24.01.11 20:16

New Route for Gas Flow

On December 11, Ashgabat hosted a summit of the heads of countries participating in a new ambitious energy project – Turkmenistan - Afghanistan - Pakistan - India (TAPI) gas pipeline, through which Turkmen natural gas should flow to the markets of South Asia starting from 2015. Presidents Gurbanguly Berdimuhamedov of Turkmenistan, Hamid Karzai of Afghanistan, Asif Ali Zardari of Pakistan, and Indian Minister of Petroleum and Natural Gas Murli Deora as well as President of the Asian Development Bank (ADB) Haruhiko Kuroda attended the summit. The meeting resulted in the signing of two important intergovernmental agreements that pave the way for practical implementation of the TAPI project.

The Presidents of Turkmenistan, Afghanistan, Pakistan and the Indian Minister signed an intergovernmental agreement on implementation of the TAPI gas pipeline project. The line ministers of four countries signed a framework agreement on gas pipeline for the governments of Turkmenistan, Afghanistan, Pakistan and India.

Painstaking work of experts and specialists of participating countries and ADB carried out within the framework of meetings of the TAPI Technical Working Group and Steering Committee preceded this important event. These meetings were especially intensive in the period from August to early December 2010. The final documents were prepared in the framework of the project’s 12th Steering Committee meeting on December 10, attended by the heads of line ministries and representatives of all participating countries, as well as representatives of the ADB.

Giving credit for the political importance of the energy project, however, it is worth noting that the economy dictates policies. It is the current economic component of the TAPI project that makes us reasonably believe that this quite ambitious plan would be realized.

TAPI’s throughput capacity, which will run along the territories of Afghanistan and Pakistan till Fazilka settlement on the border with India, will be 33 billion cubic meters of gas per year. Of these, Pakistan and India will purchase 14 billion cubic meters (bcm), 5 bcm will be used for the needs of Afghanistan. As anticipated, the pipeline construction will start in 2012 and finish by the end of 2014. Investments in the construction of 1,735 km long gas pipeline are estimated at US$ 7.6 billion.

The idea to lay the pipe that would provide Turkmen gas with an access to markets in South Asia emerged in the mid 1990s. However, the civil war in Afghanistan remained the main obstacle to the project. In the next few years, the sharp deterioration of the situation in Afghanistan impeded TAPI’s realization.  

Gurbanguly Berdimuhamedov was able to breathe new life into the Trans-Afghan project. During 2008-2009, the Turkmen leader held intensive consultations on the implementation of TAPI with the leaders of Afghanistan, India and Pakistan. As a result, in April 2008, India, the energy market of which notably improved TAPI’s economic prospects, joined the project.  

In May 2008, Ashgabat hosted the first meeting of the technical working group of TAPI, at which the experts confirmed the full economic capacity of Turkmenistan as a supplier country and agreed to formulate gas prices in accordance with the situation in the world market. At the same time, the sides began to draft intergovernmental agreements that must define the rights and obligations of each TAPI participant.

However, TAPI received the most powerful impetus for accelerated development in 2010. In May, during the Turkmen President’s state visit to India, the host party expressed high interest in Turkmen gas supplies. This is easily explained, given that India’s current energy demand is growing annually by 10 percent.

It should be noted that India’s and Pakistan’s energy needs are increasing every year. For example, in 2008, India consumed about 43 bcm of gas, nearly 12 bcm of which was imported.

Murli Deora reaffirmed India’s increasing demand for Turkmen gas at the summit in Ashgabat. The Indian minister said that “although TAPI envisages the daily delivery of 38 million cubic meters of gas to India, we hope we can get more from Turkmenistan to meet the energy needs of our growing economy.” Therefore, India is interested in the TAPI gas pipeline and long-term supplies of Turkmen gas, the Minister said.

Pakistan also has good reason to support TAPI. The country needs to avert an energy crisis. In 2008-2009, Pakistan's needs in gas began to outpace the extraction by 5.7 million cubic meters a day. In his speech at the summit, Pakistan's President Asif Ali Zardari confirmed Pakistan’s interest in imports of Turkmen gas, noting that gas is an important commodity that gives a strong impetus to economic development. In turn, Afghan President Hamid Karzai said at the summit that Afghanistan would meet its obligations under the project in terms of both security and construction.

ADB President Haruhiko Kuroda stressed that the implementation of a project of this level requires fair investment, financial distribution, effective security mechanisms, as well as high quality of construction and operation of the pipeline. He called on all parties to implement all necessary work so that natural gas from the South Yoloten- Osman deposit could be timely delivered to the TAPI participating countries. The ADB official also emphasized the ADB’s readiness to continue to assist in the project implementation.

After the signing of agreements at the Ashgabat summit, Minister for Mines and Mining of Afghanistan Vahidula Shahrani said to the Afghan media that Afghanistan would be capable of ensuring TAPI safety. Seven thousand troops of Afghan security forces will protect the pipeline. In addition, all regional administrations will be paid for the protection of the pipeline. Stressing the importance of this project for Afghanistan, Shahrani said that his country would receive hundreds of millions of dollars annually for the transit of gas. According to the minister, Afghans living in settlements that the pipeline will run through will be fully provided with gas supply. A month earlier, the Pakistani side made its presentation on the safety of pipelines in Pakistan.

Thus, contrary to pessimistic estimates of some foreign observers, who did not believe in TAPI, this transnational project gets specific confirmations of the relevance and viability. The participants’ strong belief in Turkmenistan’s ability to ensure long-term gas supplies along this route underscores the TAPI project’s economic feasibility. Previously, the large Dovletabad field was considered the resource base for the pipeline. However, given that Dovletabat gas is currently supplied to Russia and also provides for growing exports to Iran, this year the giant Southern Yoloten-Osman field has been determined as a resource base for TAPI.

According to the latest revised estimates, the resources of the deposit already account for 22 trillion cubic meters of gas, much higher than the 2008 audit data provided by the British Gaffney, Cline & Associates that estimated it at 14 trillion cubic meters.

Along with the ongoing exploration at the deposit, projects totaling nearly US$ 10 billion are already being implemented to accelerate the commissioning of the South Yoloten. State-owned Turkmengaz Corporation together with the invited service companies from China, Korea and the UAE carries out comprehensive development of the deposit, which will result in production of 30 billion cubic meters of gas already in 2012. The implementation of subsequent phases will provide an opportunity to boost production up to 40-70 bcm a year.

The intention of other countries, including Russia, to participate in implementation of TAPI proves the economic attractiveness of the project. In particular, the Kremlin has already announced that Gazprom is ready for any cooperation, such as assistance in preparing the project, to become a contractor or become a full member of the consortium.

 Probably, the full composition of the consortium for the construction of TAPI will be formed in 2011. Meanwhile, it is known that it will include gas companies of the participating countries. They will jointly decide which foreign companies and on what terms will be invited as partners. Also during 2011, the TAPI participating countries intend to agree on other yet unsolved issues. In particular, the project participants should agree on the gas price, measures to ensure safety of gas pipeline, transit fee and creation of a consortium.

Ashgabat considers TAPI one of the most important elements of its energy strategy on diversification of energy exports to world markets. Implementing this strategy phase by phase, Turkmenistan started gas exports to China in December 2009 along the trans-Asian pipeline with the throughput of 40 bcm per year. In January 2010, the second pipeline to Iran - Dovletabad-Sarahs-Hangeran – was commissioned, allowing Turkmenistan to increase gas exports to the neighboring country up to 20 bcm and more.

TAPI’s implementation will significantly strengthen the position of Turkmenistan in the Asian region’s promising and fast-growing gas market. Given the existing gas pipelines to China and Iran, delivery of Turkmen gas by TAPI will bring supplies to the countries of the Asian region as a whole to a total of over 90 billion cubic meters of gas per year.

Oleg Lukin,
economic commentator

Published in “Turkmenistan” magazine, N 12/2010

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