South Asian Gas Demand Strong Enough for Two Pipeline Schemes | Asian Development Bank

South Asian Gas Demand Strong Enough for Two Pipeline Schemes

News Release | 22 September 2005

MANILA, PHILIPPINES - Future demand for natural gas in South Asia is projected to be strong enough to require gas to be piped from both Turkmenistan and Iran, an ADB expert said today.

Dan Millison, a senior ADB energy specialist, was responding to recently-released reserves information from Turkmenistan that shows a lower-than-expected gas deliverability for a proposed US$3.3 billion pipeline project to carry gas from Turkmenistan via Afghanistan to India and Pakistan.

ADB has been brokering the 1,700 km pipeline project 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's Dauletabad gas field has gross reserves of 1.4 trillion cubic meters of gas, but production forecasts are lower than expected, causing analysts to doubt that it can meet the proposed target of piping 30 billion cubic meters (BCM) of gas a year to South Asia.

"The reserves information shows that Turkmenistan could supply enough gas for the first few years but then production is predicted to decline instead of increasing," says Mr. Millison. "They will need to find gas from other fields to meet pipeline design targets."

Meanwhile, a $7 billion scheme to pipe natural gas from offshore Iran to Pakistan and India is gaining momentum. This 2,700 km pipeline would cost more than double the Turkmen scheme but leaves out Afghanistan, where security concerns remain.

"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," says Mr. Millison.

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

With the new gas reserves data in hand, as well as a draft 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.

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

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 has also a small pipeline to Iran.

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

Even if Turkmenistan settles for current gas prices with India and Pakistan, 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 cubic meters 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.