TAPI faces an uncertain future with the recent oil price fall, ambiguity regarding transit via Afghanistan and an increase in the estimated project cost.
Backed by the Asian Development Bank (ADB), the Trans-Afghanistan Pipeline (TAPI) aims to export up to 33 billion cubic metres (bcm) of natural gas through a proposed pipeline from Turkmenistan to Afghanistan, Pakistan and India. The promise of TAPI was based on the growing energy deficit in South Asia, high hydrocarbon prices and an abundance of natural gas reserves in the neighbouring country of Turkmenistan.
There is a need for both India and Pakistan to find long-term sustainable solutions for their ever-growing energy demands. A shortage of supply, especially for power generation, is slowing these two countries' economic growth considerably.
In South Asia, natural gas is rapidly gaining importance as the key fuel for power generation. Gas-based power generation plants are more economical to build than alternatives such as nuclear, hydropower and coal-fired plants. Gas-fired combined-cycle turbines are flexible and able to respond quickly to peak electricity demand. Gas-based generation is also significantly cheaper than fuel oil or diesel, often used to produce electricity in India and Pakistan.
The most efficient way to address the energy deficit in South Asia is, therefore, based on the construction of gas-fired power plants. Gas is abundant in neighbouring countries such as Iran, Qatar and Turkmenistan, but the energy reality on the ground is often shaped by obstacles, which overweigh the advantages that geographical conditions offer. Iran is still under sanctions, Afghanistan remains unstable and only Qatar offers new hopes with cheaper oil-linked LNG supplies, which could counter-balance the pricing advantages offered by TAPI.
Oil prices offer little incentive for South Asian energy producers to switch from oil- or diesel-based power generation to natural gas Gas as the fuel of choice seems to be under (a temporary) threat as well. Lower oil prices offer little incentive for South Asian energy producers to switch from fuel oil- or diesel-based power generation to natural gas. For instance, gas has traditionally dominated Pakistan's thermal generation. However, stagnation of domestic production and increased competition for gas from the country's transport sector and fertiliser producers have led to a considerable decline in the usage of gas for energy production in Pakistan. However, the sharp rise in power generation costs has increased the appetite of companies to switch back to gas. But with the fall in oil prices, there is a risk that this trend might reverse and decrease Pakistani energy companies' commercial interest in imported LNG or pipeline gas.
$2.4 billion An increase in the estimated cost of TAPI
A combination of factors such as the oil price fall and uncertainty about transit via Afghanistan is likely to delay the launch of the TAPI further. The estimated cost of the gas pipeline has increased from $7.6 billion to $10 billion, and the estimated price based on oil-linked formula dropped from $10-$11 per MMBtu ($360-$380 per 1,000cm) to $7 per MMBtu ($250 per 1,000cm). While the price range of $6 per MMBtu ($220-$230 per 1,000cm) on the Turkmenistan-Afghanistan border is acceptable for Turkmengaz, it's still unclear who will lead and finance the TAPI project.
According to the agreed timelines, the selection of the consortium leader should be finalised before the end of October. Needless to say, the leader has to have sufficient financial and technological clout to lead the project. An increase in the cost of the pipeline and decreased gas prices have reduced the interest of major players in TAPI.
Furthermore, Turkmenistan's legislation does not allow the granting of large scale onshore concessions/PSAs to foreign companies, which, in turn, reduces their interest in TAPI. Granting access to onshore deposits to the consortium leader might help to choose an appropriate candidate. Alternately, Turkmenistan can lead the project directly or via Turkmengaz with the help of an international consortium. A trans-Afghan energy bridge could bring peace and stability to the conflict ridden-country. In fact, all neighbouring countries, including Turkmenistan, have a vital interest in a stable Afghanistan.
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