CROSS-BORDER GAS PIPELINE PROJECT
Shared plan will help social, political, multilateral and economic ties significantly
By ASHRAF KHAN
Feb 21 - 27, 2005
After September 11, 2001, global geo-strategic developments have been taking place at an enormous pace. A close look at the status of the various pipeline projects in and around Afghanistan and Pakistan are the substantial example of the phenomenon. The progress on all the trans-border gas pipelines is surprising. The removal of Al Qaeda and the Taliban brought about the so-called stability, which is suitable to the West and the US. This brought withdrawal of their support for a number of Islamic extremist groups in Central Asia and Russia all of which threatened any pipeline construction from the Caspian Sea and Central Asia.
Energy security in the South Asian region will be bolstered significantly now with the possibility of a trans-national gas pipeline originating from Iran and terminating in India, passing through Pakistan. This proposal has regained relevance in the light of melting diplomatic and political relationship between India and Pakistan. Representatives of Iran, Pakistan and India will soon find a suitable date to take the concept forward as the Indian Cabinet this month approved talks with Pakistan on the proposed project. A 2,775 kilometer natural gas pipeline scheme is starting from Assaluyah, South Pars stretching over 1,100 kilometers in Iran. After entering Pakistan, it will pass through provinces of Balochistan and Sindh from where two possible routes have been suggested tapping into the mid-section of the HBJ pipeline or feeding Delhi directly. There will be a number of compressor enroute the terminal point. The total cost of the project is about $4 billion for a capacity of 3 billion cubic feet of gas per day. Energy resources and management firm BHP estimates that gas can be delivered to the Indian border in 36 months from financial closure.
In 2003, UNDP Pakistan sponsored a study by Dr Gulfaraz Ahmed, former Federal Secretary, Ministry of Petroleum and Natural Resources to the Government of Pakistan, with the objective of identifying the benefits of regional cross-border trading arrangements through shared gas pipelines.
The proposed pipeline project is significant in many ways ranging from social, political, multilateral and economic.
As a capital-intensive project, the pipeline stretching close to a thousand miles will generate substantial employment along its route. Secondly, it provides a base for a meaningful political bound countries to safeguard the investment interests and other economic spin-offs.
Considering the incremental dependence on energy and the involvement of multiple participants in the project, all stakeholders are expected to raise their mutual diplomatic and other multilateral relations several notches higher.
India and Pakistan are increasingly import-dependent for their energy needs. At a time of possible energy crises, an alliance through pipeline for energy security makes good economic sense.
PIPELINES FROM CENTRAL ASIA
Even though Unocal still affirms that it has no interest in a trans-Afghan gas pipeline which it abandoned in 1998, credible sources are indicating that it has not written off participation in an oil pipeline that will follow the same route. But Afghan stability remains an apparently unachieved objective.
The heads of states of Afghanistan, Pakistan and Turkmenistan met in Islamabad in 2002 to announce the formation of a coalition for implementing this project. They have established a Steering Committee of Ministers of oil and gas from the three countries for necessary follow up and supervision. ADB was requested by the Steering Committee, during its first meeting held at Ashgabat, to play the role of a development partner and help with the feasibility study for the Project. ADB has committed to provide resources to undertake the full feasibility study and complete such a study by October 2003.
The second meeting of the Steering Committee was held on September 16, 2002 in Kabul. At that meeting, the terms of reference (TOR) for the feasibility study was presented by ADB to the Steering Committee along with a draft of the Framework Agreement amongst participating countries. The Steering Committee approved the TOR and agreed to consider the Framework Agreement at its next meeting in Ashgabat scheduled for October 17-18, 2002.
At the third Steering Committee meeting held in Ashgabat, the Committee initialed the draft of the Framework Agreement (subject to confirmation by their respective governments) for signing by the Heads of State at their next meeting. The Committee also conveyed its "no-objection" to accepting a technical assistance from ADB for conducting the feasibility study on the pipeline. The Heads of State in Ashgabat subsequently signed the Framework Agreement.
The fourth meeting of the Steering Committee was held on February 22, 2003 at Islamabad, wherein a decision was taken to invite India to join the group. Decisions were also taken on the project structure, on the basis for pre-qualifying private sector companies interested in leadership of the pipeline consortium, and on the risks and mitigation measures to be adopted to improve the project's risk profile.
At its fifth meeting in Manila on April 8-9, 2003, the Steering Committee approved the report on the market study conducted for sale of Turkmen gas in Pakistan and Northern India. The three Ministers signed a joint letter inviting India to join the project. The Committee also approved the pre-qualification documents and authorized ADB to commence the pre-qualification process. M/s Penspen of UK, who have been appointed as the consultants for conducting the feasibilities under the ADB-funded TA, was introduced to the Steering Committee. Whereas another feasibility study was completed by Unocal. There have been negotiating problems among the various countries, and co-operator with Royal Dutch/Shell before it closed its Turkmenistan office in 2000.
Pipelines and oil deals seem to be spreading out all over Central Asia. The players include all of the major oil companies, especially those with close ties to the Bush Administration, along with Russian oil companies, the World Bank, the Asian Development Bank, and the Central Asian republics themselves.
Following the collapse of the Soviet Union, the world energy industry began drooling over the newly formed Central Asian republics and the Caspian Sea. Exploration quickly found what appeared to be enormous, untapped fields of oil and natural gas. Throughout the 1990s, deals were made with various countries claiming ownership of energy reserves. Unfortunately, the legal status of the Caspian Sea has yet to be resolved.
Until the ownership status of the Caspian Sea has been resolved, there will be no further development of the Sea's oil and gas resources, many believe.
Ownership disputes do not extend to continental reserves, as international borders have been clearly delineated.
As for the market, the big question has been: should the pipelines flow east or west? The western route would be easier, as much of the infrastructure is already in place. There are several projects underway or completed for bringing energy resources to the west. However, European oil demand over the next 10 to 15 years is expected to grow by only one million bbl/d, while Asian demand is expected to grow by at least 10 million bbl/d over the same period. Therefore, greater profit is seen in piping these resources to the east.
An eastward route would require the longest pipelines in the world. Formidable mountains would require long detours to the north, or a shorter route to the south either through Iran or Afghanistan and Pakistan. The Iranian route is prohibited under the Iran and Libya Sanctions Act. Therefore, Afghanistan and Pakistan are the choice for energy flowing eastward.
Efforts to revive the trans-Afghanistan pipeline began soon after the US incursion into that country. The pipeline from Turkmenistan to Pakistan was first discussed in the late-90s, with a consortium led by Unocal pushing the project. Unocal backed out in 1998 after international financial institutions refused to help cover the cost of the project so long as Afghanistan was racked by armed conflict. Soon after the invasion began in October, the pipeline project was discussed in Islamabad between the then petroleum minister Usman Aminuddin and American ambassador. Subsequently, during a visit to Ashgabat, Turkmenistan Deputy Secretary of State Elizabeth Jones told Turkmen President Saparmurat Niyazov that Washington would support such pipeline projects so long as they were commercially viable. Niyazov called for the United Nations to support a plan to build a gas pipeline linking Turkmenistan to Pakistan, reported EurasiaNet.
The project was being touted for bringing stability to Afghanistan. Support from the UN would boost the status of the project and clear the way for guarantees from international institutions like the UN Development Program. Also as reported by Agence France-Presse, World Bank Chief James Wolfensohn said he had held talks about financing the Trans-Afghanistan gas pipeline. Wolfensohn, during a visit to the Afghanistan capital, Kabul, stated that a number of companies had already expressed interest in the project.
So far, no corporations have been named as firmly signing on to the project. Several sources have stated that Unocal will likely come forward again to join in the project, according to the Unocal it was still in the lead, attempting to win the $2 billion trans-Afghanistan plan. Unocal followed this announcement with a statement that it has no intention of reviving the Central Asian Gas Pipeline (CentGas) project. However, Unocal has made no statement on contradicting reports that it has a project to build the Central Asian oil pipeline, linking Turkmenistan both to Russia's existing Siberian oil pipelines and to the Pakistani coast. As this oil pipeline will run parallel to the proposed gas pipeline route through Afghanistan, it is possible that Unocalís denial of interest in the gas pipeline could just be for public consumption. Prior to stepping down from the CentGas project, Unocal was targeted by human rights groups for its dealings with the Taliban.
Energy experts have indicated that companies owned or formerly managed by Bush senior and Vice President Dick Cheney are showing keen interest in Caspian Sea reserves. And the US is expecting investment from US-based energy conglomerates through Overseas Private Investment Corporation (OPIC) to revive the Afghan pipeline project. It has been noted that despite assurances from Afghan and Pakistani leaders, continued volatility in the region is deterring energy corporations from offering to help build the pipeline. It is suggested that it may take several years of political stability before the project could be seriously revived. Moreover, the Asian Development Bank (ADB) is also keenly interested in the project. ADB loans will likely be used to cover part of the cost of building the gas transport system, with funds from donor countries for the reconstruction of Afghanistan.