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Central Asia's Energy Bazaar
By Jeff M. Smith and Ilan Berman
Wall Street Journal Asia
January 27, 2011
Call it the Great Game, round three. The first such contest, famously chronicled by Rudyard Kipling, involved the 19th century struggle for dominance between the British and Russian empires over access to India and its lucrative trading routes. The second centered on the post-Soviet scramble for resources and influence in energy-rich Central Asia. Today, a third such round of geopolitical competition is emerging in South Asia, spurred by the vast energy potential of the post-Soviet space and the uncertain political disposition of Afghanistan.
Last month, this competition took a giant step forward when Afghan President Hamid Karzai met with the presidents of Turkmenistan and Pakistan, as well as with India's oil and gas minister, in the Turkmen capital of Ashgabat. The meeting netted an agreement to begin construction of a new natural gas route known as the Turkmenistan-Afghanistan-Pakistan-India pipeline in two years' time.
Current plans call for TAPI to be completed by 2014. The $7.6 billion pipeline would stretch from Turkmenistan's massive Dauletabad gas field across war-torn Afghanistan and Pakistan to the Indian border town of Fazilka, and carry as much as 33 billion cubic meters of natural gas annually to consumers.
TAPI's appeal is obvious. Cash-strapped Afghanistan could net anywhere from $300 million to $1.4 billion a year in transit revenues, and receive up to 15 million cubic meters of gas a day to boot. Meanwhile, as much as 45 mcm of natural gas a day will be shipped to each of the main recipients: Pakistan and India. The latter, whose growth has accelerated rapidly over the past decade, became a net importer of natural gas in 2004, and imports have risen every year since, topping 135 bcm in 2009. In Pakistan, meanwhile, demand for natural gas has been rising by an average of 10% a year for at least the past decade.
For its part, Turkmenistan, home to the world's fourth largest proven gas reserves, would take another much-needed step towards economic independence from Russia. Turkmenistan has long been hostage to a Soviet-era pipeline infrastructure, which ensured all gas pipelines pointed toward Moscow.
Since a pricing dispute with Russia in 2009 ended in the mysterious explosion of a Turkmen gas pipeline, Ashgabat has accelerated its search for new export routes, completing a gas pipeline to China in December 2009 and a second line to Iran a month later. TAPI, if it materializes, would be a major boost to these efforts.
The pipeline also has the support of Washington, which is eager to see economic investment in Afghanistan as well as deeper regional economic integration, particularly between nuclear rivals India and Pakistan. The Obama administration believes the route could serve as a "stabilizing corridor," with the additional benefit of meeting Asia's energy needs while circumventing Iran.
For its part, Tehran has long hoped to tap the vast South Asian market via an energy project of its own: the Iran-Pakistan-India pipeline. But that long-delayed project received a potentially fatal blow last year when India, frustrated by an ongoing pricing dispute, pulled out of IPI. Pakistan and Iran are moving forward with the project, and trying to lure China into the fold as well.
If the story sounds too good to be true, it is because TAPI—for all of its benefits—faces a daunting array of challenges. Foremost is security; the proposed pipeline passes through some of the most volatile and conflict-ridden territory on the planet, traveling south from Turkmenistan through western Afghanistan, where Iranian influence is strong, to the Taliban stronghold of Kandahar. From there, it stretches to Pakistan's restive Quetta province, where a Baluch insurgency continues to rage, before entering the relative stability of Indian soil.
The second is financing; a number of potential investors have expressed interest in the project, among them the Asian Development Bank, the United States, several European countries and India itself. Even Russian gas giant Gazprom has had its appetite whetted, and is currently "examining a role alongside India." But in the world of finance, the gap between interest and investment can be wide, particularly when the security premium and the degrees of uncertainty are this high.
To its credit, the Karzai government has attempted to assuage investor jitters. It has announced plans to commit a 7,000-man security force to guard the pipeline, and to strike deals with local militias to complement that force. Kabul is also said to be considering burying the pipeline underground as a further way of protecting it from insurgent attacks. But the sorry state of Afghan security, along with the uncertainties surrounding the U.S.-led Coalition's looming withdrawal from the war-torn state, make TAPI's long-term viability a real question.
Whether TAPI will eventually become a reality is still unclear. What is not is that South Asia, with its captive market of a billion-and-a-half souls, represents an irresistible lure for energy development. And while the region's endemic instability has thus far slowed meaningful, sustained investment, the vigor with which international suitors are courting South Asia's states suggests that the tug-of-war over the region's economic future—and by extension its geopolitical one—is heating up.
Mr. Smith is Kraemer strategy fellow and Mr. Berman is vice president of the American Foreign Policy Council in Washington, DC.
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