult position due to U.S. opposition to a
pipeline route through Iran. Kazakh statements in favor
of the BTC pipeline would properly be viewed as attempts
to placate the U.S.
Critics believe that political factors
are blinding the U.S. to financial risks in the pipeline
deal. Not only would the pipeline deny Iran a lucrative
role as energy exporter, it would also reduce dependence
of Central Asian states on Russian pipelines. Furthermore,
the pipeline would bolster regional economies in Azerbaijan,
Georgia and Turkey. The pipeline would help alleviate
Turkey's current financial depression.
A U.S. government source has stated, "The BTC has been politically
motivated, more than any other oil project in the world."22
In light of recent reports of industry
majors pulling out of the region mentioned above, it is
possible that Kazakhstan will push for the Iranian route.
Presently, Agip is the only major left in the country,
and they certainly prefer the Iranian route.
Troubles with the Tengiz and Kashagan
consortiums could leave the BTC pipeline without enough
oil to even make the project worth completing. If plans
are announced to transport Kazakh oil through Iran, it
will be very interesting to see how the U.S. responds.
There are already influential voices urging Bush to go
on to Iran as soon as he is finished with Iraq.
Whether or not the project will prove viable, construction of the BTC pipeline
began on Sept. 8.23 On hand for the
start of construction was U.S. Secretary of Energy Spencer
Abraham, who touted the project as "one of the most
important energy undertakings."24
One has to wonder whether part of the reason for U.S. interest in the pipeline
is an effort to destabilize OPEC. The Lebanese Daily Star
recently ran an editorial by Middle East Analyst Patrick
Seale which stated that Arab oil is currently worried
about the triple threat of U.S. imperialism, Russian and
Caspian imports, and hydrogen fuel cells.25
It is to be wondered if Arab oil knows that the only portion
of this triple threat which really has teeth to it is
Spencer Abraham's Hydrogen Dream
The media was all aglow recently with
Spencer Abraham's announcement that the U.S. now has a
roadmap for making the transition to a hydrogen economy.
Secretary of Energy Abraham announced the plan at the
Global Forum on Personal Transportation held in Dearborn,
Mich. In his presentation, he touted the line that hydrogen
produced from renewable resources can provide unlimited
energy with no impact on the environment. Secretary Abraham
noted that the transition to hydrogen would be a long-term
process, which will require the participation of both
industry and government.
As a first step, in January 2002 Secretary Abraham, along with officials
from the automotive industry and Congress, unveiled a
FreedomCAR partnership to develop hydrogen fuel cell vehicles.26
The National Hydrogen Energy Roadmap
is available on the internet in pdf form (http://www.eren.doe.gov/hydrogen/pdfs/national_h2_roadmap.pdf).
This roadmap glows with positive energy. In all areas
of production, delivery, storage, conversion and applications,
the document beams about what we can achieve if we put
our minds to it, but inevitably winds up by saying that
we have a long way to go in order to make it a reality.
The document does mention the various
challenges to each area of fuel cell development, but
makes little of the obstacles and instead comes off sounding
like a pep talk. Buried in the text, they admit "The
transition to a hydrogen economy... could take several
decades to achieve."27
The document speaks of wind, solar and
geothermal production, biomass, nuclear-thermo-chemical
water splitting, photoelectrochemical electrolysis, and
bioengineering. But they admit that all of these processes
will require a great deal more research.
The intention is to bootstrap the move
by first developing small "reformers" that will
run on natural gas, propane, methanol or diesel. But the
authors admit that even this technology requires further
refinement for improved reliability, longer catalyst life,
and integration with storage systems and fuel cells.
The document also includes a short list of people who are in charge of
various areas of development and transition. The list
includes: Frank Balog of Ford Motor Company, Gene Nemanich
of ChevronTexaco Technology Ventures, Mike Davis of Avista
Labs Energy, Art Katsaros of Air Products and Chemicals
Incorporated, Alan Niedzwiecki of Quantum Technologies,
Joan Ogden of Princeton University Systems, and Jeff Serfass
of The National Hydrogen Association.28 This team will ensure that the new technology remains
firmly in the hands of the top corporations.
The document is at least 80 percent public
relations. While admitting that in all areas there are
serious problems to be overcome before we will be able
to make a transition to hydrogen fuel cells, nowhere does
this document take a serious look at the obstacles. Instead,
this paper paints a pretty picture of our hydrogen future
and leaves the details to future research and investment.
So let us look at a few of the difficulties of developing
a hydrogen fuel cell economy.
First off, because hydrogen is the simplest element, it will leak from
any container, no mater how strong and no matter how well
insulated. For this reason, hydrogen in storage tanks
will always evaporate, at a rate of at least 1.7 percent
per day.29 Hydrogen is very
reactive. When hydrogen gas comes into contact with metal
surfaces it decomposes into hydrogen atoms, which are
so very small that they can penetrate metal. This causes
structural changes that make the metal brittle.30
Perhaps the largest problem for hydrogen fuel cell transportation is the
size of the fuel tanks. In gaseous form, a volume of 238,000
litres of hydrogen gas is necessary to replace the energy
capacity of 20 gallons of gasoline.31
So far, demonstrations of hydrogen-powered cars have depended upon compressed
hydrogen. Because of its low density, compressed hydrogen
will not give a car as useful a range as gasoline.32
Moreover, a compressed hydrogen fuel tank would be at
risk of developing pressure leaks either through accidents
or through normal wear, and such leaks could result in
If the hydrogen is liquefied, this will give it a density of 0.07 grams
per cubic centimeter. At this density, it will require
four times the volume of gasoline for a given amount of
energy. Thus, a 15-gallon gas tank would equate to a 60-gallon
tank of liquefied hydrogen. Beyond this, there are the
difficulties of storing liquid hydrogen. Liquid hydrogen
is cold enough to freeze air. In test vehicles, accidents
have occurred from pressure build-ups resulting from plugged
Beyond this, there are the energy costs
of liquefying the hydrogen and refrigerating it so that
it remains in a liquid state. No studies have been done
on the energy costs here, but they are sure to further
decrease the Energy Return on Energy Invested (EROEI)
of hydrogen fuel.
A third option is the use of powdered metals to store the hydrogen in the
form of metal hydrides. In this case, the storage volume
would be little more than the volume of the metals themselves.34 Moreover, stored in this form, hydrogen would be far
less reactive. However, as you can imagine, the weight
of the metals will make the storage tank very heavy.
Now we come to the production of hydrogen.
Hydrogen does not freely occur in nature in useful quantities,
therefore hydrogen must be split from molecules, either
molecules of methane derived from fossil fuels or from
Currently, most hydrogen is produced by the treatment of methane with steam,
following the formula: CH4 (g) + H2O + e > 3H2(g) +
CO(g). The CO(g) in this equation is carbon monoxide gas,
which is a byproduct of the reaction.35
Not entered into this formula is the
energy required to produce the steam, which usually comes
from the burning of fossil fuels.
For this reason, we do not escape the production of carbon dioxide and
other greenhouse gases. We simply transfer the generation
of this pollution to the hydrogen production plants. This
procedure of hydrogen production also results in a severe
energy loss. First we have the production of the feedstock
methanol from natural gas or coal at a 32 percent to 44
percent net energy loss. Then the steam treatment process
to procure the hydrogen will result in a further 35 percent
It has often been pointed out that we have an inexhaustible supply of water
from which to derive hydrogen. However, this reaction,
2H2O + e = 2H2(g) + O2(g), requires a substantial energy
investment per unit of water (286kJ per mole).37 This energy investment is required
by elementary principles of chemistry and can never be
Several processes are being explored
to derive hydrogen from water, most notably electrolysis
of water and thermal decomposition of water. But the basic
chemistry mentioned above requires major energy investments
from all of these processes, rendering them unprofitable
in terms of EROEI.
Much thought has been given to harnessing sunlight through photovoltaic
cells and using the resulting energy to split water in
order to derive hydrogen. The energy required to produce
1 billion kWh (kilowatt hours) of hydrogen is 1.3 billion
kWh of electricity.38
Even with recent advances in photovoltaic technology,
the solar cell arrays would be enormous, and would have
to be placed in areas with adequate sunlight.
Likewise, the amount of water required to generate this hydrogen would
be equivalent to 5 percent of the flow of the Mississippi
River.39 As an example of a solar-to-hydrogen set up, were
Europe to consider such a transition, their best hope
would lie in erecting massive solar collectors in the
Saharan desert of nearby Africa. Using present technology,
only 5 percent of the energy collected at the Sahara solar
plants would be delivered to Europe. Such a solar plant
would probably cost 50 times as much as a coal fired plant,
and would deliver an equal amount of energy.40 On top of this, the production of photovoltaic cells
has a very poor EROEI.
The basic problem of hydrogen fuel cells
is that the second law of thermodynamics dictates that
we will always have to expend more energy deriving the
hydrogen than we will receive from the usage of that hydrogen.
The common misconception is that hydrogen fuel cells are
an alternative energy source when they are not.
In reality, hydrogen fuel cells are a storage battery for energy derived
from other sources. In a fuel cell, hydrogen and oxygen
are fed to the anode and cathode, respectively, of each
cell. Electrons stripped from the hydrogen produce direct
current electricity which can be used in a DC electric
motor or converted to alternating current.41
Because of the second law of thermodynamics, hydrogen fuel cells will always
have a bad EROEI. If fossil fuels are used to generate
the hydrogen, either through the Methane-Steam method
or through Electrolysis of Water, there will be no advantage
over using the fossil fuels directly. The use of hydrogen
as an intermediate form of energy storage is justified
only when there is some reason for not using the primary
source directly.42 For this reason, a hydrogen-based economy must depend
on large-scale development of nuclear power or solar electricity.
Therefore, the development of a hydrogen
economy will require major investments in fuel cell technology
research and nuclear or solar power plant construction.
On top of this, there is the cost of converting all of
our existing technology and machinery to hydrogen fuel
cells. And all of this will have to be accomplished under
the economic and energy conditions of post-peak fossil
Based on all of this, I submit that Secretary
of Energy Spencer Abraham does indeed have ulterior motives
for his Hydrogen Energy Roadmap. First, I suggest that
this distant goal will help to pacify the public once
they begin to suffer from the effects of fossil fuel withdrawal.
Secondly, this project will allow the elite to transfer
more money from the general public to the pockets of the
rich. Third, in the words of Karl Davies, this proposal
will deflect a stock market collapse once news of declining
oil production becomes generally recognized.
Tied to this, it will brace stock prices
of the auto corporations and oil majors to help them survive
well into the era of oil depletion. And finally, the idea
that we are working on a transition from fossil fuels
to a hydrogen-based economy will help to destabilize OPEC,
hopefully making it easier to deal with that organization
and the Arab oil states.