What's peak oil got to do with Central Asia?

This week BP released the new annual report: The Statistical Review of World Energy 2007.  This report is considered the standard for those who work in the energy field and those who write about it.  Since BP has international connections and relationships, its finding are much less politically biased than say, country reports from domestic energy adminstrations.  Its statistical nature reflects that extraction and distribution aspects of oil commerce deal strictly in real product in real time frames-short, medium, and long.  Other aspects of the oil market, such as the spot market, are driven by perceptions of more immediate realities.  Peak oil theory has become such a driver of public debate every time oil prices jack up.  But the real cause of what sometimes seems like daily price volatility has to do with political situations and conflict.

As a market bias, oil companies depress claims of peak oil, and please note: when they are talking about short-term effects, that is a proper stance to take.  Political and military situations in the middle east, burgeoning conflict in Nigeria or other states, expropriation of assets by politicians, and new regulations each have much more to do with your gas pump price today then the sinking well levels that have been occurring all along.  However, one cannot dismiss the theory because it is based upon a bottom-line fact.  Underlying all peak oil claims is the fact that oil is a non-renewable resource, and eventually its suitability/ubiquity for meeting energy consumption needs is going to diminish.  Nevertheless, this post is not going to argue, even with thoughtful people, whether the peak oil production has already occurred or will show up next week, or for your great grandchildren.  The peak oil conflict from a state-based or region-based point of view has to do with a window of opportunity.  For Central Asia, there are direct effects and indirect effects that will come from the region's peak oil problems–if not the world's overall peak supply constraints.

Europe and Eurasia are shown to have 144.2 thousand million barrels in reserve.  This would include all of Russia; the Caspian basin, which includes Central Asia; and various European sources such as the North Sea, where production is in decline.  According to the BP report and RFE/RL, the years of production that Kazakhstan has at present levels of extraction is 76.5 years; Azerbaijan, 29.3 years; Turkmenistan, 9.2 years; and Russia, 22.3 years.  This assumes that a. current discoveries, tapped or untapped, are total discoveries; b. current reserves are properly estimated; c. technological advance will keep extraction ratios and waste ratios much the same as now; and d. oil and gas will pump at the same rate that they are pumping now.

For each oil/gas supplier state, these reserves represent a window of opportunity. Ideally, states use that “oil revenue window” to develop a varied economy using oil income as a jumpstart for a new economic engine.  When that money no longer comes in under increasing amounts, traditionally the states that had oil have been in worse, not better straits (Nigeria, for example, whose oil economy started before development banks had developed a school of thought about oil revenue). 

For this reason, the World Bank and the IMF, as well as other development banks, continue to try to play hardball with petro-states, insisting upon fund accountability and transparency, and cutting up stiff when or if it doesn't occur.  They always advise that these states create oil funds, so that state budgets do not become dependent upon oil money for revenue.  Instead, that revenue is to be used for long-term investments in human capital (primarily education), sustainable infrastructure development (dams, power plants, transportation planning, and in post-Soviet states, legacy pollution cleanup).   One can see from the windows that Turkmenistan has a decade; Kazakhstan four generations; and Russia one generation to derive this benefit.  It's not a long time when measured against a future without oil.

So for the supplier states, peak oil is a grim reminder to use oil proceeds wisely.  This goal is a heck of a lot easier to state than it is to accomplish.  For the region, it is even more important and difficult to implement.  In fact, it is a warning: the largesse from Russia, for instance, it entirely tied to oil revenues.  States such as Kyrgyzstan and Tajikistan need to realize that their ally with the cash is not going to be able to donate funds in twenty years the way it can today.  Therefore, they also need to look at the present oil economy of Russia and Central Asian oil-supplying neighbors as a window of opportunity as well.  Like the oil supplier states, they need to put Kazakhstan's offers of aid, and Russia's offers of aid, to extremely efficient use for future development. 

If they don't, they can expect another dreary set of decades that resembles the early 1990's in future.  Though they are not petrostates, they have to act like the most responsible of oil supplier states, by developing within that reflected window of opportunity.  The alternative is just too grim.

This is either the Golden Age or the Foundation Age for Central Asia.  It would be far better for it to be the foundation age for a future golden era.