Is the TAPI Pipeline Any More Viable Now Than It Was in 2002?

TAPI Revival

Proposals for a potential gas pipeline linking Central Asia to South Asia have been floating around for the better part of the past 15 years, with little to show for these dreams but more war and conflict in Afghanistan, the key transit country in each of these proposals. A U.S.-led consortium proposing to build a Turkmenistan-Afghanistan-Pakistan gas pipeline back in the mid-1990s shelved its plans and broke up when the U.S. government launched airstrikes in 1998 against sites in Afghanistan and Sudan in response to the terrorist attacks against U.S. Embassies in both Kenya and Tanzania, while subsequent proposals to link Turkmenistan's gas fields to the sub-continent were put on hold when the United States opened its campaign to oust the Taliban regime from Afghanistan in the aftermath of the 11 September 2001 terrorist attacks. Shortly after the Taliban's ouster, the Turkmenistan-Afghanistan-Pakistan gas pipeline proposal again came to the forefront, garnering some initial support from U.S. government officials as a potential way to help support rebuilding Afghanistan's shattered economy.

In the intervening eight years, India has been added to the project as an onward end-market for Turkmen gas, but there has been precious little progress in moving ahead with the pipeline, which would run an estimated 2,500 km and cost perhaps US$2.5 billion. The Asian Development Bank (ADB) has voiced its support for the so-called TAPI pipeline, and while there have been periodic meetings among various project participants announcing their support of the pipeline, the pipeline has remained largely on the backburner. Recently, however, Turkmen president Gurbanguly Berdymukhammedov has taken a stronger interest in constructing the pipeline, directing his top government officials to prioritise the project and initiating direct talks with both Afghan president Hamid Karzai and Pakistani president Asif Ali Zardari in an attempt to revive the project. Earlier this week, the foreign ministers of Turkmenistan and Afghanistan signed an agreement to co-operate on the TAPI pipeline, and yesterday Berdymukhammedov and Zardari agreed in a telephone conversation that a high-level, quadripartite summit on the pipeline should be held in Ashgabat, the Turkmen capital, in December (see Turkmenistan - Afghanistan: 1 September 2010: Turkmenistan, Afghanistan Sign Framework Agreement on TAPI Gas Pipeline). Turkmenistan and Afghanistan have also agreed to hold further talks on the project at the U.N. General Assembly in New York later this month.

Problems in the Pipeline Still

However, talks alone will not bring the project to fruition, as it continues to face significant hurdles. Foremost among these hurdles is the security situation in Afghanistan and Pakistan. The TAPI pipeline was originally due to run from the Dauletabad gas field in south-eastern Turkmenistan running along the Soviet-constructed highway from Herat through Helmand Province to the city of Kandahar and crossing the border into Pakistan where it would pass through Quetta and Multan before terminating in Fuzilka in India. However, as a nationally significant infrastructure route the Herat to Kandahar highway has been a hotbed of militant activities, as evidenced by the Taliban ambushing a bus carrying 50 people on the road in October 2008 of which 27 were subsequently executed according to a Taliban spokesperson. A number of bridges along the highway route have also been destroyed. The pipeline would also likely become a key target for militants operating in the area. The city of Kandahar and the province of Helmand have also been at the forefront of heavy clashes between Taliban insurgents and the International Security Assistance Forces (ISAF). The whole area is peppered with land mines which could make laying a pipeline a painstaking and hazardous undertaking. Additional issues arise over who would protect the pipeline and who would pay for security. In January 2009 then NATO Secretary General Jaap de Hoop Scheffer stated that protecting pipelines in Afghanistan was foremost a national responsibility and that NATO forces could only be called upon to protect a pipeline in a crisis situation, although this remains undefined. Private security firms could be used, although they are often expensive—raising the question of who would pay for them—or the Afghan army, although this could take vital troops away from counterinsurgency efforts directed against the Taliban. 

Unfortunately, the security problems do not end at the Afghanistan/Pakistan border. Quetta, the provincial capital of Baluchistan in Pakistan, has experienced a number of bomb attacks while al-Qaida's Osama Bin Laden himself is even believed to have frequented the town. The province also has separatist tendencies fuelled by the lack of local benefits from exploitation of gas reserves. These grievances have contributed towards a number of attacks on existing pipeline infrastructure. The security situation remains volatile as evidenced by Oil & Gas Development Corp. Ltd. (OGDCL) who is looking to the government to provide a 500-600 person force from Pakistan's Frontier Corp. to provide security during gas drilling efforts. The security situation on the pipeline route through south-west Afghanistan and Pakistan would make building and operating a gas pipeline extremely difficult and is a key reason why the Gas Pipeline Framework Agreement signed in 2008—which envisaged launching construction of the project in 2010—has not yet been acted upon.

Additional problems for the project are caused by the difficult political relationship between Pakistan and India. Political tensions between the two states exist over competing claims to the Kashmir region, over India's securing of international approval for import of civil nuclear technologies and fuel and over claims by India that Pakistan is not doing enough to stop terrorist attacks that allegedly originate on its territory. These political tensions are likely to complicate negotiations over transit tariffs, pipeline construction and financing that have to be finalised. Indeed, the proposed Iran-Pakistan-India gas pipeline is now proceeding as a joint project between Iran and Pakistan, partially due to India's difficulties in co-operating with Pakistan although pressure from the United States to boycott the project has likely also played a key role. Following the latest round of negotiations Pakistani officials have been reportedly stated that India's indecisiveness regarding TAPI is a major hurdle to its implementation, which does not bode well for future efforts to progress the project.

Adding to the political and security issues are technical and financial hurdles. Keeping to the original pipeline route via Quetta means the project would have to negotiate extremely rugged terrain in southern Afghanistan, posing complex engineering challenges. While these challenges may not be insurmountable they are likely to have contributed to the rise in construction costs, which complicates efforts to finance the project. Reports suggest that the Technical Working Group and Steering Committee is continuing to discuss financing proposals for the project, where costs have ballooned from an initial US$3.3 billion to US$7.6 billion according to IHS Global Exploration and Production Service (GEPS). The Asian Development Bank (ADB) completed a feasibility study on the project in 2005 and stated that it was considering financing the project in 2008, although how exactly the project will be financed remains uncertain and further negotiations are necessary to firm up agreements.

Iranian Complications

As if the TAPI pipeline's regional situation has not been complicated enough, its appeal has been altered several times by different Iranian moves. Ideally Iran has wanted to both position itself as a large gas exporter to Pakistan and India through the IPI pipeline, as well as a transit state for gas from Turkmenistan by the construction of a pipeline through east Iran to the Gulf—and the IPI pipeline—along the Afghan and Pakistani borders. While the physical security situation of such a transit link would have had much better—although far from ideal—conditions, Iran's increasing international isolation has made it a very unattractive transit partner for Turkmenistan. Furthermore, its isolation and extremely price-hawkish policies has turned India away from the IPI project, which also of course has suffered from the general Pakistan-India strains. Now gas-starved Pakistan is left to finance a possible link from Iran itself, not being able to involve any international project financing in the project, while facing continued Iranian intransigence as to making the gas prices mutually attractive. At least ostensibly pursuing the TAPI option might by Pakistan be hoped to enhance its bargaining power vis-à-vis a pressured Iran, which has seen its gas export projects evaporate together with the number of potential clients wanting to deal with it. Turkmenistan too might find that use of TAPI useful in its Iran negotiations, as it tries to secure the best gas prices possible for its exports to an Iran unable to meet domestic demand in its densely populated north, despite its large reserves.

Outlook and Implications

What, then, has really changed since the pipeline was first resuscitated in 2002? Is the TAPI pipeline any more viable today than it was eight years ago? Probably not, as most of the same question marks that dogged the project in 2002—financing and security chief among them—remain unanswered. However, on one front at least—the question of whether Turkmenistan could provide enough gas supplies to make the pipeline feasible—the uncertainty has mainly been resolved. An independent audit of Turkmenistan's South Yolotan-Osman deposit in 2008 confirmed the field as one of the world's largest, with gas reserves of up to 14 tcm. Further drilling by the Turkmens earlier this year resulted in an announced increase in the ceiling for the field's reserves to 16 tcm (see Turkmenistan: 15 April 2010: Turkmenistan Touts Increase in South Yolotan Gas Reserves).

Not only does Turkmenistan have ample, untapped gas reserves in its south-eastern region, but the former Soviet republic also is on the prowl for new export partners, which helps to explain the renewed interest in the TAPI project. Turkmenistan has boosted its gas exports to both China and to Iran with the launch of new pipelines in the past year, but the Central Asian state's 2009 pricing dispute with Russia's Gazprom—which contributed to a nine-month halt in gas exports to Turkmenistan's largest gas trading partner—ended in what amounts to a truce rather than a peace deal, as Gazprom is buying only a fraction of the gas from Turkmenistan now than it did prior to last year. Lower European gas demand is mostly to blame, with Gazprom focusing on selling its own gas, but the net effect to Turkmenistan is lower gas exports to Russia.

Although Turkmenistan is supplying more gas to Iran now and deliveries to China are expected to reach as much as 6 bcm this year, diversification of its trading partners has merely redirected Turkmen gas exports thus far, not increased the country's overall exports. Turkmenistan continues to tantalise the European partners behind the Nabucco gas pipeline project with the promise of future exports westwards, but Berdymukhammedov has opted for the wait-and-see approach as European governments and companies seek to curry favour with Azerbaijan, and even then a trans-Caspian delivery system is needed. With TAPI, however, Turkmenistan has more control in directing the outcome, and the country's new sense of empowerment from the launch of the China and Iran pipelines seemingly has given Berdymukhammedov the confidence to take the initiative.

Indeed, Berdymukhammedov has couched the recent push for progress on TAPI as part and parcel of a regional peace and economic development vision, led by Turkmenistan. The likelihood that peace in strife-torn Afghanistan—or, for that matter, Pakistan—will follow construction of the pipeline is fairly remote; a more likely scenario is that the pipeline project is again put on ice as a result of the ongoing violence and security concerns. Nevertheless, simply promoting the TAPI idea could be beneficial to Turkmenistan, particularly as the country looks to negotiate favourable price terms with China and Iran with planned gas export increases to those countries in the near future. Turkmenistan's promotion of TAPI could help it secure leverage by playing China off against India and Pakistan as alternative markets for its gas.