September 11, 2013

Oil and natural gas production is growing in Caspian Sea region

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The Caspian Sea region, which includes Russia, Azerbaijan, Kazakhstan, Turkmenistan, Uzbekistan, and Iran, is one of the oldest oil-producing areas in the world and is an increasingly important source of global energy production. The area has significant oil and natural gas reserves from both offshore deposits in the Caspian Sea itself and onshore fields in the region. Traditionally an oil-producing area, the Caspian area's importance as a natural gas producer is growing quickly.

EIA estimates that there were 48 billion barrels of oil and 292 trillion cubic feet (Tcf) of natural gas in proved and probable reserves within the basins that make up the Caspian Sea and surrounding area in 2012. Offshore fields account for 41% of total Caspian crude oil and lease condensate (19.6 billion barrels) and 36% of natural gas (106 Tcf). In general, most of the offshore oil reserves are in the northern part of the Caspian Sea, while most of the offshore natural gas reserves are in the southern part of the Caspian Sea.

In addition, the U.S. Geological Survey (USGS) estimates another 20 billion barrels of oil and 243 Tcf of natural gas in as yet undiscovered, technically recoverable resources. Much of this is located in the South Caspian Basin, where territorial disputes over offshore waters hinder exploration.

EIA estimates that the Caspian Sea region produced an average of 2.6 million barrels per day of crude oil and lease condensate in 2012, around 3.4% of the total world supply. Over the past decade, Kazakhstan's onshore oil fields, particularly the Tengiz field, were the biggest contributor to the region's production. As Azerbaijan developed the Azeri-Chirag-Guneshli (ACG) field group between 2006 and 2008, its offshore production began accounting for an increasing part of total Caspian production. Other significant sources of Caspian oil include production in Turkmenistan near the coast and in Russia's North Caucasus region.

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While most current Caspian oil comes from onshore fields, the biggest prospects for future growth in production are from offshore fields, which are still relatively undeveloped. Chief among these is Kazakhstan's Kashagan field, believed to be the largest known oil field outside the Middle East.

EIA estimates that the Caspian area produced 2.8 Tcf of natural gas in 2012, with large portions reinjected back into fields or flared. The large amount and dispersed nature of Caspian natural gas reserves suggest the possibility of significant future growth in production.

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Azerbaijan became an important regional natural gas producer with the start of production in the Shah Deniz field in 2006. Other prospects for natural gas production growth include Russia's North Caucasus region, which has the bulk of the Caspian Sea region's onshore natural gas reserves, and Turkmenistan's Galkynysh field, which a 2009 audit suggested may be the world's fourth largest natural gas field.

Caspian oil and natural gas fields are relatively far from export markets, requiring expensive infrastructure and large investments to transport produced hydrocarbons to markets. The Caspian Sea's periodically freezing waters increase the costs of offshore projects, and shifting regulations create uncertainty for foreign companies investing in natural resources in the region.

The ability of countries to export greater volumes of Caspian crude oil and natural gas will depend on how quickly domestic energy demand rises in those countries, how quickly they can build additional export infrastructure, and whether expensive projects to develop Caspian resources can attract sufficient investment. For more information, see EIA's Caspian Sea regional analysis brief.