The idea behind this paper is that the way we view energy relations determines how we define and apply energy security policies. In light of this, the emergence of Central Asia on the international hydrocarbon scene is an excellent opportunity to illustrate the difference that exists today between the dominant epistemological-conceptual approach to energy relations and the reality behind these same relations. For this reason, the paper argues that Central Asia is an excellent case study from which to draw the elements that should be taken into account in ‘second generation’ energy security policies.
As a result of the oil shocks in the mid-1970s, a dominant form of energy analysis emerged which I have labelled (Mañé, 2005) a Dichotomous Energy Paradigm (PED in Spanish). According to this model, energy relations are conflictive and antagonistic, and they exist between two kinds of countries, the so-called ‘consumers’ and so-called ‘producers’.
In hindsight, the PED was outdated from the start because it assumes an epistemological body that was nearing extinction. As early as 1978, the reality that its theories sought to explain was undergoing a transformation. However, this paradigm is the one which has served to found the idea –in decline, but still dominant these days– that energy security is in jeopardy because consumer countries depend on imports from exporting countries. On that basis it is easy to conclude that the ones with power –in other words, the ability to exert influence– on the international energy scene are countries rich in hydrocarbons.
As we will argue throughout this study, an analysis of Central Asia’s hydrocarbons through the prism of a PED is faulty because these countries would be relegated as minor exporters. However, since the collapse of the Soviet Union, when these republics emerged as international players, the interest that their natural resources has stirred counters the idea that they are of minor importance. For this reason, the goal of this paper is two-fold: first, to point out aspects of Central-Asian energy relations which would not be taken into account in a ‘traditional’ analysis, and secondly to provide empirical elements making for a new framework to analyse energy relations. This framework should be the foundation for a new kind of energy-security policies.
To this end, the study will be divided into five sections. The first provides a review of the PED, and the second aims to show what elements of economic and energy reality have no place in the previous analytical framework. The third section focuses on a more empirical examination of foreign investments and ways in which Kazakhstan’s hydrocarbons are exported, so as to propose a methodical and component-based analysis for the purpose of defining security policies. Finally, by way of conclusion, we introduce issues dealt with throughout the paper, in the hope they will be sufficiently appealing for readers to take part in the debate on the proposals raised here.
An Obsolete Paradigm, Outdated Energy-security Policies
To analyse energy relations through the prism of the PED made sense in the conceptual and epistemological framework that emerged with the end of World War II and the bipolar order imposed by the Yalta Conference. This framework endured until the late 1970s, when –one could almost call this ironic, for oil-based economies– the fallout from the two oil crises on industrial economies and international financial and derivatives markets triggered a profound, global transformation of economic policies concerning management and process.
In a very schematic way, we can say that those who believe a country rich in natural resources –or a group of them, such as OPEC– has the ability to shape future energy relations are the same as those who think international economic relations are based on:
- Economic relations between countries which are governed by the classical-neoclassical theory of trade. This holds that exports and imports are fundamentally exchanges of merchandise, founded on the principle of comparative, or relative, advantage. Furthermore, as Raikes, Jensen & Ponte have written (2000, p. 394), these theories assume that exchanges of goods are isolated from investment and the financing that these same parties carry out, and that, among themselves, participants in transactions do not communicate with each other and are independent. Transferring these ideas to the area of oil implies:
- An analysis of oil transactions that is based on the idea of physical exchanges of goods and not on capital flows.
- Assuming that decisions to export to one country or another, or not to export –more than importing, in this case– are not contingent on other economic and financial relations, but rather on the will of the exporting country. In other words, it does not take into account mutual dependence or energy interdependence.
- A growth/development model which is that of some industrialised countries organised along the lines of the ‘Fordist model’ of production. It holds that the energy base of growth and material well-being is oil. Thus, the main input for production of goods is oil –cheap oil– which has to be imported from abroad because it is a specific, non-movable factor. In this way, under the ‘Fordist model’, when all is said and done, material well-being depends on imports of oil from other countries.
- International economic relations, which, as in international political relations, take place between nation states or countries. Therefore energy relations, which are international, also take place between countries, not between companies or other economic agents.
- International relations are governed by a ‘bipolar order’ which leads to countries which belong to the same bloc considering themselves allies, and to the Western bloc taking for granted that Western companies can only serve the interests of the West or those of the country from which they come. For this reason, it is easily assumed that the goals of Major Energy Producers in the West correspond to the needs of consumers in industrialised countries.
- The economic policies of the governments of industrialised countries, based on the Keynesian archetype, are aimed at achieving the common good and collective well-being. This well-being, under the ‘Fordist model’ of production and consumption, depends on an energy supply that is guaranteed by the state through state-run national energy companies.
From these five points we can deduce that international energy relations are based on oil and that:
- They involve exchanges of energy goods, which are physical.
- They make for relations that can be broken unilaterally by one of the parties.
- They are the basis of a growth and development model that can be identified with the ‘Fordist model’ of production and consumption.
- They give rise to relations among States, as they are the international economic actors.
- They take place in the context of the international market, which corresponds with that of the Western bloc, where energy companies (public and private) are in perfect sync with ‘their governments’.
All of this comes in a context in which the so-called producer countries clearly identify themselves with OPEC nations and consumer countries identify with the industrialised ones of the Organisation for Economic Cooperation and Development (OECD).
Thus, generally speaking, the energy policies developed in recent years are based on a way of seeing energy relations  that is centred on two pillars:
- One that tends more towards relations between States, that of international relations. This approach sees energy relations as the result of a mix of diplomacy –between OPEC (mainly Saudi Arabia) and the US government and its allies– and foreign and security policy.
- One that is more biased toward physical exchanges, a model based more on economics, which assimilates producer or supply countries and consumer or demand countries. For this reason it views energy relations as a game of supply and demand.
Both approaches can be considered versions of the Dichotomous Energy Paradigm: the first is the political version and the second is the economic one. And they have given rise to two designs for energy security policies: that of ‘regions and empires’ and that of ‘markets and institutions’.
The New Global Economy
Changes in the Global Economy
The contemporary reality of the world economy is very different from the hypotheses on which the PED is based. In a very schematic way, we can discern four areas in which changes have taken place. Three of them –the ‘financiarisation’ of the economy, the dominance of neo-liberal anti-inflationary policies and energy diversification– are a direct consequence of the shift in goals that came with the rise in crude oil prices. The catalyst of the fourth element, the collapse of the Soviet Union, is more difficult to determine.
In the late 1970s, the emergence of petro-dollars and the need to create tools for protecting against rises in crude oil prices generated unprecedented development of international financial markets. This process culminated in what today has come to be called the ‘financiarisation’ of the economy. In other words, as Carpintero (2009) explains, the progressive autonomy of the financial realm from that of production and the loss of weight of ‘traditional’ bank intermediation to give way to the dominance of financial markets. In practical terms, the consequence of this is twofold: (a) the establishment at the global level of the ‘economy of acquisition’ (Naredo, 2009) or the ‘garbage economy’ (El Gamal & Jaffe, 2009), which is leading to the de-industrialisation of the OECD countries; and (b) the need for growing financing of these countries through surpluses generated abroad (Carpintero, 2009; Wade, 2009; and Gieve, 2009).
Both factors modify at least three of the assumptions involved in analysing international energy relations: (1) international flows of financial capital are as important as those of goods, if not more; (2) the interdependence of exchanges of goods and financial capital is more evident than in the past; and (3) the growth model of the industrialised countries of the OECD has stopped being that of the ‘Fordist model’, or even the Toyota-style one. This means that in a context of an ever larger reduction of the energy bill of consumer countries the financial aspect of hydrocarbons becomes even more important than the energy-related facet (AEF, 2009).
Furthermore, in the area of economic policy, the strong rise in inflation triggered by higher energy costs caused a shift from Keynesian thinking to the anti-inflationary, monetarist-neoclassical agenda. This brought about a wave of privatisations and deregulation. In consumer countries, the public business sector was done away with. And in the international arena, through the globalising package of the Washington Consensus, new agents were incorporated (large, private international conglomerates, trading blocs and emerging economies); at the same time, from a theoretical standpoint the role of States in the global economy was questioned. When transferred to the energy sector, these changes meant a concentration of private property and a trans-nationalisation of the international energy scene without precedent in the years before World War II (Mañé, 2001 and 2003). The reconstruction of large, private energy conglomerates seriously challenges the idea that energy relations take place between producer and consumer nations. Furthermore, it boosts the idea that these relations occur outside the market, in vertically-integrated energy production chains (Hull, 2002). All of this has meant the emergence of new kinds of players –governments and companies– in the energy game (Kérébel, 2009; and Isbell, 2007).
Another effect stemming from the oil crisis of the 1970s was the drive for energy diversification. This diversification is understood to be the search for new territories (onshore and offshore) with reserves of crude oil and gas, in other words new producers. It is also understood as transformation in the inputs of the energy consumption basket. This involves a major investment in new energy capacity and technologies, which were the pillar of development of nuclear energy, gas-based generation of electricity and a fledgling renewables industry. The latter has developed as oil prices rose and people around the world became more aware of environmental issues. Meanwhile, technological development of the sector has led to the creation of a technically unified oil market which in the industry is known as the great pool. All of these issues lead to a greater dependence of the economic system on oil and lesser dependence, so long as the necessary investments are made, on crude from a given area. In this way, with the exception of transport, there has been a considerable increase –to the extent that it is viable, although with higher costs– in the possibility of replacing oil with other energy inputs. What is more, in the case of some regions rich in natural resources and with large uninhabited areas, there are signs that there could be a trade-off between investment in alternative energy sources (bio-fuels, solar or wind) and investment in hydrocarbon development and exploration.
Finally, in the early 1990s, the end of the Cold War and the disintegration of the Soviet bloc did away with a world whose international relations were understood and explained in terms of Western and Eastern allies. Furthermore, the dismembering of the Soviet empire revealed to the world a group of countries and territories that joined the international scene as full-fledged players. Again, this factor had consequences for analysis of energy relations. Conceptually, identifying companies’ interests with those of ‘their’ respective governments does not work at all. And in terms of the real energy game, the incorporation of the entire territory of the former Soviet Union to the global economy exerted a significant modification to the balances and alliances that had existed in the ‘western international energy industry’ between production, demand and consumption. This is an issue that has been fuelled even further by China’s ‘economic transition’ and the prominence of the emerging economies known as the BRICs.
Energy Relations in the Global Economy
From the explanations given in the previous section, we can deduce that international energy relations have broadened their spectrum beyond exchanges of hydrocarbons and that, unlike what is assumed by the Dichotomous Energy Paradigm, they:
- Involve exchanges of physical goods and financial assets derived from oil, which are known as petro-dollars and sovereign funds.
- Generate interdependent exchanges which, in many cases, occur between alliances of a vertically integrated industry, with many points in common with a Global Comodity Chain (GCCh) or a Filière.
- Are necessary because even though it is clear that they continue to be the basis of the system of growth, this growth model is not based so much on production of industrial goods. In fact, more and more commentators speak of generalised ‘rentierism’ or profit-seeking.
- Give rise to a variety of kinds of relations between States, national energy companies (known in energy jargon as NOCs) and large, private international energy companies (known as IOCs); they also give rise to stakeholders and players who operate in international financial markets, recycle petrodollars or attract sovereign funds.
- Exist in an international market which includes the whole planet and no longer works through blocs. With this, the alliances that might emerge among the multitude of actors outlined in section (d) feature variable geometry and are not necessarily determined by nationality or by kind of property (public, private).
With all of this is it clear that the real foundations on which the Dichotomous Energy Paradigm was based no longer apply. For this reason, the approach on which we should base energy security policies must be different from that of ‘regions and empires’ or ‘markets and institutions’.
Central Asia is a New Global Geo-energy Scenario
Resource-rich territories of Central Asia are a case study that provides a new framework for analysing contemporary energy relations. The case study is relatively new because it coincides with the most important historical event of recent decades, which was the disintegration of the Soviet Union. In the early 1990s, as the international oil industry extended into the former Soviet Union, the territories of Central Asia emerged as players on the international energy scene, and it was in these territories that the energy transition began. It is not yet clear what kind of new system this transition is moving toward.
Central Asia, A Producer Country on the International Energy Scene?
Producer countries have three fundamental characteristics: (1) they are territories whose subsoil holds significant reserves of hydrocarbons; (2) most of these reserves that are extracted are for export; and (3) internally, they have a ‘rentier’ component. In terms of ability to exert influence, the first two factors give these countries power in the international arena and the third is a source of weakness. Their dependence on revenue from hydrocarbons sales renders them extremely vulnerable to fluctuation in the flow of hard currency coming in from exports of crude oil and gas.
Tables 1 and 2 show the region’s reserve and extraction potential. In both we observe three relevant facts.
Table 1. Reserves, production, exports and consumption of oil in the Central Asian region
Table 2. Reserves, production, exports and consumption of natural gas in the Central Asian region.
The first conclusion to be drawn from the figures we present here is that the Central Asian region is not destined to become one of the world’s top-flight hydrocarbon producers. In both tables, the last three rows compare values corresponding to the Central Asian region with those of the top five and top 10 in the world. In these rows we observe a strong concentration in the values of those at the top of the ranking, and the distance between these values and that of the five ‘-stans’ indicates that Central Asia, as an extractor and exporter, will have limited influence on the international energy industry. The magnitude of its influence could increase if alliances are struck with other, larger producers, be these alliances a cartel of producers or, in the case of Russia, one involving reintegration of the region’s production in a possible Russian great pool.
The second element that draws attention in Tables 1 and 2 is that, of all the producers in Central Asia only three are relevant: Azerbaijan, Kazakhstan and Turkmenistan. As far as the production/consumption ratio is concerned, these are the only three that seem to have capacity to ensure future exports when, in a setting more favourable than the current one, the economies of the region recover.
From all this we can deduce –in light of the need to strike alliances and the leading role of some of the countries of the region– that it is not clear what one means by the Central Asian region, neither as an energy player nor as a unit of analysis. So this definition of the Central Asian region needs to be made. In this case, the information provided by the ENI also includes other countries from the former Soviet Union which other rankings accepted internationally, such as those of British Petroleum and the EIA in the US, include in the Caucasus or in an enlarged Europe.
In our opinion, the most important thing about this region as a producer in the international realm is not so much the weight of its exports but rather the fact that it appears as late as the 21st century as ‘an open space’ in the ‘world of oil and gas’ which is also located in what Halford Mackinderdefined in 1904 as the world’s heartland.
Analytically, in the framework of the Dichotomous Energy Paradigm, this ‘open space’ has no place. This is because in its units of analysis, an extracting and exporting country –or group of countries– (except Norway and Canada) is considered a producer country and will have more or less importance depending on the physical amount of reserves it holds and how much product it exports to the international market.
In the case of Central Asia, a study less centred on countries and directed more towards other kinds of actors gives us some clues to come up with hypotheses as to the future behaviour of this open geo-energy space which, we feel, will end up being defined by the energy alliances that are formed within it.
Alliances in the Central Asian Geo-energy Space
Aggregate figures on reserves, production, and exports conceal the companies that engage in activities linked to the exploration and development of the hydrocarbon extraction and export industry. In the ‘OPEC world’ it was assumed that NOCs were a tool for state intervention by governments and that, therefore, to talk about a country, a State or an NOC was to talk about practically the same thing. Thus, the weight of Venezuela is measured by that of PDVSA (or the other way round), that of Algeria by Sonatrach and that of Saudi Arabia by ARAMCO. This stems from the fact that, until recently, these state-owned companies had an absolute monopoly on the oil industry in their countries.
In the context of the so-called economies in transition, of which the republics of Central Asia are examples, this circumstance does not exist. They are ‘new’ territories rich in hydrocarbons. In the early 1990s, while the grave effects of systemic disintegration were being felt, these territories were deemed by the Clinton Administration as key to containing Russia and Iran. Thus, these economies’ pressing need for financing and their role as a buffer in a hypothetical new world order explain the rapid opening up of fields in the region to direct ‘Western’ investment in the mid 1990s. This caused a significant flow of investment by large private trans-national energy conglomerates toward the region.
The mix of these two components –being ‘new’ territories undergoing an energy transition and the flow of foreign direct investment toward the region– explain the data in Graphs 1 and 2.
The first of them compares the position of the region’s top NOC, Kazmunaigaz, with those of the world’s leading energy companies.
Graph 1. World ranking of international oil companies (IOCs and NOCs)
The graph shows that in a ranking of its international position Kazmunaigaz is in 62nd place, very far from the top IOCs and NOCs. We thus have to deduce that, even though this company is state-owned and falls into the category of the new NOCs, its presence on the international market is extremely limited. The explanation for this is that the company is hardly integrated at all, with a limited export market and not very well diversified.
To the contrary, Graph 2 shows that the presence of foreign and international companies in Kazakhstan is very strong.
Graph 2. Estimated percentage of reserves by company in Kazakhstan
Graph 2 shows that although Kazmunaigaz is the company that controls the largest percentage of reserves, these do not reach 40% of the estimated total for Kazakhstan. Which are the rest of the companies? Three groups stand out: (1) green-coloured companies, which are Russian and have a 24.6% share of the total reserves; (2) orange-coloured companies, the top five IOCs in the world –according to the ranking in Graph 1– which have a share of 20.68%; and (3) red-coloured companies, which correspond to the companies of major Asian consumers such as Japan, China, India and South Korea, with a 5.73% share.
In this way, when taken together, the information from the two graphs shows a relatively weak Kazakh NOC, while the players operating in Kazakh territory are of three kinds: (1) the quasi NOCs of one of the world’s main energy producers and players, Russia, which analysts now call one of the new ‘seven sisters’; (2) today’s main global IOCs, with major interests in the ‘Western’ energy consumption market; and (3), although with lesser weight but on the rise, state-owned companies from the so-called new consumer countries, which, as Kérébel states (2009, p. 20), have launched unprecedented energy diplomacy in order to ensure themselves part of the market and ‘securitise’ their supplies.
In this ‘empty geo-energy space’ different kinds of energy players with more power and ability to influence than Kazmunaigaz have entered. This allows us to relativise even more the role that Central Asia might play on the international energy scene, as this role will be determined by the weight or influence of its alliances with other energy players that operate in its territory.
Graph 3 helps us discern what might be the profiles of these alliances. The graph shows current export routes for crude coming out of Kazakhstan.
Graph 3. Estimated percentage of crude exports from Kazakhstan
The graph shows clearly that Russian companies, through the grid of oil pipelines inherited from the earlier system and their participation in the CPC, are the main exporters of Kazakh oil. This strengthens the hypothesis for integrating Kazakh oil in the Russian system or great pool. This is in turn suggests a hypothesis under which this oil’s entry on the international market will depend on the export, production and consumption goals determined by Russian energy policy.
Meanwhile, the 7% that goes to China is a relatively small but significant amount. Keeping in mind the geographical proximity of Central Asia’s oil fields to China and forecasts for higher energy consumption in the Chinese economy, the production agreements that CNPC is reaching not just with Kazakhstan but also Turkmenistan and Uzbekistan, suggest the hypothesis of an alliance with the region’s major consumer. It remains to be seen what will happen with India. In this case, the hypothesis is that exports of Kazakh crude, clearly geared towards consumption, will evolve in a way determined by the needs of Chinese energy policy.
The 9% share of exports that is represented by international IOCs seems low if we take into account how robustly these companies came into Central Asia in the 1990s and their importance on the international market, as reflected in Graph 1. This percentage could stem from the fact that the US Government’s initial plans for support of companies ensuring a flow of energy from the region to the Western market were disrupted as the crisis in Afghanistan worsened and the two major powers in the region, Russia and China, extended their influence there. In this context, facing the prospect of investments with dubious profitability and lacking the support of ‘their’ governments one might speculate that the strategy of these companies has been just to take positions as they await to see how the situation in the region evolves. Given this, there might be two future patterns of behaviour: that of IOCs which pump oil and gas from the region to transfer it to the international market, and that of IOCs which strike alliances and integrate ‘their’ part of energy input into Russian production strategies or Chinese consumption strategies.
Finally, it is difficult to evaluate the consequences of trading oil with Iran. It is probably more the result of the international difficulties Iran is enduring than the result of a strategy of alliances with major NOCs in the Middle East.
Summing things up, the information available on foreign investors in Kazakhstan and current routes for exports of Kazakh oil point to three patterns for possible alliances: (1) resources enter into the Russian ‘producer bloc’ strategy; (2) resources feed the Chinese ‘consumer bloc’; and (3) the region’s resources become another source for the ‘great pool’ of IOC consumers. An alliance with the NOCs of the Persian Gulf seems unlikely.
In all of these alliances, the weakest player seems to be Kazakhstan, for two reasons: (1) the small relative weight of Kazmunaigaz; and (2) the economy’s growing dependence on foreign currency revenue from oil (payments for exports and royalties or bonuses from foreign investors). In fact, the Kazakh economy already has many macroeconomic indicators suggesting a growing ‘rentier’ behaviour.
What are the Methodological Conclusions of this Analysis?
Extrapolating from the case of Kazakhstan to the Central Asian region as a whole, we can infer some aspects of how it would be adequate to analyse energy relations. The first aspect that justifies this proposal is the scant information provided by analysis of the region through the prism of a producer country. As we have seen, this analysis, based exclusively on amounts of reserves, production and exports from the Central Asian region, does not provide much information on the energy reality of these countries. For this reason, the analysis carried out suggests that:
- One should qualify the weight that a given country or region can have as an exporter of primary energy, with an analysis of the compensation it gets for its exports of physical goods; in the case of energy, evaluate –as we have done for Kazakhstan– who are the players operating in the country, by way of the foreign investments that make the exports possible. One should also assess the economy’s financial dependence on hydrocarbon exports, through the entry of hard currency that they generate or their percentage of revenue from oil. Both aspects, besides providing elements that back up the idea of the interdependence of energy exchanges, consider in a more precise way the influence that a country or region rich in hydrocarbons can have on the international energy scene.
- Our analysis has shown us that it is not clear which territories form part of the same energy scenario, and that alliances exist between the various energy players operating in Central Asia. These alliances are caused by, and cause, the interdependence between the different energy players, as seen in the previous point. For this reason, it seems advisable to carry out an analysis in terms of geo-energy space. In other words, to focus the analysis on a defined space, not just in terms of the amounts of hydrocarbons that exist in its subsoil and are exported from it, but also looking at the energy relations that exist between the various players that interact and operate in that space.
- In the third place, the kind of alliances that we have observed between Kazmunaigaz and other companies that operate in the region (IOCs and NOCs that are ‘producers’ or ‘consumers’) show that the hydrocarbons of Central Asia seem destined to become inputs in other, vertically-integrated international energy production processes. In light of this it is easy to deduce that what defines power relations between the different members of these alliances is their position and function within the framework of a Global Commodity Chain (GCCh). Therefore, we note that the GCCh seems to be a powerful tool for analysing the international energy relations that exist in vertically-integrated, transnational business conglomerates.
On the basis of this argument, we continue with our idea that energy security policies should be based on the way in which energy relations are understood. The three points laid out in the previous section make for defining a policy based on:
- Analysis of the interdependence generated by exports between the exporting territory and the company (IOC or NOC) seeking the crude oil or natural gas. This will allow one to know who the players in a given territory are and what their relative weight is. In our case, this will illustrate for whom they control and export Kazakh oil.
- An analysis of the energy exchanges that exist in a given space. This allows us to define the space and the possible alliances in that energy game. In our example, it would allow us to define with greater clarity the geo-energy space of Central Asia. It would also allow us to define whether there are going to be alliances between the three major players: Russians, Chinese and ‘Westerners’.
- An analysis of the production chain in which the input from a given territory is integrated. This would allow one to establish who is the dominant player in the chain –who has more power or ability to exert influence–. In our example, if hydrocarbons are integrated into the Russian system, it will be a producer-driven system. If they join the Chinese system, it will be consumer-driven. And if they join the system of the major IOCs the weight will shift in favour of the energy-seekers.
We can summarise these three points by saying that energy security policies should be based on the analysis of the governance structure that they generate. We could adopt, as a generic definition of this structure, that which says that the ‘goverance globale de l’énergie est l’architecture des institutions et des processus –formels et informels, publics et privés– qui contribuent a la définition des régles collectives et structurent les rélations énergetiques mondiales’ (Kérébel, 2009, p. 33).
Pressing on even more with the idea stated in the previous section, several aspects of analysis have remained untouched. With more information than that which we have now they should be addressed in the future. To this end, if one considers the role that the energy resources of Central Asia will play in the new global economy, new elements emerge that are essential.
Once we have arrived at the conclusion that energy security policies must be based on the analysis of the governance structures that they generate, we must take into account how the institutional framework of that structure works. This stems from the very definition of energy governance structure as this includes intrinsically a framework in which the various sectors will manage their power relations in a cooperative or conflictive way. It also stems from doubt as to what can make an energy player have more or less power when it comes to achieving his goals within that institutional framework.
As power is a relative rather than absolute attribute, in line with what can be drawn from the analyses of Susan Strange and Bernard Mommer –who highlight the role that power relations have in the structuring of energy relations and how the international regimes that govern them are the reflection of the distribution of influence in a given situation– we feel that each player’s ability to exert influence on the institutional structure will be determined by his contribution to the global economy. Thus, if one analyses energy governance structure in terms of power, an analysis of the hydrocarbon resources of Central Asia suggests that an analysis of energy relations should also: (a) incorporate financial and alternative energy players in the analysis of energy governance structure; and (b) take into account the territory and the regional institutions that ‘govern’ it.
On this first element, today there is no doubt that financial energy players must also consider themselves subjects of energy governance structure.
In concrete terms, in the case of Central Asia, the idea of incorporating the Kazakhstan National Fund, which was created in 2000 and in 2009 totalled US$30 billion, into the analysis is not far-fetched because the hypothesis that the fund is a player with more international ability to influence than Kazmunaigaz is quite plausible. However, it is clear that the evolution of this fund will depend on Kazmunaigaz’s relationships with its international partners.
There is no longer any excuse for not introducing this kind of approach into the analysis because:
- The importance of the financial side of hydrocarbons is a fact. Chévalier (2004, p. 306) says ‘the economic and financial challenges associated with oil have no comparison with the political economy of other sources of energy, as oil is characterized by having a low extraction cost and a sale price –including all fees and taxes– that can be very high because of its captive use’. This has caused the ‘financiarization of the oil market, which began in early 1980s, to be now complete’ (Kérébel, 2009, p. 22).
- There is a tool of analysis that allows this to be taken into account. If we consider the energy production chain as a GCCh, as Soldevila explains (2008, p. 25), this commodity chain approach allows us to observe the role of the chain within the process of accumulation and how the excess generated is distributed among the different links. The greatest benefits emerge in the link with the highest degree of monopoly, but this is not a static situation.
- The international economic context makes it necessary. The major global economic imbalances that exist show that we have entered into an economy of acquisition in which economies that are rich in hydrocarbons comprise an essential part of the system’s balance, as it is one of the categories of economies which provide liquidity and financing to industrial economies with pressing needs for such financing. We thus see how important sovereign funds became over the past year, as the culmination of the dinar diplomacy that Kuwait and Saudi Arabia conducted for years.
There is another area which is less developed from the analytical standpoint because of the novelty of the situation but which also must be addressed. It is the need to relativise, within the governance structure of energy, the role of the power of energy players whose source of influence is oil. Once again, because of its wealth of alternative energy, Central Asia offers a good case for advancing in the study of this issue. In this region, the ability of certain actors to influence is qualified by the existence of energy sources other than those based on hydrocarbons and by the opportunity cost of certain hydrocarbon-rich territories for other uses. This hypothesis emerges as we try to ascertain the consequences of Kazakhstan being richer in uranium than in oil, of the fact that the region is immensely rich in hydraulic reserves and the possibility of generating hydraulic energy, or the fact that the wealth of non-inhabited land which can be used to generate energy or produce food seems to be a reality.
Although these ideas enter into the realm of speculation, neither of these issues –the financial facet of hydrocarbons and the complementarity/substitution of energy sources– can be ignored.
Finally, although at this stage it seems to be something obvious, we must point out the importance of the space in which energy relations take place. It might strike the reader that I have not yet alluded to the oil and natural gas pipelines that run through Central Asia. There are two reasons for this: (1) this issue has already been discussed and documented by the Elcano Royal Institute’s working group on Security and Energy; and (2) I wanted intentionally to stay away from the debate on whether transport should pass through the north, south, east or west, because in terms of oil pipelines all of these cardinal points refer to the same region, which is Central Asia. We must note that the important thing is the territory and not ‘the tubes’. We have already made reference to the idea of Central Asia being a heartland. What is more, recently this issue was addressed in a suggestive but pessimistic article entitled La venganza de la historia.
Central Asia’s geographical situation at the ‘centre of the world’ makes this a key factor in its ability to exert influence not just in energy relations but also in that area. Through many of the conflicts which have emerged between Russia and Ukraine in particular, and because of the recent conflict involving Abkhasia, South Ossetia and Georgia, people have gradually become aware of the power that can be held by transit countries and how they shape international energy relations. Thus it is true, as has been stated, (Mañe, 2005c; and Isbell, 2007b), that for Central Asia being a transit region is an asset in terms of its ability to exert influence. But it is not clear that it is something negative. The ‘empty geo-energy space’ that we have referred to can be viewed as a barrier –a place of conflict– or as a place that brings together players seeking cooperation and regional interests.
Thus, one senses that one element for resolving energy conflicts is to do so through regional organisation structures that have an effect on that geo-energy space, even if they do not include only ‘national’ players. In our example, there is already an institutional framework featuring various kinds of players, such as the Shanghai Cooperation Organisation. Perhaps a ‘subproduct’ of this organisation would be the right forum for spelling out the rules of the regional energy game, with global influence.
Aurèlia Mañé Estrada
GATE (University of Barcelona), Director of the Central Asia Observatory
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 This document is a revised version of the text presented to the Working Group on Energy and Security in Central Asia. I gratefully acknowledge the comments of its members. Meanwhile, the stakeholders’ approach results from work done in the R+D+I project titled ‘Actores e intereses en las relaciones exteriores de España con el mundo árabe y musulmán’ (CSO2008-06232-C03-03/CPOL).
 A very relevant example of this way of understanding energy relations is a famous article published in Foreign Affairs in 1973 and written by James L Akins, with the title ‘The Oil Crisis: This Time the Wolf is Here’. It influenced the dominant energy thinking of the past 30 years.
 As this paper is not a compendium of theories of foreign trade, we only mention issues with a direct relationship to analysis of energy relations. Therefore, in this study we do not mention the later line of analysis developed by Oliver Williamson, which applies Robert Coase’s (1937) concept of transaction costs to international trade.
 Two examples of analysis of energy relations based on the financial realm are the French structuralist school, represented in its day by J.M. Chévalier (1973), and the radical US school, under a more applied approach, of Nitzan & Bichtler (2002).
 See Escribano (2006).
 This kind of analysis emerged when the US became part of the ‘territory of the international oil industry’ (Odell, 1974, p. 11). In other words, in the 1970s, when the US economy stopped being self-sufficient and started importing crude to satisfy its growing consumption of primary fossil fuels.
 Any report by the EIA in the 1980s or 90s illustrates this issue. The language is that of producer or exporting countries and consumer countries.
 The most paradigmatic example of this statement is US energy policy, from the times of Richard Nixon to those of George Bush Jr., which in a tacit way assumes that the interests of the US Government and consumers and those of ‘their’ large, private and international energy producers are one and the same.
 From the standpoint of economic theory this is justified by accepting that the State/public sector plays a fundamental role in the re-allotment of resources and in satisfying collective needs; and in practical terms it is justified by the fact that large state-owned energy companies in Europe were created to ensure a steady and cheap supply of energy, which, at that time, the ‘Seven Sisters’ or their heirs failed to guarantee. Examples of this are the creation of ENI or the energy policy of General Charles De Gaulle..
 In this paper we refer to geopolitical or economic analyses, rather than address approaches of a more geological nature.
 See Fernández (2009) and Echeverría Jesús (2008).
 A current and updated summary can be found in the articles of AEF (2009).
 Today it is estimated that the foreign energy bill is 1% of the production of value added in industrialised countries (Chevalier, 2004). Transport is another issue altogether. See Raikes, Jensen & Ponte, (2000).
 For a complete definition of what an oil-based and ‘rentier’ economy, see Mañé & Cámara (2005).
 The figures in these tables must be presented with caution. With the former Soviet republics of this region, the always difficult task of obtaining reliable figures on reserves and production is even harder than with other oil-producing countries. In fact, the hydrocarbons of Kazakhstan are destined to play an even greater role on the world oil scene than attributed to the country here. This is because recent finds in some super fields will increase the figures presented here significantly. The production at Tengiz is expected to double and, after 2011, Kashagan is forecast to add 1 million barrels a day to its current production. However, I am of the opinion that these figures will not alter the arguments laid out here because the strong polarization that exists between those ranked at the top globally and the rest is so great that only alliances with the ‘majors’ can help turn a given territory into a country with world-level influence.
 In this same line of argument we find the case of the gas in Turkmenistan, which could end up becoming a complement to Russian gas, either as main supplier to Ukraine or as gas which helps Russia meet its commitments to Europe. With this hypothesis it is not clear if, as has been speculated, Turkmenistan would end up becoming one of China’s main suppliers.
 Years ago, by analogy with a classical vision of geopolitics, I (Mañé, 2005b), defined the geo-energy space: a geographical bloc with a governance structure. This was understood as a geographical space in which there are certain relations among the different energy agents operating in it. Within this space, exchanges of energy goods are also the basis for establishing a security community. It is created through the voluntary integration of its members but does not rule out relations with other spaces. In fact, I also applied the ideas of Erzan (1999) and Pertes (2004) to the energy realm, so as to assert that the creation of this geo-energy bloc must be a tool for relating with and integrating better into the new international energy scene.
 See Cámara (2009).
 In fact, for instance, it is likely that Chevron would not have invested so quickly in Tengiz if it had not thought it had the support of the US Administration and the American bases in the region, such as that of Manas.
 This is a ranking based on data from the Energy Intelligence Group in 2007, in which I have devised an index that runs from 1 to 0, using: (a) an index devised using the average of the weight of each company in the total oil and gas reserves of the world’s top 95 companies (1,761,555 million BOE) and the weight of each company in the total oil and gas production of the top 96 companies in the world (105,854 ‘000 BOE/d); the value runs from 1 to 0, and is the result of indexing the ((En weight in reserves + En weight in production)/2) in relation to the greater weight of ((En weight in reserves + En weight in production)/2); (b) index of the weight of each company in relation to the overall distilling capacity of the world’s top 64 companies (64,088 ‘000 b/d); as before, the value runs from 1 to 0, but for distilling capacity; and (c) index of the market share of the world’s top 63 distribution companies; value runs from 1 to 0, it is indexed to the world’s largest oil company, in this case ExxonMobil.
 See Graph 3.
 This is a very simple estimate, as it has been done with the percentage of participation of each of the companies in each of the Kazakh fields and/or blocs included in the EIA list. It is assumed that the percentage of participation will be the same that these companies have with regard to reserves.
 An article in the Financial Times in 2007 identified the ‘new seven sisters’: ARAMCO, Gazprom, CNPC, NIOC, PDVSA, Petrobrás and Petronas. Although I do not agree with the role that the newspaper seeks to assign to these companies –they will replace the previous ‘seven sisters’– there is no denying that they are destined to be international companies, except perhaps in the case of China’s CNPC, with major weight, or that their importance stems from the large reserves that lie in ‘their’ territory of origin.
 See Klare (2004).
 Because of its status as an energy enclave, terms for investing in the region vary greatly. For this reason, Central Asia needs a specific investment policy but so far it has not designed one.
 Another factor that weakens the position, which in this case is more US than Western, is that the policy has centred on how we extract oil, as opposed to Russian and perhaps Chinese players, whose intervention is part of a strategy to gain influence in the region.
 See footnote 17.
 Kaplinsky (2006, p. 359) defends the analytical framework of the Global Value Chain in the following terms: ‘Essentially what value chains offer is the following: a) an accounting framework to chart the accretion on costs as a product moves from conception, to production, through use, and to recycling; b)an analytical framework to explain who does what in the value chain, reflecting the dynamics of rent through the chain; c) by focusing on governance and power, a framework to understand the drivers of allocation and distribution; d) a corresponding analytical structure to explain the patterns of income distribution which arise in the production-consumption chain; and e) a framework for analysing different types of upgrading processes’.
 See Panaspornprasit (2005).
 See Serra i Castella (2009).
 See Campins Eritja (2009) and CIDOB-OAC (2009).
 See Fernández (2009) and Echeverría Jesús (2008).
 See Kaplan (2009).
 Drawing a parallel with the Mediterranean, as I have explained (Mañé, 2008), organisations like the OME and the EuroMediterranean Energy Forum go beyond national energy policies and constitute an institutional framework where a good part of the energy agreements struck by energy players are reached.