Tuesday, June 19, 2012

After over a year of wrangling over price, India and Pakistan have signed a gas purchase contract with Turkmenistan.  This is the first step in the creation of the TAPI (Turkmenistan Afghanistan Pakistan India) pipeline.  Interestingly, transit country Afghanistan did not sign a contract although they did initial a memorandum of understanding.

The Asia Development Bank (ADB) celebrated the development.  "After more than 20 years of diplomacy, the 1,800 kilometer (818 miles) natural gas pipeline that connects one of Central Asia's largest energy suppliers with South Asia's critically underserved market has moved a step forward," it said in a press release.  Klaus Gerhaeusser, Director of the ADB's Central and West Asia Department, was enthused.  "The pipeline represents a win-win scenario for each member country, as it will give Turkmenistan more diverse markets and help fuel the energy hungry economies to the South."

In theory, Gerhaeusser is correct.  The pipeline is designed to take 33 bcm per year for 30 years of natural gas from Turkmenistan to feed the energy hungry subcontinent.  The pipeline is also supposed to help Afghanistan develop economically, thereby helping the peace process.  Not only would Afghanistan purchase 5 bcm of gas from the consortium (India and Pakistan would get 14 bcm each) but they would also earn transit fees.  Turkmen President Gurbanguli Berdymukhamedov has said Afghanistan could earn more than $1 billion annually in transit fees, and Afghan President Hamid Karzai predicts pipeline maintenance could provide employment for 50,000 Afghans, according to the Associated Press.

The cost of the project is estimated to be between $10 billion and $12 billion to construct, and it has attracted US interest.  Daniel Stein, senior adviser to the US State Department's special envoy for Eurasian energy, said that two major US oil companies were interested in participating in the project.  The US government also supports the project, both because of the positive contributions to Afghanistan and because it would detract from a competing project to service South Asia with Iranian gas.

Despite American support, TAPI does not appear to have fallen prey to the US-Russian rivalry for Central Asian energy resources.  Russia is also interested in investing.  Gazprom has gone on record as saying they wanted to be involved in any way the project envisions.  In reply, leaders of the governments involved issued a statement that, "The parties welcome Russia's interest in participating in implementation of the Turkmenistan-Afghanistan-Pakistan-India gas pipeline project."

One would think that with American and Russian support, that TAPI would be a done deal.  Unfortunately, its transit of the worst parts of Afghanistan and Pakistan makes the project problematic.  Andrew Neff, the Moscow-based senior energy analysts, said the instability in Afghanistan meant the project was unlikely to attract financing from Western banks.  "The main hurdle is the security concerns in Afghanistan," he said.  Neff's colleague at IHS Global, Lilit Gevorgyan, concurs.  "With the Western troops' pullout by 2014 from the still volatile Afghanistan, building an expensive pipeline in country with very weak central government seems almost unattainable."