TURKMENISTAN - Iran Drilling Deal.

In August 1998, the National Iranian Oil Co. (NIOC) won a $25m contract to drill four oil wells in the Turkmenbashi region. A team of 64 Iranian engineers arrived there in mid-August to begin work. The drilling programme was to take 18 months. No developments on this project have been announced since then.

Tehran and Ashgabat inaugurated a $200m gas pipeline in December 1997. This was part of a project to transfer Turkmen gas to Europe via Iranian territory and Turkey. The pipeline's capacity now is 13 BCM/year. But Iran is buying much less of the gas due to disputes over the price and over the cost of the pipeline's construction undertaken by the Iranian side (see Part 3).

Of the offshore blocks offered in 1998 by Ashgabat, Lachin, Yelbars and Burgut were claimed by Iran. Later negotiations were held with the Tehran government on a proposed joint development of these tracts.

Shell Projects: Shell has been negotiating with the authorities in Ashgabat PSAs for a number of big gas fields. These include Malai (in the Amu Darya Basin), parts of Shatlyk (in the Murgab Basin), Naip (Amu Darya), Karadzhulak (Bakhardak Monocline), and Ekerem (western Turkmenistan). Shell has been talking with the Turkmen for the past six years.

The talks have included a proposed Trans-Caspian Gas Pipeline (TCGP) to pump 30 BCM/year of Turkmen gas to Turkey (16 BCM/year) and East Europe (14 BCM/y) through Azerbaijan and the Turkish territories. But the pipeline project has been shelved because of President Niyazov's attitude. Also demand for gas in Turkey has fallen sharply since early 2001 due to a severe financial crisis (see survey of Turkey in Vol. 58, Nos. 20-23).

Shell could revive the pipeline project when demand for gas in Turkey rises in the coming years. The idea now is to have an expanded version to include Azeri gas, to be produced from the Caspian field of Shah Deniz which is operated by BP (see survey of Azerbaijan in the current volume, Nos. 4-6).

The gas would be produced from fields to be operated by Shell. Shell's partners in the pipeline venture would be General Electric and Bechtel of the US, which have been involved in the TCGP project.

Background Of Caspian Disputes: The first summit meeting of the heads of state of the five countries surrounding the Caspian Sea was held in Ashgabat in April 2002. It produced no agreement, however, because Russia already had bilateral accords on sharing the Caspian with each of Kazakhstan and Azerbaijan.

In mid-2001 an Iranian gunboat forced a BP-hired exploration vessel to leave an oil-rich area disputed between Iran and Azerbaijan. Weeks earlier the Turkmen government recalled its five-member embassy from Baku because of a dispute over ownership of three Caspian oilfields.

Legal issues on the Caspian Sea's resources revolve around whether development rights are governed by treaties signed between the former Soviet Union and Iran (which did not establish seabed boundaries or discuss oil and gas exploration), and whether the Caspian is a body of water affected by the Law of the Seas (inland lakes are not covered by this law).

If the Law of the Seas convention applied to the Caspian, full maritime boundaries of the five littoral states would be established based on the equidistant division of the sea and undersea resources into national sectors.

Iran still argues that, if the law does not apply, the Caspian resources should be developed jointly by the five states. The Russians have argued that neither the Law of the Seas nor its precedents apply because the Caspian is an enclosed sea.

However, President Vladimir Putin of Russia could no longer wait for a five-way agreement. Within weeks of the Ashgabat summit, Moscow had agreed with the Kazakhs jointly to develop oilfields lying in disputed waters between the two countries. It was also negotiating a bilateral agreement with Azerbaijan, which was signed in September 2002.

Moscow's special envoy for Caspian affairs, Viktor Kalyuzhny, said in September that Russia was still keen on a five-way accord on the division of the sea. But he said that, after a decade of disagreements during which little had been achieved, Russia saw the need to pursue bilateral treaties which did not harm the prospects of a future global settlement.

The US, whose special Caspian envoy Stephen Mann never misses an occasion to assert Washington's keen interest in this sea, has established military presence around the area - notably in Uzbekistan, Kazakhstan, Kyrghystan and Georgia, as well as in Afghanistan. The US Department of Energy's EIA optimistically places a 50% likelihood that the Caspian Sea could yield 233 billion barrels of oil.

Mann keeps reminding the littoral states that the US will prevent any Caspian oil or gas export pipeline from being built via Iran. Local observers say the US' planned long-term military presence in Iraq could greatly boost American influences over the Greater Middle East, including the Caspian region and Central Asia.