THE Caspian Sea oil and gas producers are going through a crisis of confidence, precipitated by low oil prices and an inability to agree on export routes. 1999 looks like being a year of decision which may have severe economic and political consequences for the region. Reality for the Caspian, heralded as a potential rival to the Gulf as a source of hydrocarbons energy in the early 1990s, sunk in with a vengeance in 1998 as plummeting oil prices forced oil companies to take a harder look at the economics of their investments. The result has been a general slowdown in new investment, with some key decisions being postponed indefinitely.

Not everyone has given up hope. This summer, a consortium led by the Royal Dutch/Shell Group, and including most Western and Japanese oil players, plans to drill a test well in Kazakhstan's offshore area in the expectation of finding one of the world's biggest oil reservoirs.

Seismic surveys suggest the Kashagan reservoir, in the same basin as the giant Tengiz field on the mainland, is a vast structure. But experts say the test well could just as easily show the structure to be unproductive.

Higher world oil prices as of March have also restored hope in the region. And, in April, the Azerbaijan International Operating Company (AIOC) led by BP Amoco is opening the first export pipeline from the Caspian that does not go through Russia or Iran.

AIOC's 100,000-barrel-a-day (b/d) line from Baku to the Georgian Black Sea port of Supsa will help secure early oil exports from Azerbaijan, while a decision is awaited on plans being pushed by the US and Turkey for a route through Georgia to the Turkish Mediterranean port of Ceyhan.These hopeful developments will help to mask a different reality. On the ground, Western oil companies are showing great caution and putting off decisions on new investment.

Most significant has been the way AIOC has allowed the deadline for a decision on an export route from Azerbaijan to slip despite its presumed urgency. The $2,500 million-4,000 million line is endorsed and actively promoted by the US as the axis for an energy corridor that would also be used by the other Caspian producers, Kazakhstan and Turkmenistan.

AIOC was in 1997 stressing the vital importance of an early decision on the line to fit in with the development schedule for its fields in Azerbaijan. When the oil market started weakening in early 1998, the deadline slipped to mid-year, then late 1998 and mid-1999, and now perhaps late 1999. The slippage has given rise to a view that the postponement is indefinite, with much depending on the state of the oil markets.

Beyond market prices, there is also a more sober assessment of potential reserves in the Caspian region. In the initial rush by international oil companies to secure concessions, there was a tendency to forget that estimates of reserves in the region exceeding 15,000 million-20,000 million barrels owed more to wishful thinking than cold calculation. Reserves of 20,000 million barrels would put the Caspian region in the same class as one of the minor OPEC producers. Talk of the Caspian becoming a rival to the Gulf was never credible.

In the event, many exploratory wells drilled with great expectations came up dry. In 1998-99, foreign oil companies started for the first time to abandon projects.

The Caspian International Petroleum Company (Cipco), led by Pennzoil of the US, pulled out of offshore exploration schemes with a potential investment of $3,000 million, after spending nearly $200 million on test wells.

Another consortium, North Apsheron Operating Company (NAOC), led by BP Amoco and Unocal Corporation of the US, has also reported disappointing test results and was expected to pull out officially in April.

Another group headed by Russia's Lukoil is threatening to pull out by mid-1999 unless it makes a very large crude find.

AIOC - whose 1994 agreement, worth a potential $12,000 million, was described as the 'contract of the century' - has not only postponed a decision on an export line but has been delaying other investment plans and implementing cost-cutting measures.

In Kazakhstan, the main Tengizchevroil consortium has indicated it will go through with a $500 million investment in Tengiz in 1999, following a similar investment in the previous year, but it wants the government to first reduce transport tariffs.

Political considerations have helped to create a veritable tangle of proposed pipelines. US strategy after the collapse of the Soviet Union at the turn of the decade was to wean the southern CIS republics away from Moscow in the north while preventing them from coming under Islamic Iran's influence in the south.

As a result, the oil companies have been investing vast sums in oil and gas production capacity without the assurance of export outlets. The export route options open to them are either uneconomic or insecure, or both.

The economics of the situation may well force the Caspian producers to, initially at least, make use of Russian and Iranian routes. Both countries are moving ahead with projects of their own which, if completed in time, would be too tempting for the oil companies to ignore. In the case of Iran, some of the political objections may also effectively disappear by 2000 as the US continues to improve its relations with Tehran.

The Caspian Pipeline Consortium, which plans an oil pipeline from Kazakhstan via Russia, awarded a $360 million contract in March to France's Bouygues Group to build a terminal near the Black Sea port of Novorrossiisk. This route is to be ready by the end of 2001.

Iran is also working on an oil pipeline link that would allow exports of up to 700,000 b/d through swaps. Proposed as an urgent scheme in early 1998 for completion with two years, the 400-kilometre Neka-Tehran line is one year behind schedule.

The Iranians moved somewhat faster with gas export alternatives, completing a 200-kilometre line from Turkmenistan in 1997 to allow the latter its first gas exports since being cut off by Russia in the mid-1990s. The volume of gas exported this way is relatively small, however.

However, without much fanfare, Iran and Turkey have been working on a bigger gas pipeline project to bring Iranian gas supplies to Turkey starting in 2000. This would, among other things, open the way for the first Turkmen gas exports to Turkey via swap deals.

At least half a dozen oil and gas export lines that exclude Russia and Iran have been proposed in recent years. At one stage, war-torn Afghanistan was even being considered as a possible route for Turkmen gas exports.

Other routes through Chechnya and Georgia hardly offer more security. No one can be sure of political stability in Georgia, where there have been several coup and assassination attempts against the post-Soviet leader. As for Chechnya, where gunmen roam at will, there is a high probability of sabotage - as was seen most recently in March when an oil line was shut down for several days because of a suspicious fire.

Turkmen gas, if it is not to go through Iran or Russia, will have to be transported undersea. Turkey and Turkmenistan recently signed a preliminary agreement on such a pipeline proposed by the US' General Electric Company and the Bechtel Group, but there are doubts about whether the $2,000 million- 2,500 million needed in finance can be raised.

The proposal follows another by the Royal Dutch/Shell Group, which had earlier been commissioned by Turkmenistan and Iran to study an export route centring on Iran.

In the latest twist to pipeline politics, BP Amoco, which holds a 34 per cent stake in AIOC, said in February it was considering a route involving Russia because of its extremely low cost. This could be as little as $500 million-1,000 million; it would not involve the Bosphorus or the Mediterranean, but would go through Russia, the Black Sea, Bulgaria and Greece.

While the oil companies carry out studies and countries such as the US make their political calculations, the prospective energy exporting countries of the Caspian may not be able to wait very much longer. The populations of Azerbaijan and Turkmenistan, and even Kazakhstan, have seen little or no benefit so far from the billions of dollars invested in the three countries. The three post-Soviet governments in turn have had little to offer their long-suffering peoples except the promise of future oil riches.

Increasingly, analysts are asking whether, in the words of one oil man, Central Asia 'will ...survive until big oil and gas begins to flow'.