Catalog

Gas Pipeline Race
ADB Review [ October 2005 ]

Despite a report of lower-than-expected gas deliverability, Turkmenistan has an opportunity to open new markets in India and Pakistan, where long-term demand is expected to be strong

By Ian Gill, (igill@adb.org)
Principal External Relations Specialist

ASHGABAT, TURKMENISTAN

TO BE TAPPED Turkmenistan has an opportunity to feed South Asia’s growing gas demand (above): reserves are huge but these await certification; Turkmenistan’s Karakum Desert (below) is rich with gas fields that lie beneath the sand

A $3.3 billion scheme for Turkmenistan to feed growing demand for gas in India and Pakistan took a step nearer reality with the recent release of additional information on natural gas reserves and production forecasts.

The country’s Dauletabad gas field in the south has gross reserves of 1.4 trillion cubic meters (TCM) of gas. But production forecasts are lower than expected, causing some analysts to doubt that it can meet the proposed target of piping 30 billion cubic meters (BCM) of gas a year to South Asia via Afghanistan.

With the reserves valuation, as well as a security analysis report, the next step is for the project’s steering committee to meet and discuss inviting an international consortium of investors to build the pipeline.

“The reserves information shows that Turkmenistan could supply enough gas for the first few years but then production is predicted to decline instead of increase,” says Dan Millison, a senior Asian Development Bank (ADB) energy specialist. “They will need to find gas from other fields to meet pipeline design targets.”

In the meantime, a $7 billion scheme to pipe natural gas to India and Pakistan from offshore Iran is also gaining momentum.

“If the Iran pipeline is greenlighted first, the Turkmenistan project might be put on the back burner for a while. However, with long-term gas demand from India and Pakistan estimated at 50 BCM a year, there is a need for more than one pipeline,” notes Mr. Millison.

ADB has brokered the 1,700-kilometer (km) pipeline project from Turkmenistan since 2002, promoting it as a win-win example of regional cooperation—a pioneering effort to link gas-rich Central Asia with energy-deficient South Asia through Afghanistan.

The project would bring clean fuel at competitive costs to India and Pakistan, much-needed transit fees to Afghanistan, and new markets for Turkmenistan.

Turkmenistan is a largely desert country with proven recoverable natural gas reserves of 71 trillion cubic feet (Tcf, about 2 TCM) and possible reserves of over 200 Tcf (about 6 TCM).

It is one of the world’s largest gas exporters. However, although its 4.5 million people receive free gas, electricity and water, incomes are among the lowest in Central Asia and health and education services are declining.

With large gas reserves and a small population, Turkmenistan’s export potential is huge, though substantial investments are needed to increase production. Turkmenistan currently pipes most of its gas to Ukraine and Europe via Gazprom, the Russian utility, though it also has a small pipeline to Iran.

It recently renegotiated a 25 year agreement with Russia to sell gas at $44 per 1,000 cubic meters (m3), and settled shortterm contracts with Ukraine selling at $58 per 1,000 m3. Both agreements are on an all-cash basis, replacing an earlier mix of cash and barter.

Projected demand in South Asia is so strong that some believe there may be a need for a third pipeline from Qatar or Oman. Pakistan, with its own reserves declining, is expected to begin importing gas after late 2008. India already imports gas and demand will soar in the next decade.

WORKING YOUTH Turkmenistan is largely a desert country: education and health services are slipping

Moreover, the geopolitical situation has changed advantageously. The thaw in India-Pakistan relations means not only that India is prepared to rely on a pipeline that runs through Pakistan but that both countries see mutual dependence on gas supplies as an important means of cementing peace. Uncertainties in the crude oil market and a global move towards cleaner energy also contribute to increased interest in natural gas projects.

Despite costing more than double the Turkmen scheme, support for the Iranian pipeline—which would carry gas 2,700 km from an offshore field in the Arabian Gulf—is gathering momentum. The project leaves out Afghanistan, where security concerns remain.

The United States is opposed to the Iranian project—its 1984 sanctions against Iran are still in place—but analysts say this is unlikely to influence India and Pakistan.

Even if Turkmenistan settles for current gas prices, observers note, it should have some pricing leverage within five years’ time when the project comes on stream. They point out that Pakistan industries and power plants currently pay $100 per 1,000 m3 for gas.

As well as financing the feasibility report for the Turkmen project, ADB financed a study for underground natural gas storage in Pakistan, where storage capacity would help meet local demand peaks in winter and counter possible supply disruptions.

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