The pipeline mirage
India withdrew from one project and the other has been pending for a decade
US SECRETARY OF STATE Hillary Clinton calls it the New Silk Route, romanticising what must surely be one of the toughest commercial deals for any group of nations to pull off. The star in this clutch of roads, railways and other infrastructure that US is pushing is the Turkmenistan-Afghanistan-Pakistan-India gas pipeline better known by its pert acronym TAPI that groups the countries involved in this undertaking. The pipeline, all of 1,680 km long, will snake its way from the Daulatabad gas fields in the central Asian country, take in Herat, Kandahar in Afghanistan and Multan in Pakistan before reaching Fazilka on the Indian side of Punjab.
It is better known in the West as the Trans Afghan Pipeline because close to half its length (830 km) lies in war-torn Afghanistan; just 170 km of this audacious venture will lie in Turkmenistan. An equally long stretch spans Pakistan, making it one of the riskiest ventures for a country that is seeking to ensure its energy security. It is the US $7.6 billion TAPI that India is now pursuing in seeming earnest after years of scepticism about the project. It was in 2008 that it took the tentative first step on the Turkmenistan gas option after turning its back on the Iran-Pakistan-India (IPI) pipeline in deference to the US, which had frowned upon Delhi warming up to Tehran. That was in the run-up to Indo-US civilian nuclear agreement.
Two factors appear to have nudged India further on the TAPI route. On October 11, auditors released in Ashgabat their second round of findings on the gas reserves in Turkmenistan, confirming that the Central Asian republic is sitting on even larger gas reserves than previously thought. British oil consultancy Gaffney Cline & Associates (GCA) has assessed the South Yolotan and Osman deposits at 21.2 trillion cubic metres of gas on the high estimate, 13.1 trillion on the low estimate and 16.4 trillion cubic meters on the “best estimate” or the most likely within the given range. This has set at rest earlier fears that the country had overcommitted its gas, having signed major deals with China, Russia and Iran.
|| TAPI pipeline that India is pursuing in earnest for energy security runs through a politically volatile region spanning Afghanistan and Pakistan
The second factor is that its other pipeline option, the IPI link is practically history after it withdrew from the project allowing Iran and Pakistan to pursue a bilateral agreement. In his just released book, Energy and Security in South Asia Cooperation or Conflict?, Charles K Ebinger, director of the energy security initiative at the Brookings Institution, analyses the many pipelines that have been proposed to ease the subcontinent’s fossil fuel hunger—TAPI, IP, Oman-India subsea pipeline and the Myanmar-Bangladesh-India pipeline—and says that although these projects promise energy security, each of these is plagued with political, economic or security obstacles that have prevented tangible progress.
Whether TAPI will ultimately turn out to be the gas jackpot is hard to say at this stage. Turkmenistan currently extracts an estimated 40-45 billion cubic metres (bcm) of gas annually, a sharp drop from some 70 bcm annually about three years ago.
The oil advisory was made public just before low-key talks were held among the petroleum ministers of the partner countries in Delhi when, according to sources in the Ministry of External Affairs (MEA), an agreement had been reached on the contentious issue of price. No details were available and it was not certain if a date had been fixed for signing Gas Sales Purchase Agreement (GSPA). In December last year, the four countries had signed an intergovernmental framework agreement, the basic document for getting the project off the ground, in Ashgabat.
Yet for all that, there is still a strong feeling in some sections of MEA that India is taking too much of a gamble in pursuing gas from Turkmenistan. Can India place its energy bets on a pipeline running through the volatile regions of Afghanistan and Pakistan? Or will the rewards justify the risks? There is a feeling that having lost to China on the Myanmar, Kazakhstan, Iran and even Turkmenistan pipelines, India needs to get its pipeline act together to tie up long-term gas pipelines as demand for this scarce fuel enters a new trajectory. If the TAPI pipeline does come through—it’s been pending for a decade—it will deliver 30 billion cubic metres of gas annually to consumers in the three countries.
But according to security analysts, the big worry is the volatile nature of international politics in both Afghanistan and Pakistan. Was IPI a better bet? According to all accounts, it was the pricing issue on which the Iran gas venture floundered. At the time the talks broke off Iran was seeking a delivered price (transit fees to Pakistan included) of close to US $7 mmBtu, almost $2.50 more than India was willing to pay and a price that was higher than the prevailing spot LNG rates. Those rates have now moved to the $12-17 mmBtu range.
|| Having lost to China on several deals, India needs to get its act together to tie up long-term gas pipelines as demand for this scarce fuel enters a new trajectory
China, on the other hand, has managed its risks with elan, playing the Great Game as only the People’s Republic can. In December 2009, China and Turkmenistan formally opened the longest natural gas pipeline in the world, a development that reflected the future of energy flows in East Asia. The project entails two pipelines and multiple suppliers. The first traverses 1,833 km from Turkmenistan through Uzbekistan to southern Kazakhstan and then Xinjiang in China. From there the pipeline connects to China’s domestic pipeline network, ultimately stretching to 7,000 km. This year the Uzbekistan and Kazakhstan gas also began to flow through the second line, also 1,833 km long, enabling China to get gas from all three Central Asian producers. The Turkmenistan-China pipeline was negotiated, signed and built within three years.
Such is the geopolitics of oil. Nothing ventured, nothing gained.
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