A binding bridge among South, Central Asia and Middle East
By ASHRAF KHAN
Mar 14 - 20, 2005
Trans-border energy proliferation through pipelines is likely to drive immense of scale of mutual interests in a vast region of this glob during the 21st century. Asian energy security, which exerts direct influence on the economy, society, and national security of all countries in the region, is an important common issue that confronts all Asian countries in this era. It is no longer a national issue in the present global scenario, and thus somehow not easier for a single country to handle the energy problems on its own.
Asia is the world's growth centre and its economic development and growing energy demand is likely to continue in the medium and long run.
From the second half of 1980s, Asian energy consumption has kept growing and lately weighted as much as a quarter of the world consumption. However, it was decreased because of Asian economic crises in the second half of 1999, and then constant energy demand has risen each year.
The world, on the other hand, is facing significant changes regarding gaseous energy and technology. Natural gas and other gaseous fuels are already seeing a significant increase in demand which had change the market structure rapidly. The three driving forces behind these changes are deregulation (liberalization) of energy markets, widespread environmental concerns, and new technology developments. The substitution of natural gas to coal and petroleum products as an environmentally-friendly fuel with lower emissions has been gaining momentum in developed as well as in developing countries in the past two decades.
Natural gas has had a major impact on the balance of energy in North America and Europe in the last two decades. In 2000, North America with 5 percent of the world reserves produced nearly 32 percent of the world gas. In comparison, the Middle East with over one-third of the world's gas reserves has produced only 8 percent. last year. This imbalance has been partly due to the geographical distance between the Middle East gas producers and major gas consuming countries.
The emergence of huge potential gas market in India, Pakistan, Turkey, and within Middle East is likely to change this imbalance in the coming years. It is now widely believed that natural gas from the Middle East countries will play an important role in supplying part of the increasing energy needs of Indian sub-continent in the twenty-first century.
Most of the growth in world gas reserves has come mainly from two areas: the former Soviet Union including Caspian Sea and the Persian Gulf states. Following them Russia, Iran, Qatar, the United Arab Emirates, and Saudi Arabia have the second, third, fourth, and fifth largest reserves in the world respectively.
Energy requirements of both India and Pakistan have been rising during the last 10 to 15 years at the rate of 6 to 7 per cent annually. India's current energy demand is about 310 million tonnes oil equivalent and is expected to be doubled in 10 years. At present, India is importing a quantity of 68 million tonnes of oil that will also be doubled to 154 million tonnes during next ten years. Pakistan's energy needs are about 44 million TOE per year and these are expected to be doubled in the next 10 to 12 years. Pakistan is importing about 18 million tonnes oil per annum.
At present, the demand for gas in India as Hydrocarbons Visions-2050 shows is 151 million standard cubic meters per day (MMSCMD). The present domestic gas supply is 65 MMSCMD. The gap must have to be met from imports, increase in domestic production and by switching to liquid fuels.
Since 1999, the oil import bill in India has strained the economy as the global oil prices increased sharply and there is a renewed interest within the Indian government for large-scale natural gas imports from the region. Cross boarder pipelines are one of the best long-term solutions to carry natural gas to regions with high-energy demand. While this concept is well established in North America and Europe, it has started taking shape and contours of a gigantic physical infrastructure are visible now.
Iranian Foreign Minister Kamal Kharrazi said that "in principle it has been decided that Iran will supply gas to India on its border through Pakistan via a gas pipeline."
The statement by Iranian FM during a meeting with Prime Minister of Pakistan, Shaukat Aziz in Karachi last week was a big thaw as far as political bearings of such projects were concerned.
THE GAS SOURCING SCENARIO
Iran has one of the largest gas deposits. It has an estimated 940 trillion cubic feet (tcf) of proven natural gas reserves, over 18 percent of the world gas reserves of 5300 tcf. Slightly over half of Iran's gas reserves are offshore, and unlike those in most other Middle East countries, 74% is in non-associated fields. One of gas fields of Iran in Persian Gulf, South Pars field is estimated to hold 12 tcf of gas. Iran is naturally interested in large-scale supply of gas to the Indian sub-continent. The geographical location of Iranian gas resources especially South Pars field in the center of Persian Gulf makes India the best market for country's gas export in the coming years. Iranian policy makers have studied Pakistan and Indian markets for export of gas both in the form of LNG and via pipeline for some time.
In the light of past several years of developments in the region and especially, United States presence in the region, seems to help in emergence of new route for energy supply to the South Asia.
Turkmenistan is yet another vital options for the energy deficit countries. Its Dauletabad field is one of the largest gas fields in the world. DeGolyer & MacNaughton, an internationally recognized petroleum engineering firm, has thoroughly evaluated the field's reserves. These evaluations clearly show that the field's resources are adequate for project needs, assuming production rates of roughly 1.5 billion cubic feet of gas per day and 15 billion cubic meters of gas per year for 30 years or more. The Government of Turkmenistan has guaranteed deliverability of 25 trillion cubic feet (709 billion cubic meters) of natural gas exclusively for this project.
Crescent Petroleum International, a Sharjah-based company, got exclusive rights to export gas to Pakistan through an offshore pipeline from Qatar to Pakistan. A memorandum of understanding was signed between the government of Qatar and Pakistan in 1992. Interestingly, some recent meetings indicate development are taking place for this project. In a meeting, recently held in Islamabad, the chief executive officer of Crescent Petroleum, which has the agreement with Qatar to develop gas fields and exports to Pakistan, said there was no need for more meetings over the pipeline since the project had been delayed long enough. The company was merely waiting for the go-ahead from Islamabad to start work on the project. The project was to be carried out by a consortium of Brown & Root of USA, Crescent Petroleum and Trans Canada.
The project proposed delivery of gas from Qatar's north field having 300 trillion cubic feet of gas reserves to Gwadar. The total length of the pipeline will be 1620 kilometers (1500 kilometers offshore and 120 kilometers onshore). The proposed capacity of the pipeline is 2 billion cubic feet and initial throughput was planned to be 1.6 billion cubic feet of gas per day.
GEO-POLITICAL AND ECONOMIC CONFLICTS
TURKMEN OPTION: Experts believe that Turkmenistan could be the most viable option of a trans-border gas pipeline as it was amongst the first proposal chosen by the multilateral donors and Asian Development Bank whom funded a technical study to map out the possible route passing through Afghanistan.
The future of Afghanistan is the key. Although, a new government has lately replaced the government of Taliban in Kabul, frequent ambush as part of ongoing guerrilla war by the ousted Taliban keep the chances sparse to take any physical shape.
The project does not represent the first attempt to lay a gas pipeline from Turkmenistan to Pakistan through Afghanistan. An Argentine oil company Bridas, which won exploration rights to Turkmen gas fields in 1992, thought of transporting gas to Pakistan and eventually to India. The plan was stalled, however, since Afghanistan was embroiled in a bloody civil war and the government of Burhanuddin Rabbani in Kabul was at odds with Islamabad.
In 1994, the Taliban appeared on the Afghan political scene by capturing Kandahar and went on to control most of western Afghanistan. A consortium led by the US oil company Unocal and the Saudi Arabian company Delta Oil joined the pipeline scene, winning over the favors of Turkmenistan. Unocal and its partners eventually withdrew from the pipeline project because of pressure from human rights groups, especially women's rights groups, in the United States.
While much has changed in Afghanistan since the fall of the Taliban in 2001, the state of affairs in that country remains fragile. Lessons from the 1990s keep cautious to all involved that a legitimate and internationally recognized state should precede any plans to construct pipelines.
If the project proceeds as planned, and if the Afghan state solidifies itself, the opportunities are enormous, not only for Afghanistan itself, but also for Central and South Asia, which can be brought together through economic connectivity and interdependence.
IRANIAN OPTION: Iran, yet another corridor of Turkmen energy resources, does not plan to be a transit country for Central Asia gas to Pakistan and India as was once proposed but rather to be the producer country itself. However, Iran has successfully made political thaw for its pipeline as it spearheaded consecutive diplomatic advances towards India and Pakistan. Former Indian Prime Minister Atal Bihari Vajpayee's visit to Iran on April 10, 2001 was seen as an alliance between India and Iran in to oil, gas, and industry.
Pakistan has always been in favour of extension of the pipeline up to India but reservations from the Indian side kept Iranian option in cold.
President Pervez Musharraf have publicly and privately indicated the country's willingness to give all guarantees needed for the movement of natural gas from Iran to India via Pakistan.
Last month, foreign ministers of India and Pakistan have signalled they want to go ahead with the pipeline linking Iran's South Pars gasfield to India via southwest Pakistan. But a renewed warning from the US to Iranian nuclear program have started shadowing this vital option of energy for South Asia.
The gas pipeline deal that New Delhi plans to close with Tehran last week came under the scanner at a recent meeting between the Indian oil minister and the US ambassador to India.
Indian officials quoted by the Indian Express newspaper said that US Ambassador David Mulford had conveyed Washington's reservations on the energy deal during the meeting two weeks ago.
Though Mulford had said he appreciated New Delhi's interest in the pipeline project, "he felt it was his duty to highlight US concerns on Iran," the paper said.
Mulford had said that Washington was facing serious difficulties with Iran on its nuclear weapons programme with no immediate solution in sight to ending the impasse, the report said.
Washington's concerns were likely to be raised again when US Secretary of State Condoleezza Rice visits India on March 16, it added.
A US embassy official was reported as saying that the issue had figured during Mulford's meeting with Indian Oil Minister Mani Shankar Aiyar but said it was part of a "broad range of energy discussions."
"It was no special policy statement on the pipeline. (It) was a "small part of discussions," he said, adding, however, that Washington's concerns regarding Tehran were "well known".
This warning has come ahead of the first ever tri-partite talks between India, Pakistan and Iran on the planned gas pipeline which are to be held in Islamabad soon, with Aiyar expected to travel to Pakistan for the meeting.
PAKISTAN ENERGY SCENARIO
Remaining recoverable gas reserves were of Pakistan 27.0 TCF until recently which are equivalent to more than 25 years of production at current production rates, high enough to sustain a greater production level. Over the past 50 years, the main producing field has been Sui in Balochistan.
The demand for gas has been growing at a rapid rate of nearly 7 percent over the past decade to reach 800 bcf in fiscal year 2001/2002. The largest use of gas is for power generation (35 percent), the balance being shared approximately equally 21 percent each by fertilizer producers, other industrial applications and households. The gas requirements of households strongly fluctuate throughout the year. During the three to four winter months, household demand increases considerably, which results in gas shortages. As a result, gas supply to industrial, power and fertilizer plants is curtailed during the heating season. Just for the power sector, the curtailment has been estimated at about 65 bcf equivalent to 1.5 million tonnes of fuel oil, resulting in incremental costs (cost of imports minus the cost of gas) of approximately US$200-250 million, on account of additional fuel oil imports.
After the discoveries in the late 1990s, government initiated ambitious investment programs, designed to increase their delivery capacity from 1.7 million cubic feet per day (MMCFD) to 2.6 MMCFD by 2004, corresponding to an increase of nearly 50 percent, at a cost of US$300 million. Gas sales are expected to increase by approximately 30 percent in coming years.
ISSUES YET TO BE ADDRESSED
One of the primary needs, giving the several states involvement, is setting up of an organization for managing and coordinating of energy situation in Asia. That would help focusing all the stakeholders and avoid overlapping of technical as well as financial costs.
The typical common scenario for all the projects is that all the supplying states have known potential gas and market beyond transit states. The potential risks of the projects are what if India finds a major gas reserves onshore or offshore. What if Pakistan finds another major gas filed. Will it have right to sell its gas through the same pipeline or just have to be complacent with the royalty of $500 million dollars for right of way. Similarly, the extent of guarantees by transit state and level of compensation if the pipelines face closure due to potential saboteurs. And how and who will arrange the external funding to the projects.
Although some primary feasibilities have already been drawn by the Asian Development Bank and some other energy companies, Pakistan, India, Turkmenistan, Qatar and Iran have yet to carry out structuring of their respective projects and meaningful feasibility. Due to absence of such feasibility these projects failed to make headway in the past. The prospects for construction of a gas pipeline from Persian Gulf to the Indian sub-continent, considering the future gas demand in India and Pakistan and huge gas resources in Iran is rapidly moving from dream to reality. However, the implementation of this project requires the resolution of intricate political and financial issues.
The significance of private sector companies and investors in major projects has not yet been recognized in the region. The private sector in Iran, Pakistan and India has developed rapidly in the past ten years and is keen to participate in profitable oil and gas projects, which has always been kept aside for the international oil companies and the governments.
The participation of private sector in an international consortium to export Middle East gas to Indian sub-continent may be the beginning of a new trend in the region. Of course these issues are not beyond the capacity of all the stockholding states and giving the highest political commitment wills could bind this region through the chain of pipelines and these projects could play a permanent confidence building measure in averting historical political disputes in the region.