Tapi Pipeline for Regional Peace and Energy Security

Saturday, 5 March 2016

                                                                                                 Lydia Powell
Energy is a strategic commodity for any economy.For a large country like India with a fast growing economy and rising population, the demand for energy is quite high. Large doses of energy are, therfore, required in India to maintain a high GDP growth rate. However, India is not well endowed with energy resources in comparison to its large population. While it supports 17 percent of the world population, it only has 0.6 percent, 0.4 percent and 7 percent of the worlds, oil, gas and coal reserves, respectively. In the light of the above, India has been striving hard to increase energy supply by exploiting all possible sources of conventional and non- conventional energy domestically as well as globally. Since Natural gas is environment friendly and more economical than conventional fuels, it is being used as important source of energy. Gas production and Demand in India: As per the recommendations of India Hydrocarbon Vision 2025, the Government enacted the New Exploration and Licensing Policy (NELP) in the mid 1990s to increase domestic gas production. Three Regasified Liquefied Natural Gas (RLNG) terminal initiatives were undertaken in 1998-99 (Petronet LNG in Dahej & Kochi, Shell in Hazira & Dhabol). Demand-supply projections after the KG D 6 gas discovery in 2001 showed anticipation of similar successes from other NELP-I licensees and also from subsequent NELP rounds. This raised optimism about domestic supplies .The 11th Plan projections for natural gas demand in 2012 were revised to 283 million metric standard cubic meters per day (mmscmd) while the supply was pegged at 238 mmscmd leaving a gap of only 45 mmscmd. At the end of the 11th Plan(2012), the availability of 238 mmscmd gas was projected to be 238 mmscmd out of which over 100 mmscmd was to come from new domestic discoveries.However, against this projection, new domestic gas production touched only about 40mmscmd.
  The gas deficit was over 100 mmscmd, more than double the budgeted deficit of 45 mmscmd. Production of conventional gasreached 34 billion cubic meters (bcm) in 2013 and was supplemented by LNG imports via four regasification terminals. In 2015, gas production continued to fall but demand for imported gas wasnot significant even though the price of natural gasin the global market had crashed.

India’s Gas Import Needs
The International Energy Agency (IEA) expects domestic production to touch 98 bcm per year and LNG and pipeline imports to reach 74 bcm by2035. Demand for natural gas is expected to touch 172 bcm which means that net deficit could potentially be wiped out by 2035. IEA also assigns significant probability for production of 25 bcm of coal bed methane (CBM) and 35 bcm of shale gas by 2035. Even if non-conventional gas production materializes as presumed, India will be dependent on imported gas either in the form of LNG or through cross border pipelines such as the Turkmenistan-Afghanistan-Pakistan-India (TAPI) gas Pipeline.

Gas Imports through TAPI
 The pipeline from Turkmenistan to Pakistan through Afghanistan was first proposed in the mid- 1990s by the now defunct American energy company Unocal-led consortium and the Argentine company Bridas with the then Taliban regime in Kabul. However, security considerations combined with international condemnation of the Taliban regimes had led both the companies to pull out, leaving the project in a lurch. The idea was revived after the Taliban were unseated from Kabul. At the end of 2002, three countries (Afghanistan, Pakistan and Turkmenistan) signed a new agreement. The Asian Development Bank (ADB) conducted a feasibility study and rendered the project possible in 2005. Following an approval by the Indian cabinet, India became the fourth country to join the project in 2008.
The TAPI project was originally expected to start in 2012 and come on stream by 2016. It envisaged constructing 1,680 km of pipeline with a totalgas capacity of 90 mmscmd. As per the plan, 38

mmscmd would go to India and Pakistan each, while 14 mmscmd would be bought by Afghanistan. The proposed pipeline would stretch from Turkmenistan’s gas fields and travel 1,650 km through Turkmenistan(145 km), Afghanistan (735 km) and Pakistan (800 km), before culminating at the Indian border town of Fazilk in Punjab. Annually, the pipeline would carry roughly 33 bcm of natural gas to consumers in a year. Vice President of India attended the TAPI pipeline groundbreaking ceremony on 13 December, 2015 near the city of Mary in southeastern Turkmenistan. India,Pakistan, Afghanistan and Turkmenistan had signed the historic gas sale purchase agreement (GSPA) for the $7.6-billion TAPI pipeline in May 2012. Prior to this many other related agreements were signed. The TAP Inter Governmental Agreement was signed in May 2002. A feasibility study was conducted by Penspen in September 2004 which was updated in 2008. The GasPipeline Framework Agreement and the TAPI Inter Governmental Agreement were signed in December 2010 . Before the project begins, many more agreements like the Operations Agreement, the Transit Fee Agreement and a host of other agreements need to be signed. If it materializes, the TAPI pipeline will have a capacity to carry 90 mmscmd of gas for a 30-year period and is likely to become operational by 2018. The contract price of TAPI gas is linked to a formula which is said to contain indices based on fuel basket and other indices which are not as volatile as crude oil.The formula is similar to theones used in internationalcontracts. The source of the gas is the South Yolotan Osman field, renamed as Galkynysh and is said to be holding proven recoverable gas reserves of 14 trillion cubic metres, the second largest in the world. The planned pipeline would help India and Pakistan diversify their gassupply, while also assisting Turkmenistan, a former
Soviet republic, to triple annual gas exports to 180 billion cubic metres (bcm) by 2030 and look beyond its traditional partner Russia to wider export markets. ADB is expected to take on roughly one third of the financial burden including the cost of the pipeline, estimated at about $10-12 billion and the field development costs estimated at $10 billion while India and Pakistan are expected to take on the rest. For Afghanistan, TAPI  is said to carry economic and political benefits. Currently,the country is said to be almost entirely dependent onforeign aid with over 90 percent of its budget financed externally. The transit feefrom TAPI estimated at $ 300 
million per annum is about a third of its revenue budgeted for development projects. For Turkmenistan, TAPI is assumed to represent another option in diversifying away from the Russian Gazprom which has exerted monopoly power over volume and pricing of Turkmen gas. For Pakistan and India TAPI, is said to be a means to secure much needed gas. For them the gas would come at a price earlier said to be 69 percent of the price of Brent crude oil. At a Brent price of say $ 104/bbl this would translate into a price of $ 9.2/mmbtu. At current crudeprices, it could be less than half this price. Given that the convergence between regional gas markets is occurring faster than anticipated, the question for both Pakistan and India is whether TAPI would represent their least cost option for gas supplies? One cannot rule out the possibility of cheaper LNG from US hitting the shores of South Asia by the time TAPI materializes. Cost is of key importance as both Pakistan and India have limited capability to absorbhigh priced gas as anchor customers. While Turkmenistan exports gas to Russia and small quantities of gas to Iran, its largest export destination now is China. In December 2009, Turkmenistan and China formally opened the first section of the 1800 km long 40 bcm per year gas pipeline financed by CNPC China’s largest upstream Oil & Gas Company. China bought 17 bcm of gas from Turkmenistan in 2011 as compared to only 3.5 bcm in 2010. Originally, Turkmenistan and China had intended to trade volumes of about 40 bcm by 2015 butnow that figure has been raised to 65 bcm. Turkmenistan plans to increase production from about 42 bcm in 2010 to 230 bcm by 2030 mostly intended for export. It has already beaten Russian competition in the Chinese gas market by selling gas at about $ 7.5/mmbtu excluding transportation charges, roughly half the price offered by the Russians. Turkmenistan has resisted the temptation of putting its gas into the Nabucco pipeline backed by the European Union (EU) and designed to free Europe from dependence on Russian gas. The unavailability of Turkmen gas is cited as one of the reasons for the delay in Nabucco. Given that the EU gas market is one of the most attractive in the world for potential gas suppliers it is quite puzzling that Turkmenistan is looking at a fairly large but largely illiquid gas market in South Asia. Two political factors could explain this anomaly. For the United States TAPI would meet two foreign policy objectives: it would provide much needed revenue to stabilize Afghanistan after its exit and also keep Iranian gas out of the South Asian market. Without US backing no commercial entity will invest in a pipeline project that passes through Afghanistan, one of the most insecure regions in the world. For Russia backing TAPI will push Turkmen gas southwards and ensure that Russia can keep the lucrative European market for itself. TAPI Gas Pipeline Project is expected to help in economic integration of the region. The pipeline project has also raised hopes for fulfilling the energy needs of a large number of people of this poverty-ridden region at the least possible cost. In addition to giving clean energy, it would provide huge revenue and employment opportunities for the people of the regions However, the technical and commercial viability of the project has to be ensure for its ultimate success.

(The author works with
Centre for Resources
Management, Observer
Research Foundation New
Delhi. Views expressed
are personal. e-mail
lydia@ orfonline.org)

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