But Moscow still needed to agree to a pipeline running through Russian territory. United States Vice President Al Gore used his co-chairmanship of a joint U.S.-Russian commission to successfully convince Premier Viktor Chernomyrdin that this was in Russia’s interests. It also became very apparent that Russian participation in the project itself would be an asset. Russia’s Lukoil, in partnership with the American company ARCO, came in and purchased a share of Tengiz.
Meanwhile, Kazakhstan had asked Mobil to help put up money for the pipeline. “I finally said we were not going to help on the pipeline in order to help Chevron crude to get out of Tengiz,” said Mobil’s CEO, Lucio Noto. “Tengiz was an absolutely world-class opportunity.” Mobil paid a billion dollars, part of it up front, and bought a quarter of the oil field itself.7
In 1996 a new agreement dramatically restructured the original consortium. The oil companies were now members in a 50-50 partnership with the Russians, the Kazakhs, and Oman. The companies paid for the construction of the new pipeline—$2.6 billion—while Russia and Kazakhstan contributed the right-of-way and such pipeline capacity as was already in place. There was still much that was difficult to get done, including securing the actual route.
Matzke and Vagit Alekperov, the CEO of Lukoil, barnstormed by plane, visiting the interested parties all along the proposed pipeline route. Each stop required a banquet or a heavy reception, which sometimes meant as many as eleven meals a day for the traveling oil men, leaving them stuffed and groggy by nighttime. With the door thus opened, the Caspian Pipeline Consortium had to follow up and go into every locality and to negotiate right-of-way agreements for the new pipeline.8
Nonetheless, in 2001 the first oil from Tengiz passed into the pipeline. This was a landmark. Kazakhstan now, too, was integrated into the global oil industry. In the years that followed, there were many points of contention about Tengiz, which continue to the present day, but they were about the traditional issues—about how much the government’s “take,” or share of revenues and profits, would increase. By 2011 production was up to about 630,000 barrels of liquids per day—ten times what it had been when Chevron had begun to work in the field a decade and a half earlier—and planning was well advanced for the next stage of increase. The difficulties of dealing with the sour gas, laden with hydrogen sulfide, had, however, driven the price tag for Tengiz up from the anticipated $20 billion to more like $30 billion.
Tengiz is not the only supplier into the Caspian Pipeline. Another significant field, Karachaganak, feeds into it, as do other smaller fields.
KASHAGAN
The largest single oil field discovered in the world since 1968 is also in Kazakhstan. This is the immense Kashagan field, fifty miles offshore in the waters in the northeast of the Caspian. The Soviet oil industry had done seismic testing there but did not have the technology to explore the offshore region. In 1997 a consortium of Western companies had inked a deal with the Kazakh government to explore and develop the northern Caspian. In July 2000 they struck oil. Subsequently, Kashagan’s recoverable reserves have been estimated at 13 billion barrels, as big as the North Slope of Alaska.
Kashagan’s potential may be great, but it has also been the subject of continuing contention and discord among the international partners—ENI, Shell, ExxonMobil, Total, ConocoPhillips, and Japan’s Inpex—and between all of them and the Kazakh government. For while Kashagan may be immense, so are its challenges. They dwarf by far those of Tengiz. A whole new production technology has had to be designed for the complex, fragmented field in what has been described as “the world’s largest oil development.” The petroleum resources are buried two and a half miles beneath the seabed, under enormous pressure and suffused with the same dangerous hydrogen sulfide found onshore at Tengiz. After many difficulties and setbacks, and in the face of ballooning costs and much acrimony and debate, the companies had to start over and reallocate roles. The project has taken almost a decade longer than anticipated to complete; first oil is not expected before 2012; and anticipated costs have increased to more than $40 billion for the first phase. All of this has infuriated the Kazakh government, which is having to wait years longer than it had anticipated for Kashagan revenues to start flowing into its treasury. But when Kashagan does start up production, it could add 1.5 million barrels of oil a day to world supplies.9
ONE MORE DEAL
There was one other notable Kazakh deal, though not understood as such at the time. In 1997 China National Petroleum Corporation, a state-owned oil company little known to the outside world at the time, bought most of a Kazakh oil company called Aktobe Munaigas, and committed to build a pipeline to China. Production in 1997 was only about 60,000 barrels a day, but the Chinese have since doubled it. Little attention was paid to that first entry of China into Kazakhstan, and even that attention was mixed with much skepticism about the pipeline and the overall prospects. As one keen observer of Caspian oil was to note almost a decade and a half later, “How wrong we were.”
But, then, centuries earlier a Russian geographer had caught a glimpse of the future. He had written that the people of the steppes would also need to look to the East for the markets for their natural resources.10
TURKMENISTAN AND THE PIPELINE THAT NEVER WAS
One other major source of hydrocarbons was, at least potentially, unleashed by the breakup of the Soviet Union—Turkmenistan. There, too, a plan emerged for major pipelines. It would connect the world in new ways. But that project, too, was complicated and even more contingent, and ever since wrapped in many legends, including that it was part of a grand strategy. In fact, it was much more of a great flyer—a Hail Mary pass of transcontinental proportions.
Turkmenistan sits on the southeast corner of the Caspian, immediately north of Afghanistan. It was highly isolated in Soviet times. Endowed with significant oil resources, it is truly rich in natural gas. This was recognized even in the early 1990s—and even more so today, as Turkmenistan now ranks as the fourth-largest holder of conventional natural gas resources in the world. Immediately after the breakup of the Soviet Union, Turkmenistan managed to earn some money and barter for goods by delivering gas into the Russian pipeline system, just as it had supplied gas to the Soviet system. This was the new country’s major revenue source. But then, in 1993, the Russians abruptly shut down such imports. With their economy in freefall, the Russians did not need the Turkmen gas. Turkmenistan managed to stay afloat economically—just barely—by selling cotton and its limited output of oil.
TAP AND CAOP
Turkmenistan’s entire existing pipeline system, built for the integrated Soviet economy, flowed north into Russia. An alternative export route looked like a very good idea. But given the geography and the neighbors, it was just very hard to see what the alternative route might be. As one Western oil man put it at the time, “Certainly there is no easy way out of Central Asia.” The U.S. government lent support to a project to ship gas from Turkmenistan across the Caspian Sea to Azerbaijan and on to Europe, but that never eventuated.
There was one possibility that recommended itself, but, along with all the other normal inputs of money and engineering capabilities and diplomatic skills, this particular transit route would require something else—very substantial amounts of political imagination. For the envisioned track would take the gas south through Afghanistan and into Pakistan, where some of it would be used domestically and some exported as liquefied natural gas (LNG). The rest would be exported farther south by pipeline into India. Moreover, the proposed 1,040-mile oil pipeline could help move the landlocked petroleum resources of Central Asia south to global markets, closer to Asia, but without having to go through Iran and the Persian Gulf. “Only about 440 miles of the pipeline would be in Afghanistan,” one oil man optimistically said in congressional testimony. And the route had one more decided advantage: it looked to be “the cheapest in terms of transporting oil.”
It was a very big idea that appealed to a company called Unocal, one of the smaller
of the U.S. majors. Started as a California company, it had already developed a significant position as a natural gas producer in Southeast Asia, and had also been one of the pioneers of the AIOC, of which it owned about 10 percent. Once the Baku-Tbilisi-Ceyhan Pipeline project got going, recalled John Imle, Unocal’s president, “We asked ourselves, What’s the next project? Turkmenistan had a lot of gas, but all the pipelines were going north, and the Russians were not taking the gas. Our premise was that Central Asia needed an outlet to the Indian Ocean.” So convinced was Unocal of the potential of additional transport routes that it embraced what became a famous slogan, “Happiness Is Multiple Pipelines.”
For Unocal, a project with Turkmenistan could be the game changer, an enormous opportunity that could leapfrog Unocal into the front ranks of international companies. Marty Miller, the Unocal executive with the responsibility for the project, described it as the “moon shot” in the company’s portfolio of possible future projects. It was an $8 billion idea, for it would also be a “twofer”—twin natural gas and oil pipelines. The natural gas line was dubbed the Trans-Afghan Pipeline; and the oil, the Central Asian Oil Pipeline.
Together TAP and CAOP (the latter pronounced as “cap”) would open global markets to Turkmen resources; they would provide significant transit revenues to Afghanistan, an alternative to the revenues that the nation derived from opium cultivation. TAP would deliver natural gas to the growing economies of Pakistan and India, where, the economics indicated, it would be cheaper than imported LNG. CAOP would move a million barrels per day of oil south from Turkmenistan and elsewhere in Central Asia, perhaps even Russia.11
Unocal could already clearly see that the great growth markets of the twenty-first century would be in that region. Yet reflecting the perspectives of the times, the main markets for Turkmen oil were thought to be Japan and Korea. China, as a market at that point, was still little more than a footnote. After all, it was only two years earlier that China had stopped exporting oil and become an importer. The gas project was particularly compelling to some policymakers in India, who hoped that a natural gas link would tie India and Pakistan together with common interests that would help to offset decades of conflict and rivalry. They called it a “peace pipeline.”
To say the project was “challenging” was an understatement.
TURMOIL EN ROUTE
The main transit country for TAP and CAOP was Afghanistan, but Afghanistan in the mid-1990s was hardly a functioning country. For ten years the country had been torn apart by a war between Soviet troops, which had invaded in 1979, and Afghan mujahedeen, supported by Pakistan, the United States, and Saudi Arabia, among others. “The greatest mistake [of the Soviet intervention] was failing to understand Afghanistan’s complexity—its patchwork of ethnic groups, clans and tribes, its unique traditions and minimal governance,” Soviet president Mikhail Gorbachev later said. “The result was the opposite of what we had intended—even greater instability, a war with thousands of victims and dangerous consequences for our own country.” Gorbachev knew of what he spoke. The retreat of the last Soviet troops over the Termez Bridge back into the Soviet Union in February 1989 was the final act in the projection of Soviet military power beyond its borders, and it had failed—that retreat would be a grim landmark on the way toward the collapse of the Soviet Union.12
But, then, with the war over, and the world caught up in both the collapse of communism and the Gulf War, Afghanistan slipped off the international agenda and was forgotten—an omission that would have enormous global consequences a decade later. The country degenerated into civil war and lawlessness as warlords struggled for primacy. In 1994 a group of Islamists—the “students” or “Taliban”—came together as vigilantes to take matters into their own hands and restore order, but also, as it turned out, to establish a very strict Islamic order. They rallied supporters in a campaign against corruption and crime and hated warlords. Very quickly, operating with a cavalry of Toyota pickup trucks equipped with machine guns, they turned themselves into a zealous militia, already battle-hardened by the war against the Soviets. They gained control over much of the southern part of the country, largely dominated by the Pashtuns, which they renamed the Islamic Emirate of Afghanistan.13
There was yet another obstacle to TAP and CAOP—the historic enmity, sometimes punctuated by war, between India and Pakistan, the two countries that were intended to be the main outlet for the gas and oil flowing from Turkmenistan. Their militaries were designed mainly to fight each other, and conflict too often seemed imminent.
Pakistan itself, with its very contentious politics, was in a state of continuous political turmoil. The ISI, the Pakistani security services, was sponsoring the Taliban to pursue what it saw as Pakistan’s own strategic interests—in particular, as a Pashtun buffer against what they feared would be an India-dominated government in Kabul. Events would later demonstrate that this was a mistake of historic proportions. For Al Qaeda and a combined Afghan and Pakistan Taliban would, a decade and half later, challenge the very legitimacy of Pakistan as a nation and seek to destabilize and overturn it and replace it with an Islamic caliphate.
THE “TURKMENBASHI”
In Turkmenistan itself, there was one additional issue: the resources had to be secured. And that meant dealing with one of the most unusual figures to emerge from the collapse of the Soviet Union—Saparmurat Niyazov, the former first secretary of the Turkmenistan Communist Party, who had, after the Soviet breakup, taken over as president and absolute ruler. He had also anointed himself “Turkmenbashi”—“the Leader of All the Turkmen.” His cult of personality rivaled any in the twentieth century. (He once privately explained that it was part of his drive to create identity and legitimacy for the new Turkmen nation.) His picture was everywhere; his statues, plentiful. He renamed the days of the month after his mother and other members of his family, all of whom had been killed in a 1948 earthquake. Niyazov himself had been raised in an orphanage. He had been selected as head of the Community Party in Soviet times after his predecessor was removed because of a nepotism scandal involving many relatives; it was said that Niyazov’s accession was helped because he had no relatives. Once Turkmenistan became independent, Niyazov emptied school libraries, refilling them with his Ruhnama, a rambling combination of autobiography and philosophical rumination on Turkmen nationality. Medical doctors had to renounce the Hippocratic oath and instead swear allegiance to him. He also ordered a reduction in the number of school years for children, banned opera and ballet as “alien,” and prohibited female television news anchors from wearing cosmetics on air.
While highly authoritarian in most ways, Niyazov was rather liberal in one way—and that was with the country’s physical resources. For Turkmenistan was thought to sell the same natural gas to more than one buyer. In this particular case, Unocal thought it had obtained rights to export key gas resources. But so did Bridas, an Argentine company, which had additional support from Pakistan. Unocal worried that Niyazov did not understand, as one Unocal negotiator put it, what was required to “implement a project of such magnitude.”14
HOPE AND EXPERIENCE
Nevertheless, by the autumn of 1995, Unocal had a preliminary agreement with Turkmenistan. Niyazov was in New York City for the fiftieth anniversary of the United Nations, and Unocal organized a signing ceremony at the Americas Society on Park Avenue. The ceremony was immediately followed by a lunch in the grand Salon Símon Bolivar. Dominating the room was a large map of the region, set up on easels, that showed the proposed routes for TAP and CAOP. The lunch was presided over by John Imle, Unocal’s president, a man of some enthusiasm. Struggling to find common ground with the Turkmenbashi, which was not at all an easy thing to do, Imle came up with at least one thing they absolutely and indubitably shared in common—both were fifty-five years old, he declared with a big smile.
The guest of honor was former Secretary of State Henry Kissinger, who was escorted to the map, which he spent some time examining, including the ro
ute by which TAP and CAOP would snake down from Turkmenistan through Afghanistan, over the mountains into Pakistan, and then branch to the sea and down farther into India. After the meal, Kissinger delivered the luncheon address. He offered best wishes on the project. He then added his own assessment of its prospects. “I am reminded,” he said, “of Dr. Samuel Johnson’s famous comment on second marriages—that they are ‘the triumph of hope over experience.’ ”
Imle turned a little white. He wasn’t sure if it was a joke or a prophecy.
“NO POLICY”
There was little interest in the project on the part of the U.S. government, which was much more preoccupied with the breakup of the Soviet Union and the other energy initiatives involving Azerbaijan and Kazakhstan and that possible gas pipeline across the Caspian. This mirrored the larger disinterest toward Afghanistan, so different from just a few years earlier, when it had been the last battleground of the Cold War. Once that struggle was over in 1989, the United States just packed up and seemed to forget about Afghanistan and its postwar reconstruction. Much of Afghanistan’s educated middle class was long gone, and the country fell back into battle among the warlords who had led the mujahedeen. As the U.S. ambassador to Pakistan later said, “There basically was no policy” toward Afghanistan in the 1990s.
The Quest: Energy, Security, and the Remaking of the Modern World Page 9