IPI or TAPI for India’s Gas?
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IPI or TAPI for India’s Gas?

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With India’s participation in the Iran-Pakistan-India (IPI) gas pipeline project having been all but written off, the focus is now on negotiations over the alternate Turkmenistan-Afghanistan-Pakistan-India (TAPI) project, which envisages delivery of some 90 million metric cubic metres per day (mmcmd) of gas from Turkmenistan to South Asia.

Representatives of the four participating countries met for the eighth round of the Ministerial-level Steering Committee of TAPI in New Delhi late last month, where it was agreed that the Gas Sales Purchase Agreement (GSPA) between the four countries would be finalized and signed by the end of July. Simultaneously, the Technical Working Group (TWG), comprising representatives from the four countries, also met to discuss the various provisions of the GSPA and to try and resolve ‘outstanding issues’ with regard to the same by the end of June.

But although there has been a great deal of optimism generated over the project among the TAPI project partners as well as its designated lead developer, the Asian Development Bank, one can’t help wondering whether this project will meet the same fate as the IPI, given the numerous hurdles.

First, as with the IPI project, the pipeline route remains controversial. The nearly 1,700-kilometre pipeline will originate from Turkmenistan’s Daulatabad gas field, and transit some 730 kilometres through Herat, Helmand and Kandahar in Afghanistan, to Quetta and Multan in Pakistan, and on to Fazilka in India. Given the ongoing insurgency in Afghanistan, concerns over the security of the pipeline through that country remain. While the presence of NATO troops in Afghanistan may succeed in securing the route, how long can they be expected to remain in Afghanistan, and what will happen once they do withdraw?

Meanwhile, the 800-kilometre section of the pipeline in Pakistan also isn’t secure. Part of the pipeline will pass through Balochistan, where the insurgency has intensified. The fact that domestic pipelines through Balochistan are being targeted virtually every other day, affecting supplies throughout the province, suggest it’s unlikely that an international project would be spared by the insurgents. Moreover, international sponsors and financiers would be unwilling to finance a project whose security is questionable.

Third, doubts persist over the sustainability of gas supplies from Turkmenistan. Given that Turkmenistan has signed agreements with both Iran and China to increase existing supplies to these markets, and is also the largest supplier of natural gas to Russia’s Gazprom, questions have arisen over whether it will be able to meet its commitments for TAPI. Though Turkmenistan claims that its gas export potential has increased following the discovery of the giant South Yolotan field, which holds 212 trillion cubic feet of recoverable gas (equal to about 90 percent of US proven reserves), its TAPI partners have demanded third party certification of its claimed reserves. As per the agreement, Turkmenistan will supply 90 mmcmd of gas for TAPI, with 38 mmcmd each going to Pakistan and India, and the rest to Afghanistan.

In addition, Turkmenistan’s gas sector suffers from several constraints, including lack of financial resources and the technical capability to develop new projects. The country also lacks adequate pipeline network infrastructure to deliver gas to its markets, and continues to be dependent on Russia’s network for exports to the West. As a result, according to some experts, it’s unlikely that it will be able to increase its export volumes substantially over the next 10 years.

Finally, differences over the pricing of the gas as well as transit fees have arisen between India and Turkmenistan. The recent inter-ministerial meeting apparently ended in a stalemate, with India expressing its unwillingness to pay the price proposed by Turkmenistan, as it would be higher than the price of liquefied natural gas (LNG).

All this means that if the pipeline is ultimately constructed, it will be largely down to uncompromising US support for the project. While Washington’s raison d’etre is that it will help stabilise Afghanistan as well as assist the country in its development, not least by allowing it to earn around $300 million per annum in transit fees, it would also allow Central Asian countries to find an alternate market in the east and thereby lessen their dependence on Russia as well as feeding energy-starved South Asian nations.

However, the main US objective is to ensure that the IPI project is effectively killed, thus denying Tehran much-needed revenues for its nuclear programme that will accrue from selling gas to an expanding South Asian market. This isn’t the first time that the United States has pushed through a pipeline project that had appeared unfeasible both from political and business perspectives. In 2005, despite substantial opposition from within business and political circles in both the United States and the Caspian states, the hugely expensive and logistically challenging BTC pipeline from Baku in Azerbaijan to Ceyhan in Turkey, transiting a fractious Georgia, was built by an 11-member consortium led by BP under pressure from the US government. The reason: Washington was seeking to provide a route that would not only circumvent transiting through Russian territory and break Moscow’s stranglehold over the European gas market, but would also assist in diminishing Russia’s strategic hold over the Caspian region. To overcome the reluctance of business in underwriting such a costly project, the economic viability of which was questionable, the US government made financing from government agencies, such as the Overseas Private Investment Corporation (OPIC) and the US Export-Import Development Bank, available.

However, as in the case of the IPI, most experts are sceptical about TAPI becoming a reality given the myriad constraints and political problems that exist among the partners. While India continues to be wary about the security of the pipeline traversing through Pakistan, it will have a hard time selling gas from this project, particularly when it has access to more cost-effective alternatives, be it from the IPI project, LNG imports or from its own recent gas finds. If the project does see the light of day, it will be due to significant US support for the project, as well as its own larger political and strategic considerations.

 

Shebonti Ray Dadwal is a Research Fellow at the Institute for Defence Studies and Analyses (www.idsa.in) in New Delhi. This is an edited and abridged version of an article that was originally published by the organization here.
 

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