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Published:Monday, February 11, 2019 11:51 PM

TAPI Transnational Pipeline: Prospects and Challenges

TAPI Transnational Pipeline

To secure the natural gas supplies, India is also considering natural gas imports by transnational pipelines. At this stage, it is important for the government to overcome major security, political, and economic challenges to make further move towards discussion of transnational gas pipelines from Turkmenistan, Iran, and Russia. One of the major four major transnational gas pipelines at different stages of development is Turkmenistan-Afghanistan-Pakistan-India (TAPI) pipeline. This alternative step to procure cheap natural gas from gas rich countries initiated in May 2012, with signing of gas sale and purchase agreement between TurkmenGaz and GAIL for natural gas delivery through the TAPI pipeline.

Although, the TAPI project initiated in Turkmenistan in 2015, there are still many significant commercial and geo-political obstacles to overcome, if it must complete in its decided target completion date of 2019. Natural gas reserves of India are limited and are not enough to meet its demand in the country. For providing uninterrupted and sustainable natural gas supply to the country, it is required to identify long term, commercially viable association with gas producing and exporting countries. Iran has natural gas reserves of around 1200 TCF which is also highest in the world followed by Russia (1152 TCF), Qatar (866 TCF), US (345 TCF), Saudi Arabia (288 TCF), Turkmenistan (617 TCF) and UAE (215 TCF).

India already has natural gas trading business with Qatar and Saudi Arabia. Apart from these countries, India is also exploring possibilities to import natural gas from Iran and Turkmenistan through a cross country natural gas supply pipeline for which negotiations have been already going in progress for the last 20 years. Transnational natural gas pipeline project Turkmenistan – Afghanistan – Pakistan – India (TAPI) Gas Pipeline has been into considerations and talks since quite some time. However, it is believed that this project would remain stalled due to political, commercial, security, and strategic reasons.

The Turkmenistan-Afghanistan-Pakistan-India (TAPI) Gas Pipeline

The Asian Development Bank (ADB) initiated the development of the proposed TAPI or Trans-Afghanistan Pipeline. A feasibility study conducted by ADB concluded the project to be possible in 2005. The proposed TAPI pipeline is expected to transport natural gas from the gas rich Caspian Sea basin in Turkmenistan through Afghanistan, Pakistan, and finally to India. After an approval by the Indian cabinet in 2008, India became the fourth country to join the TAPI project aiming to solve its growing energy demand. The TAPI transnational pipeline project was originally expected to initiate in 2012 and to come online by 2016. The project envisioned construction of around 1,680 km of gas pipeline with a total capacity of 90 MMSCMD. As per the project plan, around 38 MMSCMD of gas was planned to be supplied to India and Pakistan each, while around 14 MMSCMD was designated for sale to Afghanistan. TAPI has been designed to transport around 33 billion cubic meters (BCM) of natural gas on an annually basis to South Asia for the tenure of 30 years.

Most prominent energy giants like Unocal, Bridas, Chevron, Delta, BP, and Exxon have shown interest in the project but gradually all the partners and investors backed out of the project owing to several financial and security concerns around the pipeline project. Moreover, reluctance in the decision making of the Turkmenistan government to assign production rights for its onshore blocks in collaboration with foreign E&P companies also led to the withdrawal of many companies from the proposed TAPI project.

Hence, Turkmengaz, the largest gas company in central Asia and the national gas company of Turkmenistan made the consortium leader having the stake of 85% along with Afghan Gas Enterprise (AGE), Gas Authority of India Limited (GAIL) as its Indian partner and Inter State Gas Systems Pvt Limited (ISGS) of Pakistan with stakes of 5% each. Hunger for energy in India is currently high and a firm commitment is required for the TAPI Pipeline which is estimated to cost around US$ 8.7. Around six kilometers of the gas pipeline has already been laid in Turkmenistan in accordance with the approved project plan.

Benefits of TAPI Gas Pipeline:

  • TAPI natural gas pipeline project has great relevance and significance for meeting India’s growing energy requirements. Moreover, as this transnational natural gas pipeline reaches India’s territory, it would help in reducing the cost of LNG imports at higher price. India’s major gas firm, GAIL, would represent India in the TAPI project which would add up to its experience of handling international gas projects

  • Procuring cheap natural gas other than APM gas for power generation is a big challenge for India. TAPI project would help in providing energy-hungry India low priced natural gas to run its gas deficient power plants. It would further diversify the energy basket to increase the total share of natural gas in energy basket of India. Gas from TAPI pipeline would be used mainly in fertilizer, power, and city gas sectors.

  • The cheaper gas from TAPI gas pipeline would help in bringing India and its neighbors much needed energy security at a competitive pricing. Natural gas from TAPI project is capable to supply around a quarter of Pakistan’s total gas demand and about 15% of India’s projected natural gas demand, as well as Afghanistan’s total energy requirements, by the time it would get completed.

  • The project would mark an entry of Turkmenistan as a major natural gas exporter in the South Asian market and thereby bringing along significant potential for benefitting the huge and growing Indian energy market.

Hurdles in TAPI Pipeline:

  • Security concerns: Security concerns of the contractors, installments, and suppliers is one of the biggest deterrents for the success of the project. Security and political instability in Afghanistan pose a significant challenge in laying the gas pipeline in the country. Secondly, the pipeline is also routed through Balochistan in Pakistan, where extremist activities could complicate or hamper the progress of TAPI.

  • Pricing issue: TAPI project also have certain commercial constraints which could halt the pipeline construction pace. The CAPEX of the TAPI pipeline would be decided by TAPI Pipeline Company Limited (TPCL) following which the natural gas tariff is expected to be decided. In India and Pakistan, most of the commercial challenges revolves around natural gas pricing concerns. Pricing issues regarding TAPI pipeline project are complicated and still after several meetings the pricing issue, royalty sharing processes are not clear which may lead to future disputes. Lacking competitive pricing, it would be difficult for natural gas from TAPI to enter into long term commitments falling under Gas Sale and Purchase Agreements (GSPA).

  • Political settlements: The unstable bilateral relations between Pakistan and India are a serious matter of concern in development of the TAPI project. The instability of bilateral and diplomatic relations between the two countries had resulted in scraping of the IPI pipeline project earlier. Development and implementation of multi-lateral projects of trans-national projects require stable and prosperous international relations between the neighboring countries. Moreover, the insurgency struck north-western areas of Pakistan would also hinder the development of the TAPI project.

Major Challenges of Transnational Gas Pipelines:

  • Geopolitical risks associated with the construction and operation of the pipeline: Safety and security of the transnational natural gas pipeline are the biggest challenge during both construction and operation phase attributed by the tensed geopolitical relations in host countries. Insurgencies and conflicts prone areas may affect the physical security of compressor stations and pipelines along the route of the pipeline.

  • Selection of commercial consortium in presence of multiple parties: Presence of several commercial, sovereign, and regulatory agencies with divergent geopolitical interests and agenda in transnational projects often lead to challenges in reaching alignment over issues. It includes majorly the procuring country, supplier country, the transit country, upstream technology expertise providers, the pipeline construction company which is likely to be formed by a consortium with major midstream players from all the participating countries and financial entities such as banks.

  • Pricing Issue: Pricing of natural gas, around the globe has become a key aspect of negotiation between the countries participating in transnational gas pipeline projects which could take a long time to reach upon agreement. In high gas price scenario, most of the end-user industries would like to avoid from entering into long-term natural gas purchase agreements if the landed price of gas procured in the buyer country from transnational pipeline would be high. Buying natural gas at a higher price through transnational pipelines would result in high subsidy and power tariffs in the operations of fertilizer and gas-based power plants, which the government might not prefer.

  • Flexibility: Once the transnational pipeline is laid then there would be no flexibility in the operations exists. In case of LNG cargoes, natural gas can be sourced from any part of the globe and can be readily diverted to a different market if required. Non-flexibility in operations represent a major challenge of a long-term natural gas purchase agreement through transnational gas pipeline with respect to various commercial terms among all parties.

  • Lack of clarity in the custom duty regime in India: The involvement of duties and taxes on the movement of gas in India through international borders from transnational pipelines at several transit points would increase the gas price in domestic market. Moreover, state and federal levies such as GST/entry and local taxes in participating countries under multiple tax laws would also hamper the progress of transnational pipeline projects. Complex tax structure and lack of knowledge on customs duty regime of different countries would also add into the distresses interest of the investors.

  • Funding of the pipeline: Funding of transnational pipelines is one of the major issues which often restrains the progress of the project. Transnational pipeline projects involve the investment of multi-billion-dollars with high rate of uncertainty and risks especially around operational safety and finance related issues. Payment of transit fee to each country falling into the route of pipeline and funding tie-ups for the project could hinder the prospects of transnational pipeline project. Prevailing lack of off-take agreements and geo-political risks involved in transnational gas pipelines, the progress of the project would always remain in the shadow of uncertainties.

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