Features | Economy | Central Asia

Tajikistan’s Gas Boom: Prosperity or Conflict?

Natural gas resources could be a boon to Tajikistan, but the downside risk is significant.

By Gabe Collins and Bo White for
Tajikistan’s Gas Boom: Prosperity or Conflict?
Credit: Wikicommons

China’s vigorous quest to secure consistent gas supplies may help underwrite a natural gas-fuelled boom in Tajikistan, which so far has been Central Asia’s poorest and most energy-starved republic. A gas boom in Tajikistan will require astute financial and political management to minimize disruptions that sudden, large foreign investments and revenue inflows could cause. Dushanbe will also face foreign policy challenges from increased competition between Russia, which considers Tajikistan part of its Near Abroad, and China, which will likely become Tajikistan’s most important economic partner.

Tajikistan’s Bokhtar region – which at 35,000 square km is larger than the American state of Maryland – could hold as much as 114 trillion cubic feet of gas and 8.5 billion barrels of crude oil and/or condensate, according to Gustafson Associates.  As such, Tajikistan’s gas and oil reserve base could ultimately prove to be on par with that of the world-class offshore gas discoveries being made off East Africa. In March 2013, CNPC spent US$4.2 billion to purchase a 20 percent stake in Mozambique’s Area 4 from Eni of Italy. Area 4 could contain 75 trillion cubic feet of gas – enough to supply China’s annual consumption for 14 years, based on 2011 demand levels.  Yet in Tajikistan, CNPC could potentially access even larger reserves, with the added bonus that geographic and security constraints make them captive supplies for China’s large and growing natural gas market.

With such reserves at stake, it is no surprise that China National Petroleum Corporation (CNPC) will, through its Central Asian subsidiary, be deeply involved in Bokhtar’s development. CNPC has invested alongside the French Company Total SA and Tethys Petroleum, the latter being the independent firm that kicked off the Bokhtar exploration program. CNPC’s most significant contribution to the deal is that it controls Chinese natural gas imports from Central Asia and can thus quite literally provide a direct pipeline into China’s rapidly growing natural gas market.

While CNPC’s willingness to invest in a risky frontier project such as Bokhtar sheds light on the potential of Tajikistan’s gas production, it also highlights how hard China is working to secure gas supplies. China craves gas to fuel cleaner economic growth. In addition, ensuring that Bokhtar gas (and possibly condensate and oil) ends up in China will also help alleviate the skyrocketing environmental, health and political costs of China’s overreliance on coal.  Tajikistan has the potential to become China’s second-largest source of Central Asian gas (second only to Turkmenistan). It could supply enough gas to fuel twenty 1,000 MW gas-fired power plants, equivalent to replacing 35 million tons of coal use each year.

Tajikistan’s huge potential gas reserves, and potential to export primarily to China, will likely reduce Russian influence in the Central Asian energy space, particularly relative to China’s growing heft. When negotiating with Central Asian oil and gas producers, Russia’s main objective has been to keep exports flowing through Russia so as to hold their economic livelihoods at risk. China’s willingness to fund alternative pipelines and invest in drilling and production undermines Moscow’s approach.

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For the Tajik government, China is an attractive alternative partner because Chinese firms can inject badly needed capital, and the Chinese government is substantially less intrusive than the Russian government. China certainly seeks regional influence and pursues Central Asian cooperation on issues such as security in Xinjiang, but has thus far refrained from treating Central Asian countries as vassal states, as Russia tends to do. Finally, if China were to be dependent on Tajikistan for resources, Dushanbe would be empowered by its new ability to play Moscow against Beijing, and would be better positioned to secure its interests – a strategy Kazakhstan has followed for years now.

However, silver linings still have clouds on the outside. A gas boom underwritten by Chinese investment and a steady stream of revenue from Chinese gas purchases has a number of significant downsides for Tajikistan.

First, a massive inflow of revenue will severely test Tajikistan’s weak institutions. Conservatively assuming that 20% of Tajikistan’s current estimated total gas reserves prove recoverable, the country could sustain production of 2.5 to 3.5 billion cubic feet (BCF) of gas per day. China paid US$9.17/million BTU for Uzbek gas in the fall of 2012, according to Platts. Tajik gas will fetch an estimated US$7.00-8.00/million BTU at the emerging China-bound pipeline hub in Southern Kazakhstan. As such, Tajikistan could see gas revenues of US$6.39 billion per year – equal to 84 percent of the country’s 2012 official GDP.

The unsettled nature of Tajikistan’s socioeconomic and political landscape raises questions about whether the country is ready to handle Bokhtar royalties. On the one hand, Tajikistan’s recent admittance to the WTO and President Emomalii Rahmon’s current economic development “campaign” suggest that Dushanbe elites are experimenting with non-Soviet-era economic policies. On the other hand, the country is still plagued with endemic corruption, political nepotism and structural economic problems.

For instance, IHS Global Insight considers Tajikistan a “very high” risk business location for political, economic, operational and security reasons, and forecasts an overall negative trend for the country. The World Bank has placed Tajikistan in the bottom 9 percent of countries for corruption, and the IFC ranks Tajikistan poorly for business: out of 185 countries, it ranks Tajikistan 180th for obtaining construction permits, 181st for availability of electricity, and 184th for trading across boarders.

The clan-based nature of President Rahmon’s regime could also prompt deep grievances over revenue distribution and reignite the regional and sectarian conflicts that fueled a brutal civil war in the early 1990s. There are countless examples of mineral revenue inflows disrupting social fabrics, with Nigeria and Sudan illustrating the dark side of the ledger.  Yet Tajikistan’s future should not be viewed deterministically, since countries such as the U.A.E. and Botswana have been able to harness resource wealth to establish a trajectory of economic and social growth.

With so much at stake, Dushanbe’s quickest path to stability is to use gas royalties to make significant and concrete improvements in people’s lives from the outset. Bringing the country’s dismal transportation and electricity infrastructure, as well as its education and health services, up to international standards would be a good start. Total SA has a deep reservoir of skill and experience in handling the corporate social responsibility aspects of oil and gas projects in ways that effectively adapt to local conditions. Therefore, its participation will be very helpful to the Bokhtar project’s ability to win local hearts and minds.

Tajikistan must also decide how to route export gas pipelines. The most logical export pipeline route would be northwards out of Tajikistan, through Kyrgyzstan, and to the Central Asia-China gas pipeline in Southern Kazakhstan. There are three primary reasons why the pipeline route from Tajikistan will likely go through Kyrgyzstan and connect to the China-bound trunk pipelines in southern Kazakhstan.

The first reason is geopolitical. Political relations between Tajikistan and Uzbekistan have become deeply adversarial, especially in the gas/energy arena. While a pipeline from Tajikistan connecting to the Central Asia-China trunkline in Uzbekistan is physically possible, Tajikistan almost certainly will not subject its gas exports to Uzbek political whims, which could have negative impacts on both pricing and the ability of Tajikistan to move the gas volumes it would like to export. Indeed, one of the current drivers of gas and hydro development in Tajikistan is the country’s desire to reduce its dependency on Uzbek energy sources (and Russian ones as well).

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The second reason the pipeline will likely head north is that Kazakhstan is an emerging gas hub.  Southern Kazakhstan is already a logical geographic convergence point for exported gas from Turkmenistan, Uzbekistan, and western Kazakhstan, and likely soon Tajikistan, and is thus set to become a hub for China-bound gas from Central Asia. Tajik gas is better off competing on price at a Kazakh hub than it would be in Uzbekistan, where the Uzbeks would have more “non-market” options to help their gas exports gain market share at Tajikistan’s expense.

The third reason is that a line through Kyrgyzstan and into Southern Kazakhstan is the most direct route to China’s West-East Pipelines, which can bring Central Asian gas all the way to Shanghai and Guangzhou. If Tajikistan becomes a large enough source of gas exports to justify adding another trunkline to the bundle currently running to China, it would be cheaper and faster to build a shorter trunkline starting in south-central Kazakhstan than it would be to build a longer one from central Uzbekistan, where the Tajik export gas line might otherwise connect.

Tajikistan now sits upon a gas and condensate resource that – depending on global commodity prices – could be worth a trillion dollars or more. The country is unlikely to become a Norway in the Pamirs, but there is no reason it cannot follow in the footsteps of a country like Botswana, which at its independence in 1966 was one of the world’s poorest countries, but now enjoys “middle income” status because it prudently managed its income resource income (from diamond mining) to maintain strong economic growth, despite major internal development challenges such as HIV/AIDS.

The most important variable in determining the future of Tajikistan’s oil and gas industry will be the decisions made by President Rahmon and his family on how to spend the gas revenue once it begins flowing in. Their willingness to include other clans and ethnic groups, and accept advice from experienced resource developers such as Total SA, will determine whether Tajikistan’s mineral revenues drive development or conflict.

Gabe Collins is the co-founder of China SignPost and a former commodity investment analyst and research fellow in the US Naval War College’s China Maritime Studies Institute. 

Bo White ([email protected]) is an international development professional with 7+ years of experience working with communities, corporations, international organizations and governments throughout Central Asia and Asia Pacific.