TAPI : From Turkmenistan to India – Development, Hurdles & Impacts Evaluation

Natural Gas from Turkmenistan, the country with the World’s 4th largest Natural Gas reserves is expected to reach India with the realization of TAPI pipeline by 2018 . The project which was in limbo for more than a decade is expected to have its ground breaking ceremony by the end of 2015. TAPI otherwise known as Trans- Afghanistan Pipeline is a multinational gas pipeline project to transfer natural gas from Turkmenistan‘s Galkynysh field to India through Afghanistan and Pakistan. Talks regarding this pipeline project started from 1995 onwards but the project was moving in slow pace until Turkmenistan took initiative in 2010. The detailed timeline of the project till 2015 is shown in Exhibit 02.

Details of the Project:

 Name of the Pipeline  : Trans-Afghanistan Pipeline /
Turkmenistan –Afghanistan-Pakistan-India Pipeline (TAPI)
 Length of the Pipeline  :  1800 Km 
Capacity of Pipeline  : 90 MMSCMD
Expected Date of Completion  : 2018
Estimated Investment  : USD 10 Billion
Name of Consortium  : TAPI Pipeline Company Ltd.  (TPCL)
Consortium Partners  : Turkmengaz (Turkmenistan),
Afghan Gas Enterprise (Afghanistan),
Inter State Gas Systems (Private) Limited (Pakistan),
GAIL (India)
Consortium Leader  : Turkmengaz
Lifetime of TAPI  : 30 years
Transaction Advisor  : Asian Development Bank (ADB)
Pre Feasibility study by  : PENSPEN, UK
Source  : Galkynysh field (Yoiotan Osman ) – Turkmenistan
Destination  : Fazilka (Punjab - India)
Transit Fees  : 49.5 Cents /mmbtu (approved by  India, Pakistan and Afghanistan)
Land Fall Price of  TAPI Gas in India  : $12.99/mmbtu (As per pact signed on 2012)

Supply Vs Demand:

Exhibit 03: Supply Vs Demand for TAPI Project

 

Exhibit 04: Detailed Timeline of TAPI project

Congestions in the path of TAPI:

TAPI like any other project was facing many hurdles from its inception. Since it’s a multinational energy connectivity project it has to overcome a range of stumbling blocks like backing out of stakeholders, disagreements of partners in deciding the transit fee to operational issues of the pipeline in future. The project has solved many impediments in its path to reach the current situation where the ground breaking ceremony is expected to happen by the end of 2015. But the project has to resolve some more issues for the Turkmenistan gas to reach India. The main hurdles in the execution of TAPI project are

Non availability of an experienced consortium partner:

  • The hunt for an international firm as consortium leader failed when companies like TOTAL S.A after Chevron and ExxonMobil backed out due to Turkmenistan's domestic law which doesn't allow foreign players to have equity stake in the country’s upstream gas fields.Exhibit 05: Hurdles in the path of TAPI Project
  • None of the current four consortium partners have the financial capability, managerial expertise and confidence to execute such a transnational pipeline project through the high risky regions of Afghanistan and Pakistan.

Financing:

  • The cost of the project ($10 Billion) is expected to be bifurcated as $3Billion equity and remaining as debt. The equity is to be contributed by the consortium partners..
  • Turkmengaz is selected as the consortium leader and is expected to take a minimum of 51% share. GAIL is wiling to take a share of more than 10%.
  • A 10% equity share constitutes to about $300 Million which is a huge investment in an environment where the commodity prices are low which may result in longer gestation period.

Geo Political Issues:

TAPI pipeline is of great geopolitical importance as it has to traverse through different geographies which are wracked by economic as well as political tensions . The main Geopolitical issues associated with TAPI are:

  • Turkmenistan Vs Iran: Faced by the competition from sanction free Iran in global gas market, Turkmenistan is expediting Exhibit 06: Geo-Political issues associated with TAPI Pipelinethe execution of TAPI project . The delay in TAPI may make way for the stalled IPI pipeline or a sub sea pipeline from Iran or Oman to India. This may affect Turkmenistan’s plan to diversify its supply to the growing economy like India.
  • USA Vs Russia: The main intention behind US’s backing of TAPI project was to increase its participation in the energy markets of Central Asia as well as to nullify the prospects of IPI pipeline. The removal of sanctions on Iran and the backing out of US companies from becoming the consortium leader has reduced US’s interest on TAPI pipeline. Now US is supporting TAPI as a way to increase the economic integration in the region which may help to serve its security as well as political objectives. Russia ponders TAPI as a peril to their influence in the Central Asian Energy Market. The rising influence of Russia in the energy sector of growing economies like India and Pakistan is of great concern to US. Russia is currently in talks to lay a gas pipeline from Russia to India through China’s restive Xinjiang province or through Afghanistan and Pakistan or Kazakhstan and Uzbekistan. The recent offering of Russia to construct a 680 mile gas pipeline from Iran to Pakistan by 2017 is a way to strengthen its influence in Pakistan so that in future a pipeline can be constructed through Pakistan to tap Indian market.
  • India Vs Pakistan: The on going tensions between India and Pakistan regarding terrorism and political problems may hamper the progress of the pipeline in future. This may make way for less risky pipeline projects like SAGE from friendly countries viz. Iran bypassing Pakistan.
  • China’s Influence: The increase in the natural gas consumption has led China to increase their influence on countries from where natural gas is being imported. One among the main reasons of Turkmenistan taking initiative on TAPI pipeline is to diversify its natural gas market as China is the sole significant exporter of Turkmenistan’s gas (35 BCM). With China-Turkmenistan Friendly Co-operation Agreement, the natural gas exports to China is expected to increase to 65 BCM which will make Turkmenistan heavily economic dependent on China. Moreover China‘s CNPC is the sole service contractor for the 2nd phase development of Galkynysh field from where the TAPI gas is being fed. The increasing influence of China to quench its ever growing gas demand may indirectly affect the execution of TAPI project.

Security Concerns:

The pipeline is passing through the volatile terror-prone areas like Kandahar province of Afghanistan and Quetta region of Pakistan where Taliban has strong holds. The stake holders like Afghanistan and Pakistan don’t have good control in these regions which can pose as a challenge in assuring the safety of the pipeline. This may affect the credibility of TAPI gas supply.

Offtake by end consumers:

As per the pact signed by India on 2012, the landfall price of TAPI gas is expected to be the $12.99/mmbtu (including the gas price of $9.17/mmbtu and Transit + Transportation fess of $3/mmbtu). This is very much higher compared with the Indian domestic natural gas price ($4.24 /mmbtu ) and spot market price (hovering around $6- 7/mmbtu) which may result in less off takers for TAPI gas.

Impacts Evaluation:

Exhibit 07: Impacts Evaluation of TAPI on main Stake holders

*The views expressed in this article are solely those of enincon perspectives and do not necessarily represent those of Enincon LLP.

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