28
oppress or co-opt civil society organizations whose aims often function as a stimulus for democratization (Overland et al. 2010:1–10). The Caspian region is no
exception to this trend.
Maureen S. Crandall (2006:23–26) has identified several proposals for Caspian
oil and gas pipelines to connect them with buyer markets. Many of these proposed
projects have been backed however, by questionable financial sources, and some
projects remain a pipedream as the size of the reserves they connect to may represent fruitless endeavors. This is often a question of unstable oil prices in a constantly
fluctuating market. Regardless, investments in oil and gas field developments or
pipelines in the region are subject to a number of other risks regarding geography
and geology, as well as the pipeline utilization rates, and economic and political
risks faced by international oil firms both at home and in the host country production costs and variation in oil prices, and—after all this—the ability of the target
customers to actually pay for their purchases all must be taken into account.
• Geography is a major concern to all would-be actual participants in pipelines
projects.
• Geology always matters, in terms of size, depth, structure, and cost of reserves.
• Once an oil pipeline is built, its size and capacity—generally measured by diameter and pumping capability—and the speed of filling it affect its profitability.
• Natural gas pipelines have additional risks, since natural gas is far costly to move
over long distance than is oil.
• Political risks permeate Caspian energy development projects. In general, political risk can have divided into two types: first, what foreign companies face in the
host countries; and second, what they face from their own home government.
Political risk is a great concern is in the Caspian region, where laws and institutions are weak; governments challenge contracts that companies considered
ironclad; fiscal regimes change unpredictably; environments fines are imposed
somewhat whimsically; ethnic, clan, and various civil conflicts occur; corruption
is rampant; and regimes are ever more authoritarian…
• Expected oil and gas production costs and market prices are generally not known
with certainty, and thereby pose risks to producers and transporters. Both oil and
gas normally sold at prices that must be competitive in the customers’ market,
which may have other source of supply. This competition generally results in
netback pricing, with the wellhead price the residual received after transport and
other cost have been deducted from delivered price. If the cost of getting oil or
gas out of ground is relatively low, the transport costs can be somewhat greater
than average, with the delivered price still remaining competitive. As costs of
production rise, and market price do not, the pipeline’s profit margins decline. If
market prices fall, and transport price do not, the producers find margins squeezed
and perhaps risk inability to recover costs, or an inability to generate the target
rate of return. These risks become sizeable if a pipeline is under consideration for
transporting oil or gas that is known (or expected) to be high-cost to extract.
Price volatility in oil and gas markets is substantial and common….
2 Literature Review
oppress or co-opt civil society organizations whose aims often function as a stimulus for democratization (Overland et al. 2010:1–10). The Caspian region is no
exception to this trend.
Maureen S. Crandall (2006:23–26) has identified several proposals for Caspian
oil and gas pipelines to connect them with buyer markets. Many of these proposed
projects have been backed however, by questionable financial sources, and some
projects remain a pipedream as the size of the reserves they connect to may represent fruitless endeavors. This is often a question of unstable oil prices in a constantly
fluctuating market. Regardless, investments in oil and gas field developments or
pipelines in the region are subject to a number of other risks regarding geography
and geology, as well as the pipeline utilization rates, and economic and political
risks faced by international oil firms both at home and in the host country production costs and variation in oil prices, and—after all this—the ability of the target
customers to actually pay for their purchases all must be taken into account.
• Geography is a major concern to all would-be actual participants in pipelines
projects.
• Geology always matters, in terms of size, depth, structure, and cost of reserves.
• Once an oil pipeline is built, its size and capacity—generally measured by diameter and pumping capability—and the speed of filling it affect its profitability.
• Natural gas pipelines have additional risks, since natural gas is far costly to move
over long distance than is oil.
• Political risks permeate Caspian energy development projects. In general, political risk can have divided into two types: first, what foreign companies face in the
host countries; and second, what they face from their own home government.
Political risk is a great concern is in the Caspian region, where laws and institutions are weak; governments challenge contracts that companies considered
ironclad; fiscal regimes change unpredictably; environments fines are imposed
somewhat whimsically; ethnic, clan, and various civil conflicts occur; corruption
is rampant; and regimes are ever more authoritarian…
• Expected oil and gas production costs and market prices are generally not known
with certainty, and thereby pose risks to producers and transporters. Both oil and
gas normally sold at prices that must be competitive in the customers’ market,
which may have other source of supply. This competition generally results in
netback pricing, with the wellhead price the residual received after transport and
other cost have been deducted from delivered price. If the cost of getting oil or
gas out of ground is relatively low, the transport costs can be somewhat greater
than average, with the delivered price still remaining competitive. As costs of
production rise, and market price do not, the pipeline’s profit margins decline. If
market prices fall, and transport price do not, the producers find margins squeezed
and perhaps risk inability to recover costs, or an inability to generate the target
rate of return. These risks become sizeable if a pipeline is under consideration for
transporting oil or gas that is known (or expected) to be high-cost to extract.
Price volatility in oil and gas markets is substantial and common….
2 Literature Review