The Turkmenistan – Afghanistan – Pakistan – India gas pipeline project [TAPI] is being taken out of its region for a Road Show in the West in September, prospecting for eligible suitors who would be interested to get engaged with it. The Asian Development Bank has been designated as the Transaction Advisor for the road show, which is proposed for September 10-20.
The ADB will organize the ‘road show’ in the major financial hubs like Singapore, London and New York. The purpose of these events will be principally to gauge the market response to the project, which has so far been living in the secluded privacy of domain belonging to diplomats and politicians. The road show would hopefully help locate oil companies with the requisite technical capability and/or financial base for undertaking the funding and construction of the project, who could form a consortium.
The United States has voiced enthusiasm for the ‘road show’. «Many American companies are very interested in participating», US assistant secretary of state for South and Central Asia Robert Blake said during his recent regional tour of Central Asia. But he quickly added a caveat. Everything now depends on «what is on offer», he said – «There are a lot of risks to participating in such a pipeline. Part of their [American companies’] consideration will be what kind of incentives Turkmenistan will be prepared to offer international companies to get involved in that project. We will see when the road show takes place».
Blake acknowledged that the road show would generate «a crucial series of discussions». But he was uncharacteristically reticent in voicing optimism, which could be partly good negotiating tactic and partly echoing reluctance of oil companies worldwide to make major investment decisions in a period of uncertainty regarding the future energy market conditions. Be that as it may, a new dimension has appeared – Big Oil needs to be «incentivized» to participate in the TAPI project.
What is it that the US companies would expect? More important, who could possibly «incentivize» Big Oil? Conceivably, a good Rate of Return and/or a role in the development of upstream gas reserves in Turkmenistan – or, both – would be found attractive by the American companies. Then, there is the great game over the Caspian energy reserves. No doubt, the US companies would like to get access to the Turkmen gas sector on par with what Chinese companies have secured. As of now, China and Russia are the big players on the Turkmen energy scene with the Western competitors lagging far behind.
The longstanding US strategy is to encourage multiple pipelines through which the Caspian energy could be evacuated to the world market and, secondly, to facilitate direct energy exports to the Western markets by the region’s producer countries through new pipeline systems. The strategy aimed at reducing Europe’s high dependence on energy supplies from Russia and it is based on geopolitical objectives that trump business realism and practicality and often bordered on wishful thinking. Turkmenistan is a crucial player in this overall strategy – as much as Azerbaijan has been for the past decade and more.
A grand design
But Russia’s star has been on the wane in Ashgabat for some time and a surge in the Russian energy diplomacy to regain the lost ground doesn’t appear to be yet on the cards. Things can of course dramatically change if the European economies recover and their need of gas imports increases, but the prospect remains uncertain. Meanwhile, the US specialists are getting increasingly nervous about the rapidly expanding Chinese presence in Central Asian energy scene and Turkmenistan in particular.
Turkmenistan is the anchor sheet of China’s ‘gas diplomacy’ in Central Asia. Beijing proposes to double the volume of Turkmen gas supplies to China to a staggering 65 bcm annually and alongside it is working with the Central Asian countries to create a multiple pipeline system feeding into the Chinese energy grid in Xinjiang. The new transit pipelines will involve the expansion of capacity for the 1830-kilometer pipeline connecting Turkmenistan with Xinjiang via Uzbekistan and Kazakhstan so that it may be having an operating capacity of 30 bcm by next year. Another Chinese proposal is for a new Turkmenistan-Afghanistan-Tajikistan-China pipeline or a possible alternate transit line from Kazakhstan via Kyrgyzstan to China.
The US energy experts estimate that these additional routes are clearly anticipating the prospect of vastly China sourcing increased gas supplies from Turkmenistan way beyond even Beijing’s current stated goal of importing 65 bcm per year by 2015-2015. China is obviously working according to a grand strategy. A US expert wrote recently,
«China-bound transit pipelines, if built in those three countries [Kazakhstan, Uzbekistan and Kyrgyzstan] would boost the total transit capacity for Turkmenistani and other Central Asian gas heading for China; diversify the delivery routes to China of enhanced security of supply, both physically and politically; supply energy-starved Kyrgyzstan, Tajikistan and Afghanistan with agreed lift-off volumes from the gas transit flow; and, give Beijing commercial leverage in negotiating bilaterally with each of these additional transit countries, which, lacking natural gas resources, correspondingly lack counter-leverage».
This is where TAPI figures in the first circle of the politics of Caspian energy. China would see the TAPI as an imposter on the Turkmen (and regional) energy scene for which Beijing has already choreographed a grand design. This explains why Pakistan and India expect a full-blooded Afghan participation in the TAPI, as was originally agreed in December 2010 when they signed the so-called Framework Agreement and they may not accept any retraction by Kabul at this juncture preferring only a limited role as a mere transit country.
However, Kabul seems to be developing second thoughts, and at any rate, negotiations remain inconclusive between Turkmenistan and Afghanistan over their bilateral GSPA. Kabul probably hopes to keep options open to develop its own energy sector in collaboration with China as well. Beijing has proposed to Kabul the brilliant idea to construct a gas pipeline in northern Afghanistan that would head for China via Tajikistan. The Afghan President Hamid Karzai was sounded out on this proposal during the summit meeting of the Shanghai Cooperation Organization held in Beijing in June. A Sino-Afghan working group hopes to flesh out the proposal.
The heart of the matter is that China has set its sights on the great Bokhtar energy reserves in the Amu Darya basin shared by Tajikistan, Uzbekistan and Afghanistan. (Canada’s Tethys Petroleum recently estimated that Bokhtar could have 8.5 billion barrels of oil and 114 trillion cubic feet of gas deposits.) China already secured last December the first contract for oil exploration in the Amu Darya region. The Chinese companies are savvy in promoting business in Kabul. They have big money to invest and they also hold a trump card with their tie-up with the powerful Afghan business group Watan, which is owned by Karzai’s close relatives.
It should not come as a surprise, therefore, if Kabul prefers to do oil business with China rather than get involved in the TAPI project beyond being a mere transit country. India needs to work on the Afghan government. The trilateral US-Afghanistan-India forum is scheduled to hold its first meeting in the coming weeks and energy cooperation could figure in the agenda. Arguably, there is a congruence of interests between the US and India to encourage a full-blooded Afghan participation in the TAPI. The American and Indian companies are interested in joining hands to exploit Afghanistan’s mineral resources.
To be sure, the TAPI road show can be expected to induce realignments in regional politics. There is an appreciable degree of harmony today in the Indian and Pakistani approaches with regard to the TAPI project, whereas their acrimonious relationship was previously regarded as the single biggest drawback for the project. Again, Kabul used to be the project’s most enthusiastic votary, but it may soon find the prospect of becoming an energy exporter to the Chinese market more promising and rewarding. In any case, Kabul’s strategic orientation is likely to be toward Central Asia in preference to South Asia.
Meanwhile, the US, which has been the patron saint of the TAPI since the mid-1990s when it was first conceived, would expect Ashgabat to «incentivise» Big Oil, now that the crunch time is approaching. The US’ intentions toward the TAPI have always been ambivalent, given the high priority it attaches to diverting the Turkmen gas first and foremost to the European market.
Curiously, it is the ubiquitous Taliban who would seem to be the one constant player, remaining faithfully committed still to the TAPI, which their regime in Kabul keenly sought in the 1990s – despite all that happened since 2001.