Opinion

Revisiting the landmark Caspian Sea agreement

A year since the much-anticipated deal was signed, how much has changed?

Ashley Sherman

Principal Research Analyst, Caspian & Europe Upstream

Ashley leads our analysis of the Caspian Upstream sector.

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It’s just over a year since a landmark agreement for the Caspian region was signed. The Convention on the Legal Status of the Caspian Sea was undoubtedly an unprecedented milestone for the resource-rich region. But while the agreement settled a long-running dispute over the thorny issue of whether the Caspian is a sea or a lake, how much has changed?

One year on, it’s a good time to check on progress.

What was agreed?

The Caspian Sea is a world-class oil and gas production area, with offshore output of about 2 million boe/d. This includes some of the largest and most expensive projects globally. But disputes in the South Caspian between Azerbaijan, Iran and Turkmenistan have blocked exploration in contested areas for decades.

The 2018 convention established:

  • Rules for demarcating each country’s territorial waters and fishing zones
  • A special legal status that should allow direct talks in the South Caspian on how to divide the seabed and unlock further oil and gas riches.

In principle, it also allows for subsea pipelines to be built under agreements between affected countries, rather than needing approval from all five states.

The convention has been decades in the making, but it will not transform the region's energy outlook.

Ashley Sherman

Principal Research Analyst, Caspian & Europe Upstream

Ashley leads our analysis of the Caspian Upstream sector.

Latest articles by Ashley

View Ashley Sherman's full profile

How significant is the deal?

The effects of any deal that’s been more than 20 years in the making will take a long time to play out. This one is no exception.

One year on, we answer four key questions about what’s changed since the deal was signed.

1. When will the agreement come into effect?

Only after all five littoral states have ratified it. As expected, Azerbaijan, Turkmenistan and Kazakhstan were the early movers and ratified the deal between December 2018 and February 2019. Ratification in Russia is ongoing.

But Iran remains a key sticking point. It looks increasingly unlikely that the deal will be signed off by the end of this year.

2. Is a Trans-Caspian Gas Pipeline (TCGP) back on the agenda?

At face value, the convention cleared a major obstacle to eternal ambitions for a Trans-Caspian Gas Pipeline (TCGP), by removing the requirement for subsea pipelines to be approved by all five littoral states.

But there hasn’t been much progress in the past 12 months, and, in our view, fundamental commercial and strategic challenges will be here to stay.

The TCGP concept – and high-level strategic support from the US and EU – hasn’t changed. But its promoters have, with Georgia’s transit ambitions increasingly coming to the fore.

State-owned Georgian Oil and Gas Corporation holds a 10% stake in the TCGP’s promoter company. But moving beyond the current preliminary studies will be a struggle.

3. Is there renewed hope for the discovered resource opportunities?

Serdar (known as Kapaz in Azerbaijan), the only large discovered resource under dispute in the South Caspian, has never been developed. In 2007, Turkmenistan awarded a PSC to Buried Hill Energy (UK).

The convention is positive for Serdar/Kapaz, which contains several hundred million barrels of resources. But the required political solution is a long way off.

Although the convention established a framework for future bilateral talks, border delineation and territorial ownership are yet to be clarified.

Signature of the convention shone a brighter light on growing collaboration in Central Asia and across the Caspian.

Ashley Sherman

Principal Research Analyst, Caspian & Europe Upstream

Ashley leads our analysis of the Caspian Upstream sector.

Latest articles by Ashley

View Ashley Sherman's full profile

4. Has the agreement fostered greater cooperation in the region?

Improved regional relationships were a consistent theme in 2018, and various ad-hoc agreements have been signed in the last year.

But too much can be read into strategic deals – not least Gazprom’s resumption of gas purchases from Turkmenistan.

The deal will see Turkmenistan supply 5.5 bcm/year to Gazprom until June 2024 and is much needed for the former's export-reliant economy. While it is the definitive sign of a revived relationship between the two entities, the contracted volumes are relatively minor compared to gas trade in the 2000s.

Get more in-depth intelligence and forward-looking analysis of the upstream oil and gas sector with our Upstream Oil & Gas service.

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