At the heart of developing Caspian reserves are two major contenders, Russia and Western oil companies, most notably U.S. firms. Both have scored successes and minuses, but on balance, the year has seen a diminution of both Western and Russian influence, as the rising petro-states of Azerbaijan, Kazakhstan and Turkmenistan have moved to reassert control over their most vital national asset.

U.S. and Western influence remains paramount in Azerbaijan, which since 1991 has adopted a consistent policy of lessening Russian control over its energy assets.

With the 2006 opening of the $3.6 billion Baku-Tbilisi-Ceyhan oil pipeline, Azerbaijan now exports a million barrels per day through BTC, which is projected to generate profits as high as $230 billion over the next two decades. Azerbaijan's economy is estimated at $21 billion and is growing at more than triple the rate of China's. Last year Azerbaijan's economic growth exceeded 30 percent, while for 2007 the International Monetary Fund predicted Azerbaijan's growth would be 29 percent.

The BTC consortium is led by BP, which, besides operating the pipeline, has a 30.1 percent share of the project, exceeding that of the State Oil Co. of Azerbaijan, which owns 25 percent. Other Western investors include Chevron with 8.9 percent, Norway's StatoilHydro with 8.71 percent, Turkey's TPAO with 6.53 percent, Italy's Eni/Agip group and France's Total with 5 percent each, Japan's Itochu with 3.4 percent, the Japanese Inpex company with 2.5 percent, and U.S.-based Hess Corp. with 2.36 percent. It is notable that no Russian firms are involved in the project and that Western concerns receive 75 percent of BTC's revenues.

If Azerbaijan can be accounted the greatest Western success story, then at the other end of the scale is Turkmenistan. Following the death of President Saparmurat Niyazov last December, there was great hope among Western energy firms they would be allowed into the country to develop Turkmenistan's vast natural gas reserves, estimated to be the fourth- or fifth-largest in the world. Turkmenistan's new President Gurbanguly Berdymukhammedov initially seemed receptive to Washington's proposals for an undersea Caspian natural gas pipeline to transport Turkmen natural gas to Baku for onward transmission to Western customers. Such hopes were dashed, however, when on May 12 Berdymukhammedov initialed a tripartite commitment in Turkmenistan's Caspian port of Turkmenbashi along with Russian President Vladimir Putin and Kazakh President Nursultan Nazarbayev to construct a Caspian littoral pipeline instead. The new pipeline combined with Turkmen use of Soviet-era Transneft pipelines will allow Turkmenistan to increase its exports of natural gas, already the world's fourth largest, to Russia by 20 percent and is scheduled in the first stage to deliver 10 billion cubic meters of gas per year by 2009-2010 -- this despite the visit of 16 high-level U.S. negotiators in the wake of Niyazov's death.

It is in Kazakhstan that Western energy interests are encountering a changing playing field, as Astana seeks to increase its share of the country's two most lucrative concessions, the onshore Tengiz field and offshore Caspian Kashagan field.

Tengiz holds an estimated 25 billion barrels of recoverable crude. Since 1994 the Tengizchevroil joint venture has operated Tengiz, with its major partners including Chevron with 50 percent, ExxonMobil with 25 percent, the Kazakh national oil and gas company KazMunaiGas with 20 percent and Russia's LukArco 5 percent.

While Tengiz produces 450,000 barrels per day, Chevron estimates that by 2010 Tengiz could potentially produce 700,000 bpd.

The Kazakh government's axis of criticism against the Western concessionaires is environmental. Tengiz crude contains a high concentration of sulfur mercaptans that must first be scrubbed out before the oil is ready for export, and the Kazakh Environment Ministry is reportedly considering imposing fines against TCO for alleged breaches in the way the sulfur is stored.

Environmental concerns have also arisen over Kashagan, the largest oil field discovered in the last 30 years, with potential reserves estimated to be as high as 70 billion barrels and a projected daily output of more than 500,000 bpd, but which has yet to come online. Italy's Eni is operator of the project; under terms of the production-sharing agreement, KazMunaiGas and Inpex hold an 8.33-percent share each in Kashagan; Eni, Total, ExxonMobil and Shell have 18.52-percent stakes apiece, while ConocoPhillips holds a 9.26-percent share. Plagued by ballooning costs and delays, the Kazakh government has been attempting to renegotiate the PSA to give KazMunaiGas a larger stake of the project, causing enormous unrest among its Western partners.

As a result, it would seem in 2008 that Western companies can expect to come under increasing pressure to renegotiate their PSAs, while the Kremlin can expect to pay higher fees for natural gas. In the end, the winners are the post-Soviet Caspian petro-states.

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