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February 18, 2005

Analysis: Pipelines Or Pipe Dreams?

The leaders of Afghanistan, Pakistan, and Turkmenistan (left to right) at the 2002 signing of the TAP-project agreement

By Amin Tarzi and Daniel Kimmage
The on-again, off-again prospects of the Turkmenistan-Afghanistan-Pakistan Natural-Gas Pipeline Project (TAP) have come alive once more with a recent decision by India's cabinet to authorize discussion of three pipeline routes to India, including TAP. Without the Indian market, TAP was not deemed a profitable undertaking. But even if New Delhi and Islamabad come to a full agreement on the project, and Kabul's enthusiasm remains at current levels, a multitude of other problems could render the pipeline no more than a pipe dream.

First envisaged in 1991, TAP is designed to transport natural gas from the Dawlatabad fields in Turkmenistan through Afghanistan into Pakistan and eventually to India. The initial phase of the project, excluding the pipeline's possible extension to India, would involve the construction of a pipeline about 1,700 kilometers in length, mostly through Afghan territory, that can transport up to 20 billion cubic meters of natural gas annually.

The Asian Development Bank (ADB), which has financed a feasibility study for the project, has estimated that the Turkmenistan to Pakistan section of the pipeline would cost between $2 billion-$2.5 billion and would require four years of construction after all decisions are taken by the cooperating countries and international financial institutions.

According to a 14 February report by "International Oil Daily," ADB officials have confirmed that the TAP pipeline is "economically and financially a viable project." While Turkmenistan has yet to submit a certification of its Dawlatabad gas reserves, an unidentified ADB source quoted on 1 February by "Platts Energy Economist" said that the Turkmen side is expected to deliver the needed certification by March.

India's Geostrategic Fears

On the receiving end, India's reluctance to rely on gas from a pipeline crossing the territory of archrival Pakistan had proved to be a major stumbling block. However, the recent authorization given by Indian Prime Minister Manmohan Singh for his country to explore several possibilities to transport much-needed natural gas to India has rekindled interest in the TAP project.

Indian Petroleum Minister Mani Shankar Aiyar told reporters in January that by looking at the region's map "you may accuse me of dreaming, but as a minister I am paid to dream." Aiyar added, "We have the Bangladesh-Burma [Myanmar] pipeline, we are looking at a pipeline from Iran that would cross Pakistan, and we want a pipeline from Turkmenistan that would cross Afghanistan and Pakistan," "Platts Energy Economist" reported on 1 February.


Afghan President Hamid Karzai, whose country is eager to get the TAP project under way, told visiting Indian External Affairs Minister Kunwar Natwar Singh on 15 February that his country hopes New Delhi will look favorably at the trans-Afghan pipeline. A press release from Karzai's office indicated that pipeline would bring "significant economic benefit to Afghanistan and the region."

But before Karzai and his Indian and Pakistani partners begin to celebrate economic prosperity and a constructive new phase in the elusive New Delhi-Islamabad partnership, several stumbling blocks need to be cleared.

The Security Issue

Afghanistan's security remains a major question, especially if the U.S.-led coalition forces and the NATO-led International Security Assistance Force (ISAF) begin to withdraw from that country. Beyond interim security, which could be provided by Provincial Reconstruction Teams (PRTs) under ISAF command, and perhaps air patrols by Afghanistan's future military partners, Kabul needs to extend its legal and physical authority throughout the pipeline route.

Currently there are two routes under discussion. The first runs through northern Afghanistan, cutting through Kabul before entering Pakistan; the second travels through western Afghanistan, passing through Kandahar into Pakistan.

Unfortunately, security concerns extend beyond Afghanistan. If the route through western Afghanistan emerges as the best option, the pipeline would cross Pakistan's Baluchistan Province. In January, a little-known separatist group attacked a gas storage facility in Baluchistan. The attack was not unique, as local tribesmen increasingly are targeting natural gas facilities in the province to settle accounts with the central government, ask for higher royalties, or promote their nationalist agendas.

If the alternative option is chosen, the pipeline would cross the North West Frontier Province (NWFP) of Pakistan, which includes the semi-autonomous tribal areas. These regions, most notably the tribal areas, are known for their fierce independence. Both the NWFP and the adjoining Afghan border regions are also home to radical Islamists groups with very strong anti-India sentiments. A pipeline serving Indian interests would present them with a tempting target.

Turkmenistan's Price Hikes

Turkmenistan's relations with Russia are another variable in the complex equation that will determine the gas-rich Central Asian country's future deals. As the "RFE/RL Central Asia Report" has noted, Turkmenistan has signed a 25-year "gradual increase" contract with state-controlled Russian gas company Gazprom under which Russia's purchases of Turkmen gas will rise from roughly 7 billion cubic meters in 2005 to 70 billion-80 billion cubic meters by 2009.

But the Russian-Turkmen relationship has been showing signs of strain lately. In early January, Turkmenistan strong-armed Ukraine into accepting a price hike, raising the price of gas from $44 per 1,000 cubic meters to $58. Fighting for similar gains on the Russian front, Turkmenistan shut off gas shipments to Russia in January. Gazprom head Aleksei Miller met with Turkmen President Saparmurat Niyazov in Ashgabat on 10 February, but their talks were inconclusive. Although Gazprom stated in a press release after the meeting that the two sides agreed to "follow existing agreements," Turkmenistan's official news agency stressed that the current price -- $44 per 1,000 cubic meters, paid half in cash and half in kind -- is "unacceptable," Russia's "Vremya novostei" reported on 14 February. Further talks are expected.

However, Gazprom and Turkmenistan resolve the price dispute, the Turkmen government's desire to force the renegotiation of an existing contract, not to mention the hardball negotiating tactics implicit in the shutoff of gas shipments to Russia, are a cautionary lesson to other would-be partners. Moreover, Gazprom has its own concerns about Turkmenistan's gas reserves. As "Nefte Compass" reported on 20 January, Gazprom is waiting to see an audit of Turkmen gas reserves conducted by Texas-based DeGolyer and MacNoughton before investing in an upgrade of the Central Asia Center pipeline.

Gazprom, which has contracted to buy large amounts of Turkmen gas to cover for declining yields at its existing fields against a backdrop of fearsome development costs for new fields in Siberia, is likely to take a dim view of any alternate export routes for Turkmenistan. State-controlled Gazprom provides a steady stream of revenues to the Russian budget, and the Kremlin can be expected to safeguard its interests. An anonymous oil-industry source told RBC on 18 January that the Russian gas company Itera, which at one point considered involvement in TAP, might have disassociated itself from the project because it "was not supported by Russian authorities."

India, now drawing attention with its interest in TAP, may also be looking to expand its ties with the Russian energy sector, and specifically Gazprom. Indian Petroleum Minister Mani Shankar Aiyar is expected in Moscow on 21 February for talks that will focus on a possible agreement between India's Oil and Natural Gas Corp. (ONGC) and Gazprom to cooperate on natural-gas extraction projects in both Russia and India, Reuters reported. ONGC has also been conducting talks about the possibility of acquiring a stake in Yuganskneftegaz, the Yukos production asset state-owned Rosneft recently plucked from the ruins of erstwhile oil oligarch Mikhail Khodorkovskii's empire. Should India cement its links to big state-owned players in Russia's energy industry, Moscow could increase its leverage over a potential TAP participant, rendering the dream of riches for Kabul and peace and energy for New Delhi and Islamabad a mere pipe dream.

[For more on India's ties with Afghanistan, see "India Looks To Kabul For Better Ties With All Of Central Asia."]
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