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TAPI Pipeline Inches Forward

TAPI Pipeline Inches Forward

The official groundbreaking ceremony for the TAPI pipeline was held in Turkmenistan on December 13, a milestone for a project that has been on the drawing board for over two decades. The pipeline would carry natural gas across four countries that make up the TAPI acronym: originating at the gas fields in Turkmenistan, TAPI will carry natural gas through Afghanistan, Pakistan, and terminate in India.

The groundbreaking for the USD$7.6 billion pipeline was attended by leaders from the four countries involved, including India’s Vice President, Pakistan’s Prime Minister, and the presidents from Afghanistan and Turkmenistan.

Fittingly, the ceremony was held not far from the original Silk Road route, an ancient trade network that connected East and Central Asia to the Middle East and the Mediterranean. And since the 1,800-kilometer gas pipeline could once again increase resource trade in Central and South Asia, it has often been likened to a “New Silk Road.”

A pipeline connecting natural gas in the Caspian Sea to India has been in the works since the early 1990s. In an earlier incarnation of the project, American-based Unocal was a key stakeholder pushing the pipeline, with the backing of the U.S. government. But Al Qaeda attacks on U.S. interests in the late 1990s, which had the backing of the Taliban regime, killed off the project as Afghanistan quickly became a no-go zone. Related: $10 Trillion Investment Needed To Avoid Massive Oil Price Spike Says OPEC

Years later, the project is being headed up by Turkmengaz, and it once again has strong U.S. support because the American government sees it as an economic development tool for Central and South Asia, while having the added benefit of working around Russian pipeline control. Despite U.S. support, TAPI has spent quite a long time in limbo, as the security situation, particularly in Afghanistan, has prevented progress. Indian Prime Minister Narendra Modi gave the project new momentum last summer when he visited Turkmenistan.

Turkmengaz and its partners expect TAPI to come online in 2019 with an annual capacity to move 33 billion cubic meters of natural gas. India’s state-backed utility, GAIL, has signed up to purchase 38 million cubic meter per day for 30 years, a figure that could rise if lower volumes are sold to Afghanistan. India and Pakistan together will purchase more than 80 percent of the gas volumes.

There are reasons that all four countries are enthusiastic. Obviously, Turkmenistan is looking to sell more gas, and hopes to diversify beyond its two main customers, Russia and China. That has become especially important since gas exports to Russia have faltered. Afghanistan expects the project to attract additional investment, which President Ashraf Ghani hopes will add some spark to the country’s war-torn and war-dependent economy. Related: OPEC: $95 Oil, But Not Until 2040

Similar benefits could extend to Pakistan, but Islamabad is also keen to gain access to much needed gas supplies to erase its energy deficit. India is anxious to find an additional source of energy for its resource-hungry economy. Some speculate India’s motivations also include countering China’s ambitious plans for the region as part of its “One Road, One Belt” policy. Additionally, everyone hopes that the pipeline could be a peace catalyst, helping to stabilize Afghanistan while bringing the bitter rivals of India and Pakistan together.

 

But there are formidable obstacles that stand in the way of the pipeline coming to fruition, despite the groundbreaking ceremony. At the top of the list are security concerns.

"I simply don't see how the security situation in Afghanistan will allow the pipeline to be built. Many parts of Afghanistan where the pipeline is expected to pass through are essentially no-go areas,” Michael Kugelman, South Asia associate at The Wilson Center, told Al Jazeera in December. "They are not secure for Afghan troops, much less for construction workers building the pipeline." Related: Competition Within OPEC Set To Intensify Amid Low Oil Prices

The pipeline would also have to travel through Baluchistan in Pakistan, where a separatist movement against the Pakistan government could complicate TAPI security. Anti-Indian groups in Pakistan could also see the upside of disrupting energy supplies to their southeastern enemy.

There is also the question of cost. Some news outlets have cited a figure of USD$7.6 billion, while others say it is more like $10 billion. Delays and overruns could add several billion more. A handful of international oil companies including Chevron, Total and ExxonMobil have declined to invest in the project because the government in Turkmenistan does not allow ownership stakes in the upstream gas fields. While Turkmengaz is the lead on TAPI, and it has partners from its downstream neighbors, most analysts believe the principles do not have the financing to pay for the massive pipeline. Aside from the giant price tag, the small matter of who will pay for the pipeline to stretch through dicey areas in Afghanistan is enough to raise serious questions about the viability of the TAPI pipeline.

Finally, there are a few pipeline alternatives. One pipeline from Iran would flow through Pakistan to India, dubbed the Iran-Pakistan-India (IPI) pipeline. China is already moving on an Iran to Pakistan pipeline, which will fit into its larger plans for the region. For India, another route, which is merely an idea at this point, is a subsea Iran-Oman-India pipeline. India is keeping its options open by not shutting the book on the IPI or the subsea route, both of which have gone nowhere because of diplomatic pressure relating to Iran. The Iranian sanctions are set to come off soon though.

In short, the four countries backing TAPI have at the very least made significant political progress, enough for them to come together and support a mutually beneficial infrastructure project. Even still, the groundbreaking ceremony was symbolic. The real proof of progress will come over the next few years as we wait and see if construction gets underway in earnest.

By Nick Cunningham of Oilprice.com

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