Caspian Sea could become natural gas hub

The Caspian Sea is an ancient oil producer, but its future may be in natural gas.

The commodity that fuels electric power is becoming a much more prominent driver of energy production in the large body of water north of Iran and south of Russia, a region that produced 3.4 percent of the world’s oil supply last year, according to a recent report from the Energy Information Administration.

Since 2006, Azerbaijan and Kazakhstan, which border the Caspian’s west and east coasts, have led a boost in natural gas production in and around the region, where coastal countries extracted a total 2.5 trillion cubic feet of natural gas in 2011. That’s up from about 1.25 trillion cubic feet in 2000 and about 1.75 trillion in 2006.

Each of the Caspian’s coastal countries has sizable discovered natural gas fields, one indication that the region’s energy production growth will come from natural gas in the future, according to the EIA.

Meanwhile, annual oil production in the Caspian Sea has edged down in recent years, declining from about 2.7 million barrels of oil in the peak year of 2010 to about 2.6 million in 2012.

After the region spent decades under Soviet control, newly independent countries on the coast of the Caspian began to build export infrastructure to tap into global energy markets, a move bolstered by higher oil and gas prices in those countries and foreign investment.

The shift from supplying only local markets has meant that previously untapped reserves in the Caspian Sea have been drawing more attention from state-owned and international oil and gas companies, despite territorial and legal disputes over the region that have made foreign investment a difficult task.

In July, a state-owned oil company in Kazakhstan said it would buy an 8.4 percent stake in a Caspian Sea production sharing agreement from Houston-based ConocoPhillips for $5 billion.

EIA estimates the region houses about 48 billion barrels of oil and 292 trillion cubic feet of natural gas, with most proved reserves sitting 100 miles from the coast.

Last year, the Caspian Sea was the world’s seventh-largest spot last year for both undiscovered oil and natural gas, with about 20 billion barrels of undiscovered oil and 243 trillion cubic feet of undiscovered natural gas, according to EIA.