Michael Tanchum, The Diplomat
3 Dec 2015
Construction on the long-stalled Turkmenistan-Afghanistan-Pakistan-India (TAPI) natural gas pipeline will soon commence with ground-breaking ceremonies scheduled for December 13. In the run-up to the start of construction the previously troubled pipeline project is poised to receive new financial backing from an international oil company based in the United Arab Emirates as well new geopolitical support from Kazakhstan, both increasing the prospect of TAPI’s long term viability.
The TAPI pipeline is slated to transport 33 billion cubic meters (bcm) of natural gas from Turkmenistan’s massive Galkynysh field to neighboring South Asia, offering some stability to energy-starved Afghanistan and Pakistan as well as helping to meet the Indian economy’s own skyrocketing demand. TAPI will provide Afghanistan with 14 million standard cubic meters a day (mmscmd) of natural gas, while India and Pakistan will each receive 38 mmscmd.
However, the $10 billion “Peace Pipeline” designed to promote regional cooperation will have to traverse a dangerous route before reaching India, passing through Afghanistan’s Kandahar province and the neighboring Quetta region of Pakistan, traditionally the heartland of Taliban militancy. Progress on TAPI’s construction became bogged down precisely because of the risk involved in the route.
At the November 2014 TAPI Steering Committee meeting held in Turkmenistan’s capital Ashgabat, representatives from the four nations and the Asian Development Bank (ADB), which assumed the role of transaction advisor to facilitate the construction of the pipeline, began to assiduously confront the challenge. The major stumbling block for TAPI, the selection of a consortium leader willing to assume the risk for the pipeline’s construction, was overcome in August 2015 with Turkmenistan’s decision to assume the role. According to the agreement reached between the four principals, Turkmenistan will assume a 51 percent stake in the project and will become the lead operator. Afghanistan, Pakistan, and India will each hold a minimum 5 percent share. This arrangement leaves up to a 34 percent stake for international energy majors to join the project. As analyzed previously in The Diplomat, Ashgabat seemed to signal that it is willing to offer a sufficient profit share in the gas transported from Galkynysh to warrant an international company’s assumption of the risk of the pipeline construction. While Turkmenistan technically will retain legal ownership of the land, it would agree to some form of modified Technical Services Contract that would functionally provide sufficiently similar remuneration to a production sharing agreement.
In late November 2015, one year after the pivotal TAPI Steering Committee, the Dubai-based oil and gas company Dragon Oil indicated that it is close to finalizing its investment in the TAPI project. No stranger to the business environment in Turkmenistan, Dragon Oil is the sole operator of Turkmenistan’s 950-square-kilometer Cheleken Area, which consists of two Caspian offshore oil and gas fields, Dzheitune (Lam) and Dzhygalybeg (Zhdanov). While Dragon Oil has been conducting negotiations with Ashgabat over a role in TAPI for some time, it seems that Turkmenistan’s new policy orientation and the agreement between the four principals over the terms of the consortium has inclined the company to back the project. As Faisal Rabee Al-Awadhi, Dragon Oil’s general manager in Turkmenistan explained, “[N]ow it’s very serious, things have been signed between the countries. That’s why we have shown our interest to go in.”
A final investment decision by Dragon Oil could also pave the way for other international investors in TAPI. In August 2015, Turkmenistan’s President Gurbanguly Berdimuhamedov announced that “world-renowned companies from Japan and South Korea had expressed their willingness to implement the TAPI project.” Made during a working visit in Ankara with Turkey’s political and business leaders, Berdimuhamedov also invited Turkey to participate in TAPI’s construction. Each of the three countries are eager to expand their respective energy investments in Turkmenistan and are certain to be watching Dragon Oil’s decision closely.
With the expediting of the Iran-Pakistan Pipeline and Iran’s overture to extend it to India, Turkmenistan has been concerned that its objective to develop export markets for its natural gas in South Asia could be undermined by Iran. Traditionally unwilling to do little more than deliver gas to its border, Ashgabat’s new policy orientation, motivated in part by the prospect of competition from a post-sanctions Iran, seems to be paying off for TAPI geopolitically as well as financially. On November 23, 2015, Kazakhstan announced that it wants to export 3 bcm annually to India via the TAPI pipeline. The announcement was made by Kazakhstan’s Foreign Minister Erlan Idrissov in Tehran during the summit of the Gas Exporting Countries Forum, the would-be natural gas equivalent of OPEC. Kazakhstan’s choice of such a high profile venue in which to declare its intention to supply TAPI underlines the seriousness of its commitment.
Although Kazakhstan’s supply commitment to India via TAPI would be slightly less than a quarter of the volume of natural gas slated to be supplied by Turkmenistan, Astana’s declaration to export gas to India through the pipeline should be welcome news for policymakers and strategists in New Delhi. By creating the first significant overland link between Central Asia and India, New Delhi sees a critical strategic opportunity to permanently alter the pattern of its connectivity to Central Asia. While India can turn to costlier but more secure sea-borne LNG imports to meet its energy needs, TAPI offers the possibility improving India’s geostrategic position in Eurasia’s Central Asian heartland, a region critical for India’s security as well as its energy and trade needs. The incorporation of Kazakh gas in the TAPI pipeline constitutes an important gain for enhancing India’s strategic footprint in Eurasia.
Despite the positive developments, TAPI still faces some daunting hurdles. Aside from the structural challenges inherent in the Turkmen economy, the most significant obstacle is Afghanistan’s lack of adequate military capacity to secure its segment of the pipeline. The pipeline could be protected with sufficient monetary expenditure on pipeline security measures in conjunction with the placement of seasoned personnel alongside Afghan security forces to implement them. However, that effort would likely require the commitment of a coalition of international actors as well as the cooperation of the Afghan government and the acquiescence of Pakistan.
Still, TAPI’s new financial and regional stakeholders are a political boon for the project that could attract more international stakeholders. If TAPI’s momentum continues to build in 2016, the pipeline could very well develop enough international support to address the security issue. As the four principals gather in Turkmenistan for TAPI’s groundbreaking ceremony, the project appears to be moving in the right direction.
Micha’el Tanchum is a Senior Fellow with the Eurasian Energy Futures Initiative at the Atlantic Council. Follow him on Twitter @michaeltanchum.