Saudi Arabia understandably attracts a lot of attention – the corruption purge jangles the nerves of the royal family, the 32-year old Mohammad bin Salman-led construction of NEOM, the city of future, excited urban planners whilst remaining shrouded in mystery, its reaction to the latest oil price surge is still a key indicator of what will happen next. Perhaps overshadowed by other events taking place concurrently, Saudi Arabia seems intent to break new ground in South Asia. Turkmenistan is all in favor of Riyadh’s assistance which would finally help it alleviate concerns with regard to its shrinking gas marketing possibilities. But to fully understand the importance of Saudi Arabia pushing forward the TAPI project, one first must explore the often opaque ways of Turkmenistan’s political elite and the state which TAPI ended up in because of it.
TAPI (short for Turkmenistan-Afghanistan-Pakistan-India) is a pipeline project that had been floating around for some 20 years before the parties concerned agreed in 2011-2012 to implement it. Then, it seemed, the chaos and carnage of the Afghanistan invasion had been subsiding. Peace in Afghanistan was and remains essential for the TAPI project – in the 1990s Turkmenistan’s authorities talked directly to Taliban (and received its support for the project), in the wake of the 2001 invasion coordinating became much more difficult. Although Afghanistan is still very far from being a safe – a suicide bombing as recent as January 27 left more than 100 dead – the gas thirst of India and Pakistan forced the sides to get back to the project.
Turkmenistan has greatly suffered in the past years from two things – lack of market outlets and its own inflexibility. Up to now, Ashgabat had two main potential supply routes – first is to export its gas via Russia, the second is to sell it to the Chinese. The framework for the former case has been set in 2003 when Russia and Turkmenistan signed a 25-year contract stipulating that Gazprom would resell Turkmen gas of up to 40-50 BCm/year (never reached that height, mostly moved in the 10-12 BCm/year interval). Cooperation with the Chinese, however, seemed to be picking up quite nicely – three lines of the Central Asia-China gas pipeline were built with supplies reaching 30 BCm/year, however, after the deceleration of gas demand in China the construction of Line D, the fourth one, ran aground. Related: Why Natural Gas Prices Just Tanked
More importantly, since 2016 Turkmenistan’s only major buyer is China. Gazprom used to re-export Turkmen gas (most of gas supplies to Ukraine before 2014 was from there), however after oil prices dropped in early 2015, it made no sense to continue buying gas from Ashgabat for a fixed price of $240/MCm as prices in Europe were an $80-100/MCm lower. The Turkmen side proved unwilling to drop the prices, therefore Gazprom has brought the supplies to a halt and in case it needs Central Asian gas, it turns to Uzbekistan, not Turkmenistan. Iran, too, has been out of question after a halting of exports in January 2017 – Turkmenistan demanded the massive debt incurred by the Iranian side, estimated to be around $1.75 billion, and even after international arbitration resolves the issue in 2018-2019, it is unlikely that the gas supplies will see a continuation.
It is incontestable that Turkmenistan has the required amount of gas, its Galkynysh field (“Independence”) has at least 14 TCm of gas. Note the usage of “at least” – the Turkmen Energy Ministry states the reserves are as large as 27.4 TCm, however due to the opaque nature of information coming out of Ashgabat and their propensity to exaggerate it would be politic to adopt a more balanced view of things, most likely the latter number is a P10 estimate. When Galkynysh reaches peak production and nothing goes wrong by that time, it will be producing 95 BCm/year, currently only South Pars and Bovanenkovo are producing more. Still, largely due to its leadership’s intransigence, Turkmenistan has only one major market outlet, leaving it desperately in need of others.
TAPI used to have the backing of major Western powers in the 1990s, primarily the United States, since creating a new major gas supply conduit whilst avoiding Russia and Iran was hailed as a step to render Central Asian nations less dependent on those regional leaders. That support has since waned as the American establishment got weary of prolonged dealing with Afghanistan, paving the way for the now emerging rapprochement of Ashgabat with the Saudis. Their arrival and financial help, Turkmen authorities seem reinvigorated, no wonder. The crux of the matter is that TAPI shareholders reached an agreement in 2015 that Turkmenistan will be the responsible for building the pipeline.
Notwithstanding the fact that the National Company “Turkmengaz” has no major international experience in carrying out such a project (the pipeline is 1814km and transits all imaginable geographic zones), the estimated cost of $10 billion seemed too much even at that point. Without a doubt, national statistics demonstrate years of robust growth, however, it is widely assumed that they are tinkered with, embellished for representative purposes. In fact, Turkmenistan witnessed a major food crisis in 2016-2017, banned currency exchanges, is in the process of lifting free gas, electricity, salt and water supplies and, most importantly, has been postponing the project for years already.
Turkmen authorities have finished the 214km pipeline section from the Galkynysh field to the Afghani frontier (thankfully it is very close, located in the southeastern part of Turkmenistan), yet even this they managed by means of a $700 million hospitable loan from the Islamic Development Bank (based in Jeddah, Saudi Arabia). It is noteworthy that the other parties did not proceed an inch up to now. It is in this context that the Saudi Development Fund is “funding heavily”, to quote the words of Turkmenistan’s Deputy Prime Minister Maksat Babayev, in the TAPI project.
Due to the opaque nature of these transactions we might never get to know exact figures and deal terms, however, if Turkmenistan’s President publicly lauds the “political wisdom and foresight” of Kind Salman bin Abdulaziz Al Saudi, you know that the Saudis are involved in earnest. Still, one has to emphasize that Saudi financing solves the liquidity problems of the TAPI project, but does not eliminate security concerns arising out of the fact that a potential gas pipeline in Afghanistan would be very vulnerable. Saudi money and political clout will indubitably help, however, more tangible Indian and Pakistani support would be crucial to see TAPI completed.
By Viktor Katona for Oilprice.com
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