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Mainstream, Vol XLVI No 40

Turkmen Gas Pipeline : Hurdles Galore

Tuesday 23 September 2008, by Mansoor Ali

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Energy experts of the NB Central Asia Agency are of the opinion that execution of the Turkmenistan-Afghanistan-Pakistan-India (TAPI) project still looks quite doubtful, since the pipeline has to pass through war-ravaged Afghanistan yet highly unsettled and in the throes of instability. There are other impediments as well, and these include the lack of confidence in the existence of sufficient quantity of gas to ensure the project’s viability and profitability as also the difficulties connected with financing such a risky venture—the 1680-km-long pipeline would cost $ 8 billion and is proposed to be constructed in five years, that is, from 2010 to 2015.

With Afghanistan continuing to be plunged in conflict and the Taliban conducting their major military activities in a region almost bordering, from the south-west, the supposed route to be taken by the gas pipeline, it is hardly likely that this security threat to the project would visibly reduce in the foreseeable future.

Notwithstanding Turkmenistan’s active endeavours to diversify its gas export routes for external markets, Western analysts harbour misgivings as to whether Ashkhabad has enough gas reserves to meet the supplies from all directions that it has projected. According to them, it is essential to substantially increase the present output of natural gas in Turkmenistan. However, currently the annual increase of output and export of hydrocarbons in the country doesn’t correspond to the tasks assigned by the Turkmen leadership: to produce 110 million tonnes of oil and 250 billion cubic metres of gas by 2030. In 2007, the figure for gas was around 70 billion cubic metres whereas in 2006 it was planned to enhance the output to 80 million cubic metres. It must be understood that implementation of such projects as those of the Caspian Sea gas pipeline, the modernisation of the Central Asia Central pipeline as well as the gas pipeline in China (now under construction) largely hinges on increasing the volume of Turkmen gas export by 60-65 billion cubic metres so as to meet the exports to Russia (80 billion cubic metres) and China (30 billion cubic metres). Taking into account these circumstances and the rates of development of the Turkmen Republic’s fuel and energy sector, the forecast of the TAPI’s resource base in Turkmenistan declines to a level that is unacceptably low for the initiation of the project. The present volume of output may be sufficient to meet the export agreement with Russia—but there is simply no gas for other markets. Exploration of new gasfields and investments to carry out the development of such fields are imperative to enable Turkmenistan’s gas supplies to India. It must be further understood that gasfields take no less than 10 years to develop. These misgivings were reinforced in the beginning of January this year following disruption of Turkmen gas exports to Iran thus reducing gas deliveries to Turkey and Greece. According to analysts, the main reason behind the failure of gas supplies to Iran was, besides differences between the Iranian and Turkmen positions on the issue of price for gas delivery, deficit in this energy resource to satisfy the internal demand in Turkmenistan especially in winter characterised by the peak load in the Republic’s energy system—thus the gas, allocated for export to Iran, had to be diverted for internal consumption.

IN the conditions of obvious shortage of capacities for gasfield development, the “multi-vector” energy policy pursued by Ashkhabad is aimed at bringing about competition among countries interested in the Turkmen gas resource, between India and China in particular. For example, Ashkhabad regards the Douletabad gasfield as a possible potential reserve for TAPI; but this very gasfield is supposed to be used for exporting gas to China—initially the Chinese company, CNBC, had been granted the right to find and produce gas there.

According to the analyses of international experts, the TAPI project has several disadvantages when compared with the Iran-Pakistan-India (IPI) gas pipeline. Transit of the pipeline through Afghan territory will result in additional financial expenditure due to lack of infrastructure and the need to avoid unsafe areas noted for terrorist activities and the complex terrain—the preliminary cost of the project has already risen from $ 3.5 billion to almost $ 8 billion; experts believe this figure could go up to $ 9 billion.

From the economic point of view, the gas pipeline’s Iranian variant appears to be preferable for India. One major argument in favour of construction of the pipeline along the IPI route is Gazprom’s intention to participate in the project and become, in effect, a financial guarantor for its practical implementation. Besides, analysts are of the view that reduction in expenditure in the IPI pipeline’s construction and development will generate lower gas price for Indian consumers (according to preliminary estimates, around $ 70 for 1000 cubic metres of gas) whereas Ashkhabad is seeking to bargain for the maximum—close to the world price—for its gas (not less than $ 300 for 1000 cubic metres). Some amendments to the draft of the framework agreement on the construction of the Trans-Afghan pipeline for delivering Turkmen gas to South Asia were made on May 29 during a meeting of the technical groups of the TAPI project’s participant member-countries and Turkmenistan confirmed that it sold and would sell gas on its border without getting involved in the construction of any pipeline—in this sense India and Pakistan are not expected to be excluded from this rule, and Ashkhabad would barely take any preliminary obligation to guarantee gas supply.

In view of the complexity in realising the Trans-Afghan gas pipeline route, some experts have put forward an idea: let Turkmenistan display its willingness to help in the construction of the Iran-Pakistan-India (IPI) gas pipeline project since its is well within the realm of possibility to connect the pipeline from the Douletabad reserve in Turkmenistan to this gas route.

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