[Peace-discuss] Oil -- CEO's speech.

[Barbara Dyskant]

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Hi,

  
Here is some food, or grease, for thought, on the possibility oil is
involved in this war.   This speech was delivered to Congress by a vice
president of Unocal, mentioning the desire for an oil pipeline through
Afghanistan in order to profit from oil int he Caspian Sea.  It is of note
that Unocal saw Afghanistan's Taliban rulers, or "instability", as the
factor that prevented them from building the pipeline.

  It's nice to be able to quote stuff like this, when talking with people
who find it hard to believe such motives can exist, as this is right in the
public record.

  I wouldn't normally send this long a post on a list like this, but it
seems really relevant..

                        Peace,
                        Barbara




SUBCOMMITTEE ON ASIA AND THE PACIFIC: UNOCAL CORPORATION



                                       TESTIMONY
                                          BY
                                    JOHN J. MARESCA
                         VICE PRESIDENT, INTERNATIONAL RELATIONS
                                  UNOCAL CORPORATION

                                          TO

                       HOUSE COMMITTEE ON INTERNATIONAL RELATIONS
                          SUBCOMMITTEE ON ASIA AND THE PACIFIC
                                    FEBRUARY 12, 1998
                                    WASHINGTON, D.C.

Mr. Chairman, I am John Maresca, Vice President, International Relations,
of Unocal Corporation. Unocal is one of the world's leading
energy resource and project development companies. Our activities are
focused on three major regions -- Asia, Latin America and the
U.S. Gulf of Mexico. In Asia and the U.S. Gulf of Mexico, we are a
major oil and gas producer. I appreciate your invitation to speak
here today. I believe these hearings are important and timely, and I
congratulate you for focusing on Central Asia oil and gas reserves
and the role they play in shaping U.S. policy.

Today we would like to focus on three issues concerning this region,
its resources and U.S. policy:

The need for multiple pipeline routes for Central Asian oil and gas.

The need for U.S. support for international and regional efforts to
achieve balanced and lasting political settlements within Russia,
other newly independent states and in Afghanistan.

The need for structured assistance to encourage economic reforms
and the development of appropriate investment climates in the
region. In this regard, we specifically support repeal or removal
of Section 907 of the Freedom Support Act.

For more than 2,000 years, Central Asia has been a meeting ground
between Europe and Asia, the site of ancient east-west trade
routes collectively called the Silk Road and, at various points in
history, a cradle of scholarship, culture and power. It is also a region
of truly enormous natural resources, which are revitalizing
cross-border trade, creating positive political interaction and stimulating
regional cooperation. These resources have the potential to
recharge the economies of neighboring countries and put entire regions on
the road to prosperity.

About 100 years ago, the international oil industry was born
in the Caspian/Central Asian region with the discovery of oil. In the
intervening years, under Soviet rule, the existence

of the region's oil and gas resources was generally known, but
only partially or poorly developed.

As we near the end of the 20th century, history brings us full
circle. With political barriers falling, Central Asia and the Caspian are
once again attracting people from around the globe who are
seeking ways to develop and deliver its bountiful energy resources to the
markets of the world.

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

By 2010, Western companies could increase production to about 4.5
million barrels a day (Mb/d) -- an increase of more than 500
percent in only 15 years. If this occurs, the region would
represent about five percent of the world's total oil production,
and almost 20 percent of oil produced among non-OPEC countries.

One major problem has yet to be resolved: how to get the region's
vast energy resources to the markets where they are needed. There
are few, if any, other areas of the world where there can be
such a dramatic increase in the supply of oil and gas to the world market.
The solution seems simple: build a "new" Silk Road. Implementing
this solution, however, is far from simple. The risks are high, but
so are the rewards.

Finding and Building Routes to World Markets

One of the main problems is that Central Asia is isolated.
The region is bounded on the north by the Arctic Circle, on
the east and west
by vast land distances, and on the south by a series of natural
obstacles -- mountains and seas -- as well as political obstacles, such as
conflict zones or sanctioned countries.

This means that the area's natural resources are landlocked,
both geographically and politically. Each of the countries in the Caucasus
and Central Asia faces difficult political challenges. Some
have unsettled wars or latent conflicts. Others have evolving systems where
the laws -- and even the courts -- are dynamic and changing.
Business commitments can be rescinded without warning, or they can
be displaced by new geopolitical realities.

In addition, a chief technical obstacle we face in transporting
oil is the region's existing pipeline infrastructure. Because the region's
pipelines were constructed during the Moscow-centered Soviet
period, they tend to head north and west toward Russia. There are no
connections to the south and east.

Depending wholly on this infrastructure to export Central Asia
oil is not practical. Russia currently is unlikely to absorb large new
quantities of "foreign" oil, is unlikely to be a significant
market for energy in the next decade, and lacks the capacity to
deliver it to other markets.

Certainly there is no easy way out of Central Asia. If there
are to be other routes, in other directions, they must be built.

Two major energy infrastructure projects are seeking to meet
this challenge. One, under the aegis of the Caspian Pipeline Consortium,
or CPC, plans to build a pipeline west from the Northern Caspian
to the Russian Black Sea port of Novorossisk. From Novorossisk, oil
from this line would be transported by tanker through the Bosphorus
to the Mediterranean and world markets.

The other project is sponsored by the Azerbaijan International
Operating Company (AIOC), a consortium of 11 foreign oil companies
including four American companies -- Unocal, Amoco, Exxon and Pennzoil.
It will follow one or both of two routes west from Baku.
One line will angle north and cross the North Caucasus to Novorossisk.
The other route would cross Georgia and extend to a shipping
terminal on the Black Sea port of Supsa. This second route may be
extended west and south across Turkey to the Mediterranean port
of Ceyhan.

But even if both pipelines were built, they would not have enough
total capacity to transport all the oil expected to flow from the region
in the future; nor would they have the capability to move it to
the right markets. Other export pipelines must be built.

Unocal believes that the central factor in planning these
pipelines should be the location of the future energy markets that are most
likely to need these new supplies. Just as Central Asia was
the meeting ground between Europe and Asia in centuries past, it is again in
a unique position to potentially service markets in both of
these regions -- if export routes to these markets can be built. Let's take
a
look at some of the potential markets.

Western Europe

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

Central and Eastern Europe

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

The Domestic NIS Market

The growth in demand for oil also will be weak in the Newly
Independent States (NIS). We expect Russian and other NIS markets to
increase demand by only 1.2 percent annually between 1997 and 2010.

Asia/Pacific

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

Energy demand growth will remain strong for one key reason:
the region's population is expected to grow by 700 million people by
2010.

It is in everyone's interests that there be adequate
supplies for Asia's increasing energy requirements. If Asia's
energy needs are not
satisfied, they will simply put pressure on all world markets,
driving prices upwards everywhere.

The key question is how the energy resources of Central Asia
can be made available to satisfy the energy needs of nearby Asian
markets. There are two possible solutions -- with several variations.

Export Routes

East to China: Prohibitively Long?

One option is to go east across China. But this would mean
constructing a pipeline of more than 3,000 kilometers to central China -- as
well as a 2,000-kilometer connection to reach the main
population centers along the coast. Even with these formidable challenges,
China National Petroleum Corporation is considering building
a pipeline east from Kazakhstan to Chinese markets.

Unocal had a team in Beijing just last week for consultations
with the Chinese. Given China's long-range outlook and its ability to
concentrate resources to meet its own needs, China is almost
certain to build such a line. The question is what will the costs of
transporting oil through this pipeline be and what netback
will the producers receive.

[ *********************************************************** ]

South to the Indian Ocean: A Shorter Distance to Growing Markets

A second option is to build a pipeline south from Central
Asia to the Indian Ocean.

One obvious potential route south would be across Iran.
However, this option is foreclosed for American companies because of U.S.
sanctions legislation. The only other possible route
option is across Afghanistan, which has its own unique challenges.

The country has been involved in bitter warfare for almost
two decades. The territory across which the pipeline would extend is
controlled by the Taliban, an Islamic movement that is not
recognized as a government by most other nations. From the outset, we
have made it clear that construction of our proposed pipeline
cannot begin until a recognized government is in place that has the
confidence of governments, lenders and our company.

In spite of this, a route through Afghanistan appears to be
the best option with the fewest technical obstacles. It is
the shortest route to
the sea and has relatively favorable terrain for a pipeline.
The route through Afghanistan is the one that would bring
Central Asian oil
closest to Asian markets and thus would be the cheapest in
terms of transporting the oil.

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

The 1,040-mile-long oil pipeline would begin near the town
of Chardzhou, in northern Turkmenistan, and extend southeasterly through
Afghanistan to an export terminal that would be constructed
on the Pakistan coast on the Arabian Sea. Only about 440 miles of the
pipeline would be in Afghanistan.


[ *************** highlights are mine - Nurev ****************** ]


This 42-inch-diameter pipeline will have a shipping capacity
of one million barrels of oil per day. Estimated cost of the
project -- which
is similar in scope to the Trans Alaska Pipeline --
is about US$2.5 billion.

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

A recent study for the World Bank states that the
proposed pipeline from Central Asia across Afghanistan
and Pakistan to the Arabian
Sea would provide more favorable netbacks to oil
producers through access to higher value markets than those currently being
accessed through the traditional Baltic and Black
Sea export routes.

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

Natural Gas Export

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

Unocal and the Turkish company, Koc Holding A.S., are
interested in bringing competitive gas supplies to the
Turkey market. The
proposed Eurasia Natural Gas Pipeline would transport
gas from Turkmenistan directly across the Caspian Sea through Azerbaijan and
Georgia to Turkey. Sixty percent of this proposed gas
pipeline would follow the same route as the oil pipeline proposed to run
from
Baku to Ceyhan. Of course, the demarcation of the Caspian remains an issue.

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

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

As with the proposed Central Asia Oil Pipeline, CentGas
cannot begin construction until an internationally
recognized Afghanistan
government is in place. For the project to advance,
it must have international financing, government-to-
government agreements and
government-to-consortium agreements.

Conclusion

The Central Asia and Caspian region is blessed with
abundant oil and gas that can enhance the lives of the
region's residents and provide energy for growth for Europe and Asia.

The impact of these resources on U.S. commercial interests
and U.S. foreign policy is also significant and intertwined. Without
peaceful settlement of conflicts within the region, cross-border
oil and gas pipelines are not likely to be built. We urge the
Administration and the Congress to give strong support to the
United Nations-led peace process in Afghanistan.

U.S. assistance in developing these new economies will be
crucial to business' success. We encourage strong technical assistance
programs throughout the region. We also urge repeal or
removal of Section 907 of the Freedom Support Act. This
section unfairly
restricts U.S. government assistance to the government of
Azerbaijan and limits U.S. influence in the region.

Developing cost-effective, profitable and efficient
export routes for Central Asia resources is a formidable,
but not impossible, task. It
has been accomplished before. A commercial corridor,
a "new" Silk Road, can link the Central Asia supply with the demand -- once
again making Central Asia the crossroads between Europe and Asia.

Thank you.

PLUS:

http://www.treemedia.com/cfrlibrary/Library/background/olcottmaps.html
http://www.treemedia.com/cfrlibrary/Library/policy/bremmermap.html
http://www.treemedia.com/cfrlibrary/Library/indexmaps/indexmaps.html
http://www.treemedia.com/cfrlibrary
/Library/library.html
http://prorev.com/indexa.htm
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It's the Oil Never mind the pundits, the root cause remains the
same