{"id":915,"date":"2019-03-09T00:09:37","date_gmt":"2019-03-09T00:09:37","guid":{"rendered":"https:\/\/wsm.prolerat.org\/?page_id=915"},"modified":"2019-10-21T00:56:37","modified_gmt":"2019-10-20T23:56:37","slug":"afghanistan-and-the-new-silk-road","status":"publish","type":"page","link":"https:\/\/www.worldsocialism.org\/wsm\/afghanistan-and-the-new-silk-road\/","title":{"rendered":"Afghanistan and the new Silk Road"},"content":{"rendered":"\n

This article has been reproduced from the Socialist Standard (November 2001), the monthly journal of The Socialist Party of Great Britain.<\/strong><\/em><\/p>\n\n\n\n

\n\n\n\n

The following testimony by an oil and gas corporation executive \n(of Union Oil of California) to the Subcommittee on Asia and the Pacific\n of the US House of Representatives’ Committee on International \nRelations on 12 February 1998 throws much light on the strategic \nimportance of Afghanistan to the Western capitalist powers and goes a \nlong way to explain why they have gone to war there.<\/em><\/p>\n\n\n\n

\n\n\n\n

\nMr. Chairman, I am John Maresca, Vice President, International \nRelations, of Unocal Corporation. Unocal is one of the world’s leading \nenergy resource and project development companies. Our activities are \nfocused on three major regions \u2013 Asia, Latin America and the US Gulf of \nMexico. In Asia and the US Gulf of Mexico, we are a major oil and gas \nproducer. I appreciate your invitation to speak here today. I believe \nthese hearings are important and timely, and I congratulate you for \nfocusing on Central Asia oil and gas reserves and the role they play in \nshaping US policy.<\/p>\n\n\n\n

Today we would like to focus on three issues concerning this region, its resources and US policy:<\/p>\n\n\n\n

\u00b7\tThe need for multiple pipeline routes for Central Asian oil and gas.<\/p>\n\n\n\n

\u00b7\tThe need for US support for international and regional efforts to \nachieve balanced and lasting political settlements within Russia, other \nnewly independent states and in Afghanistan.<\/p>\n\n\n\n

\u00b7\tThe need for structured assistance to encourage economic reforms \nand the development of appropriate investment climates in the region. In\n this regard, we specifically support repeal or removal of Section 907 \nof the Freedom Support Act.<\/p>\n\n\n\n

For more than 2,000 years, Central Asia has been a meeting ground \nbetween Europe and Asia, the site of ancient east-west trade routes \ncollectively called the Silk Road and, at various points in history, a \ncradle of scholarship, culture and power. It is also a region of truly \nenormous natural resources, which are revitalizing cross-border trade, \ncreating positive political interaction and stimulating regional \ncooperation. These resources have the potential to recharge the \neconomies of neighboring countries and put entire regions on the road to\n prosperity.<\/p>\n\n\n\n

About 100 years ago, the international oil industry was born in the \nCaspian\/Central Asian region with the discovery of oil. In the \nintervening years, under Soviet rule, the existence of the region’s oil \nand gas resources was generally known, but only partially or poorly \ndeveloped.<\/p>\n\n\n\n

As we near the end of the 20th century, history brings us full \ncircle. With political barriers falling, Central Asia and the Caspian \nare once again attracting people from around the globe who are seeking \nways to develop and deliver its bountiful energy resources to the \nmarkets of the world.<\/p>\n\n\n\n

The Caspian region contains tremendous untapped hydrocarbon reserves,\n much of them located in the Caspian Sea basin itself. Proven natural \ngas reserves within Azerbaijan, Uzbekistan, Turkmenistan and Kazakhstan \nequal more than 236 trillion cubic feet. The region’s total oil reserves\n may reach more than 60 billion barrels of oil \u2013 enough to service \nEurope’s oil needs for 11 years. Some estimates are as high as 200 \nbillion barrels. In 1995, the region was producing only 870,000 barrels \nper day (44 million tons per year [Mt\/y]).<\/p>\n\n\n\n

By 2010, Western companies could increase production to about 4.5 \nmillion barrels a day (Mb\/d) \u2013 an increase of more than 500 percent in \nonly 15 years. If this occurs, the region would represent about five \npercent of the world’s total oil production, and almost 20 percent of \noil produced among non-OPEC countries. <\/p>\n\n\n\n

One major problem has yet to be resolved: how to get the region’s \nvast energy resources to the markets where they are needed. There are \nfew, if any, other areas of the world where there can be such a dramatic\n increase in the supply of oil and gas to the world market. The solution\n seems simple: build a “new” Silk Road. Implementing this solution, \nhowever, is far from simple. The risks are high, but so are the rewards.<\/p>\n\n\n\n

Finding and Building Routes to World Markets<\/strong><\/p>\n\n\n\n

One of the main problems is that Central Asia is isolated. The region\n is bounded on the north by the Arctic Circle, on the east and west by \nvast land distances, and on the south by a series of natural obstacles \u2013\n mountains and seas \u2013 as well as political obstacles, such as conflict \nzones or sanctioned countries.<\/p>\n\n\n\n

This means that the area’s natural resources are landlocked, both \ngeographically and politically. Each of the countries in the Caucasus \nand Central Asia faces difficult political challenges. Some have \nunsettled wars or latent conflicts. Others have evolving systems where \nthe laws \u2013 and even the courts \u2013 are dynamic and changing. Business \ncommitments can be rescinded without warning, or they can be displaced \nby new geopolitical realities.<\/p>\n\n\n\n

In addition, a chief technical obstacle we face in transporting oil \nis the region’s existing pipeline infrastructure. Because the region’s \npipelines were constructed during the Moscow-centered Soviet period, \nthey tend to head north and west toward Russia. There are no connections\n to the south and east.<\/p>\n\n\n\n

Depending wholly on this infrastructure to export Central Asia oil is\n not practical. Russia currently is unlikely to absorb large new \nquantities of “foreign” oil, is unlikely to be a significant market for \nenergy in the next decade, and lacks the capacity to deliver it to other\n markets.<\/p>\n\n\n\n

Certainly there is no easy way out of Central Asia. If there are to be other routes, in other directions, they must be built.<\/p>\n\n\n\n

Two major energy infrastructure projects are seeking to meet this \nchallenge. One, under the aegis of the Caspian Pipeline Consortium, or \nCPC, plans to build a pipeline west from the Northern Caspian to the \nRussian Black Sea port of Novorossisk. From Novorossisk, oil from this \nline would be transported by tanker through the Bosphorus to the \nMediterranean and world markets. <\/p>\n\n\n\n

The other project is sponsored by the Azerbaijan International \nOperating Company (AIOC), a consortium of 11 foreign oil companies \nincluding four American companies \u2013 Unocal, Amoco, Exxon and Pennzoil. \nIt will follow one or both of two routes west from Baku. One line will \nangle north and cross the North Caucasus to Novorossisk. The other route\n would cross Georgia and extend to a shipping terminal on the Black Sea \nport of Supsa. This second route may be extended west and south across \nTurkey to the Mediterranean port of Ceyhan.<\/p>\n\n\n\n

But even if both pipelines were built, they would not have enough \ntotal capacity to transport all the oil expected to flow from the region\n in the future; nor would they have the capability to move it to the \nright markets. Other export pipelines must be built.<\/p>\n\n\n\n

Unocal believes that the central factor in planning these pipelines \nshould be the location of the future energy markets that are most likely\n to need these new supplies. Just as Central Asia was the meeting ground\n between Europe and Asia in centuries past, it is again in a unique \nposition to potentially service markets in both of these regions \u2013 if \nexport routes to these markets can be built. Let’s take a look at some \nof the potential markets.<\/p>\n\n\n\n

Western Europe<\/strong><\/p>\n\n\n\n

Western Europe is a tough market. It is characterized by high prices \nfor oil products, an aging population, and increasing competition from \nnatural gas. Between 1995 and 2010, we estimate that demand for oil will\n increase from 14.1 Mb\/d (705 Mt\/y) to 15.0 Mb\/d (750 Mt\/y), an average \ngrowth rate of only 0.5 percent annually. Furthermore, the region is \nalready amply supplied from fields in the Middle East, North Sea, \nScandinavia and Russia. Although there is perhaps room for some of \nCentral Asia’s oil, the Western European market is unlikely to be able \nto absorb all of the production from the Caspian region. <\/p>\n\n\n\n

Central and Eastern Europe<\/strong><\/p>\n\n\n\n

Central and Eastern Europe markets do not look any better. Although \nthere is increased demand for oil in the region’s transport sector, \nnatural gas is gaining strength as a competitor. Between 1995 and 2010, \ndemand for oil is expected to increase by only half a million barrels \nper day, from 1.3 Mb\/d (67 Mt\/y) to 1.8 Mb\/d (91.5 Mt\/y). Like Western \nEurope, this market is also very competitive. In addition to supplies of\n oil from the North Sea, Africa and the Middle East, Russia supplies the\n majority of the oil to this region.<\/p>\n\n\n\n

The Domestic NIS Market<\/strong><\/p>\n\n\n\n

The growth in demand for oil also will be weak in the Newly \nIndependent States (NIS). We expect Russian and other NIS markets to \nincrease demand by only 1.2 percent annually between 1997 and 2010.<\/p>\n\n\n\n

Asia\/Pacific<\/strong><\/p>\n\n\n\n

In stark contrast to the other three markets, the Asia\/Pacific region\n has a rapidly increasing demand for oil and an expected significant \nincrease in population. Prior to the recent turbulence in the various \nAsian\/Pacific economies, we anticipated that this region’s demand for \noil would almost double by 2010. Although the short-term increase in \ndemand will probably not meet these expectations, Unocal stands behind \nits long-term estimates.<\/p>\n\n\n\n

Energy demand growth will remain strong for one key reason: the \nregion’s population is expected to grow by 700 million people by 2010.<\/p>\n\n\n\n

It is in everyone’s interests that there be adequate supplies for \nAsia’s increasing energy requirements. If Asia’s energy needs are not \nsatisfied, they will simply put pressure on all world markets, driving \nprices upwards everywhere. <\/p>\n\n\n\n

The key question is how the energy resources of Central Asia can be \nmade available to satisfy the energy needs of nearby Asian markets. \nThere are two possible solutions \u2013 with several variations. <\/p>\n\n\n\n

Export Routes<\/strong><\/p>\n\n\n\n

East to China: Prohibitively Long?<\/p>\n\n\n\n

One option is to go east across China. But this would mean \nconstructing a pipeline of more than 3,000 kilometers to central China \u2013\n as well as a 2,000-kilometer connection to reach the main population \ncenters along the coast. Even with these formidable challenges, China \nNational Petroleum Corporation is considering building a pipeline east \nfrom Kazakhstan to Chinese markets.<\/p>\n\n\n\n

Unocal had a team in Beijing just last week for consultations with \nthe Chinese. Given China’s long-range outlook and its ability to \nconcentrate resources to meet its own needs, China is almost certain to \nbuild such a line. The question is what will the costs of transporting \noil through this pipeline be and what netback will the producers \nreceive.<\/p>\n\n\n\n

South to the Indian Ocean: A Shorter Distance to Growing Markets<\/strong><\/p>\n\n\n\n

A second option is to build a pipeline south from Central Asia to the Indian Ocean.<\/p>\n\n\n\n

One obvious potential route south would be across Iran. However, this\n option is foreclosed for American companies because of US sanctions \nlegislation. The only other possible route option is across Afghanistan,\n which has its own unique challenges.<\/p>\n\n\n\n

The country has been involved in bitter warfare for almost two \ndecades. The territory across which the pipeline would extend is \ncontrolled by the Taliban, an Islamic movement that is not recognized as\n a government by most other nations. From the outset, we have made it \nclear that construction of our proposed pipeline cannot begin until a \nrecognized government is in place that has the confidence of \ngovernments, lenders and our company.<\/p>\n\n\n\n

In spite of this, a route through Afghanistan appears to be the best \noption with the fewest technical obstacles. It is the shortest route to \nthe sea and has relatively favorable terrain for a pipeline. The route \nthrough Afghanistan is the one that would bring Central Asian oil \nclosest to Asian markets and thus would be the cheapest in terms of \ntransporting the oil.<\/p>\n\n\n\n

Unocal envisions the creation of a Central Asian Oil Pipeline \nConsortium. The pipeline would become an integral part of a regional oil\n pipeline system that will utilize and gather oil from existing pipeline\n infrastructure in Turkmenistan, Uzbekistan, Kazakhstan and Russia.<\/p>\n\n\n\n

The 1,040-mile-long oil pipeline would begin near the town of \nChardzhou, in northern Turkmenistan, and extend southeasterly through \nAfghanistan to an export terminal that would be constructed on the \nPakistan coast on the Arabian Sea. Only about 440 miles of the pipeline \nwould be in Afghanistan.<\/p>\n\n\n\n

This 42-inch-diameter pipeline will have a shipping capacity of one \nmillion barrels of oil per day. Estimated cost of the project \u2013 which is\n similar in scope to the Trans Alaska Pipeline \u2013 is about US$2.5 \nbillion. <\/p>\n\n\n\n

There is considerable international and regional political interest \nin this pipeline. Asian crude oil importers, particularly from Japan, \nare looking to Central Asia and the Caspian as a new strategic source of\n supply to satisfy their desire for resource diversity. The pipeline \nbenefits Central Asian countries because it would allow them to sell \ntheir oil in expanding and highly prospective hard currency markets. The\n pipeline would benefit Afghanistan, which would receive revenues from \ntransport tariffs, and would promote stability and encourage trade and \neconomic development. Although Unocal has not negotiated with any one \ngroup, and does not favor any group, we have had contacts with and \nbriefings for all of them. We know that the different factions in \nAfghanistan understand the importance of the pipeline project for their \ncountry, and have expressed their support of it.<\/p>\n\n\n\n

A recent study for the World Bank states that the proposed pipeline \nfrom Central Asia across Afghanistan and Pakistan to the Arabian Sea \nwould provide more favorable netbacks to oil producers through access to\n higher value markets than those currently being accessed through the \ntraditional Baltic and Black Sea export routes.<\/p>\n\n\n\n

This is evidenced by the netback values producers will receive as \ndetermined by the World Bank study. For West Siberian crude, the netback\n value will increase by nearly $2.00 per barrel by going south to Asia. \nFor a producer in western Kazakhstan, the netback value will increase by\n more than $1 per barrel by going south to Asia as compared to west to \nthe Mediterranean via the Black Sea.<\/p>\n\n\n\n

Natural Gas Export<\/strong><\/p>\n\n\n\n

Given the plentiful natural gas supplies of Central Asia, our aim is \nto link a specific natural resource with the nearest viable market. This\n is basic for the commercial viability of any gas project. As with all \nprojects being considered in this region, the following projects face \ngeo-political challenges, as well as market issues.<\/p>\n\n\n\n

Unocal and the Turkish company, Koc Holding A.S., are interested in \nbringing competitive gas supplies to the Turkey market. The proposed \nEurasia Natural Gas Pipeline would transport gas from Turkmenistan \ndirectly across the Caspian Sea through Azerbaijan and Georgia to \nTurkey. Sixty percent of this proposed gas pipeline would follow the \nsame route as the oil pipeline proposed to run from Baku to Ceyhan. Of \ncourse, the demarcation of the Caspian remains an issue.<\/p>\n\n\n\n

Last October, the Central Asia Pipeline, Ltd. (CentGas) consortium, \nin which Unocal holds an interest, was formed to develop a gas pipeline \nthat will link Turkmenistan’s vast natural gas reserves in the \nDauletabad Field with markets in Pakistan and possibly India. An \nindependent evaluation shows that the field’s resources are adequate for\n the project’s needs, assuming production rates rising over time to 2 \nbillion cubic feet of gas per day for 30 years or more. <\/p>\n\n\n\n

In production since 1983, the Dauletabad Field’s natural gas has been\n delivered north via Uzbekistan, Kazakhstan and Russia to markets in the\n Caspian and Black Sea areas. The proposed 790-mile pipeline will open \nup new markets for this gas, travelling from Turkmenistan through \nAfghanistan to Multan, Pakistan. A proposed extension would link with \nthe existing Sui pipeline system, moving gas to near New Delhi, where it\n would connect with the existing HBJ pipeline. By serving these \nadditional volumes, the extension would enhance the economics of the \nproject, leading to overall reductions in delivered natural gas costs \nfor all users and better margins. As currently planned, the CentGas \npipeline would cost approximately $2 billion. A 400-mile extension into \nIndia could add $600 million to the overall project cost. <\/p>\n\n\n\n

As with the proposed Central Asia Oil Pipeline, CentGas cannot begin \nconstruction until an internationally recognized Afghanistan government \nis in place. For the project to advance, it must have international \nfinancing, government-to-government agreements and \ngovernment-to-consortium agreements.<\/p>\n\n\n\n

Conclusion<\/strong><\/p>\n\n\n\n

The Central Asia and Caspian region is blessed with abundant oil and \ngas that can enhance the lives of the region’s residents and provide \nenergy for growth for Europe and Asia.<\/p>\n\n\n\n

The impact of these resources on US commercial interests and US \nforeign policy is also significant and intertwined. Without peaceful \nsettlement of conflicts within the region, cross-border oil and gas \npipelines are not likely to be built. We urge the Administration and the\n Congress to give strong support to the United Nations-led peace process\n in Afghanistan.<\/p>\n\n\n\n

US assistance in developing these new economies will be crucial to \nbusiness’ success. We encourage strong technical assistance programs \nthroughout the region. We also urge repeal or removal of Section 907 of \nthe Freedom Support Act. This section unfairly restricts US government \nassistance to the government of Azerbaijan and limits US influence in \nthe region.<\/p>\n\n\n\n

Developing cost-effective, profitable and efficient export routes for\n Central Asia resources is a formidable, but not impossible, task. It \nhas been accomplished before. A commercial corridor, a “new” Silk Road, \ncan link the Central Asia supply with the demand \u2013 once again making \nCentral Asia the crossroads between Europe and Asia.<\/p>\n\n\n\n

Thank you.<\/p>\n\n\n\n

\n\n\n\n

Back to the Politics Index<\/a><\/p>\n\n\n\n

\n\n\n\n

Back to the World Socialist Movement home page<\/a> <\/p>\n","protected":false},"excerpt":{"rendered":"

This article has been reproduced from the Socialist Standard (November 2001), the monthly journal of The Socialist Party of Great Britain. The following testimony by an oil and gas corporation executive (of Union Oil of California) to the Subcommittee on Asia and the Pacific of the US House of Representatives’ Committee on International Relations on…<\/p>\n","protected":false},"author":1,"featured_media":0,"parent":0,"menu_order":0,"comment_status":"closed","ping_status":"closed","template":"","meta":{"magazine_newspaper_sidebar_layout":"","footnotes":""},"class_list":["post-915","page","type-page","status-publish","hentry"],"_links":{"self":[{"href":"https:\/\/www.worldsocialism.org\/wsm\/wp-json\/wp\/v2\/pages\/915","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/www.worldsocialism.org\/wsm\/wp-json\/wp\/v2\/pages"}],"about":[{"href":"https:\/\/www.worldsocialism.org\/wsm\/wp-json\/wp\/v2\/types\/page"}],"author":[{"embeddable":true,"href":"https:\/\/www.worldsocialism.org\/wsm\/wp-json\/wp\/v2\/users\/1"}],"replies":[{"embeddable":true,"href":"https:\/\/www.worldsocialism.org\/wsm\/wp-json\/wp\/v2\/comments?post=915"}],"version-history":[{"count":1,"href":"https:\/\/www.worldsocialism.org\/wsm\/wp-json\/wp\/v2\/pages\/915\/revisions"}],"predecessor-version":[{"id":2623,"href":"https:\/\/www.worldsocialism.org\/wsm\/wp-json\/wp\/v2\/pages\/915\/revisions\/2623"}],"wp:attachment":[{"href":"https:\/\/www.worldsocialism.org\/wsm\/wp-json\/wp\/v2\/media?parent=915"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}