Laying Bare | When Will TAPI Cease To Be A Pipedream?

<p>The elusive dreams of connecting the interests of Asian countries through natural gas pipelines have been chased for over 3 decades. Prime Minister Narendra Modi’s visit to Turkmenistan in the second week of July as a part of his tour to 5 central Asian countries will be an attempt to seal the deal for the TAPI (Turkmenistan-Afghanistan-Pakistan-India) natural gas pipeline. If Modi manages to close the deal which was envisaged to solve the geo-political issues between the South Asian neighbours, it would be a milestone in the direction of securing India’s energy needs.<br><br>But was the TAPI deal hanging fire only because India did not have a statesman like prime minister Narendra Modi to foster the decision making among the other three participating nations? More than the politics, it is the economics that has acted as a hurdle in the implementation of the project.<br><br>The TAPI gas pipeline was envisaged in 1990s by the US as a means of providing economic stability to Afghanistan that has been under Taliban for many decades. Initially it was a three nation (Turkmenistan, Afghanistan and Pakistan) project and India came into the picture only in 2008. However, the risks attached to the pipeline that is supposed to pass through the most disturbed areas of Afghanistan and Pakistan make the project unviable for any private sector company to show interest. Turkmenistan would export 90 million standard cubic meters per day of gas through TAPI, with Afghanistan getting 14 mmscmd and India and Pakistan 38 mmscmd each.<br><br>In 2008, the cost of the pipeline was pegged at around $7.5 billion, with the completion date of 2014. However, the construction of the pipeline has not even begun and the project stares at a cost-overrun of about $3-$5 billion. The pipeline is viable only till it supplies natural gas at a rate cheaper than imported LNG. The cost of gas for the three countries would be between $7 per mmbtu to $9 per mmbtu. Any further delay may make the cost of importing natural gas via pipeline unviable for countries like Pakistan and Afghanistan who cannot afford to buy expensive gas due to the small size of their economies.<br><br>Moreover, the price for LNG in the spot market has reached $8 per mmbtu. However, the pipeline has a long terms horizon in terms of prices which are expected to hover above $10 -$15 per mmbtu.<br><br>India had agreed to pay around $9 per mmbtu in 2012 under a formula that calculates the price of gas on the international price of crude oil. The final cost of gas after adding the transit fee was around $13 per mmbtu. This saved India around $2 per mmbtu of gas as compared to the spot market price in 2012. However since, then the cost of crude oil as well as natural gas has fallen in the international market and this will have an impact on the logic of purchasing gas through a pipeline with an upfront investment cost of above $10 billion with various risks.The final cost of natural gas from the pipeline must save involved parties between $2-$5 per mmbtu.<br><br>So, the pipeline dream is running against time to manage its costs to be financially viable.<br><br>Other than this, a major problem is the national policy of Turkmenistan that does not allow any foreign company to take up participating stake in the country’s national projects. None of the companies in the four nations have the financial power to take up a project that covers the international border of 1700 Km.<br><br>Interestingly, even if Modi convinces Turkmenistan to change its national law to allow a foreign company be chosen as the consortium leader with participating interests in the project, there would be a pressure from the US to chose only a US based company. However, the ADB has been in favour of French upstream company Total to execute the project. Even though the French oil &amp;gas giant has backed out from the project, it is not necessary that the involved parties, especially Turkmenistan would agree to have a US company for the project.<br><br>The heads of TAPI countries will have to look for a reason why these natural gas pipelines projects have always remained in the pipeline for decades. Other then TAPI, there are other envisaged projects like IPI (Iran Pakistan India) MBI (Myanmar-Banglades- India) that could never take off due to cost factors that were affected by the Geo-political dangers and pressures from the US. Until the governments of the Asian countries understand that they need to envisage projects purely based on economics and not on political rhetoric and obligations, these projects will remain in the pipeline for ever.<br><br>&nbsp;</p>