Sergey Smirnov, Senior research associate, Kazakhstani Institute of Strategic Research at the Republics President (Almaty, Kazakhstan)

All geo-economic projects in the Middle East and Central Asia are fitted into the local political contexts and, not infrequently, are used as instruments designed to realize certain plans of certain states. The long-shelved project of a trans-Afghan pipeline between Turkmenistan and South Asia is one of the most relevant examples; the problems of funding, risk assessment and feasibility studies have not yet been resolved.

The talks on the project were resumed as soon as the Taliban had been routed and the country acquired a new leader in the person of Hamid Karzai. On 30 May, 2002 three main participantsTurkmenistan, Afghanistan, and Pakistanmade another attempt at reviving the project and set up a promotion committee. There is in particular an intergovernmental agreement On the Gas and Oil Pipelines Turkmenistan-Afghanistan-Pakistan Projects signed in December 2002 in Ashghabad. Funding is on the agenda.

None of the transnational companies has so far displayed any serious interest in the project for an obvious reason: its economic efficiency will hardly be impressive; the South Asian markets low solvent demand indicates that the investments will not be promptly paid off.

Deputy to the State Duma of Russia Sergey Generalov, who in 1998-1999 was minister of fuel and energy, believes that the trans-Afghan pipeline is in the first place a political project. It is expected to bring political and economic stability to Afghanistan and Pakistan and nothing more. Its economic expediency raises doubts. Construction is risky.1

This explains why not a single large structure has so far volunteered to fund the project (the Asian Development Bank with its grant of $1.5m for feasibility study is the only exception). Even Unocal (Union Oil Company of California), one of the projects old-timers, left never to return. At the same time, Martha Olcott, an expert of the Carnegie Endowment, believes that large scale projects of gas and oil pipelines leading from the Caspian to the highly attractive international market of the Arabian Sea may become the main or even the only chance to revive Afghanistan.2 It should be said that international observers are unanimous in their assessments of the projects potential stabilizing effect on the rejoin. Feasibility studies are merely the first stepconstruction will obviously present the main problem.

In his personal letters to the heads of Turkmenistan and Pakistan President George W. Bush was very positive about this and other possible main pipelines via Afghanistan. At the same time, the U.S. Administration never tires of saying that, having spent enormous sums on the antiterrorist operation, the United States has no intention to pour more money into the country. One can conclude that no American investments in the project will come from the government coffers.

Still, the President of Turkmenistan Saparmurad Niyazov hopes that by 2005 the idea will be realized. He said at a government sitting: Each Turkmenian, be he a geologist, a gas expert or a civil servant should actively contribute to the effort. One can easily understand him: he badly needs at least a minor trump in the form of an alternative route to deal with Moscow. President Niyazov has made several statements about alternative pipelines going in different directions: a trans-Iranian, trans-Caspian, trans-Asian (to China and Japan), and finally a trans-Afghan route for Turkmenian gas. He always wanted the Afghan pipelinebefore the Taliban came to power, while the Taliban was in power (for the sake of his cherished project he became sort of a friend of the ruling regime) and today when the Taliban is no longer in power. The situation around Iraq pushed out Afghanistan and the pipeline project from the U.S. Administrations priorities. One can expect, however, that the project-related commotion will play into Niyazovs hands: even if the project remains unrealized, it will be much easier to talk with Moscow about gas transit prices. The same can be said about Pakistan that is conducting negotiations about gas supplies from Iran.

It is expected that the pipeline (not less than 1,500 km long) will stretch from the Dauletabad field in Turkmenistan to the cities of Herat and Kandahar in Afghanistan, the city of Multan on Pakistans Arabian Sea coast to the port of Gwadar from which liquefied gas will travel to the consumers.

Its initial annual carrying capacity will be 15 billion c m later to be doubled; construction will cost from $2 to 2.5 billion; an Indian extension will require $500m more. None of the regional countries produces pipeline equipment, therefore it will have to be imported either from Western Europe or Japan; the project will also require a newly built gas liquefying capacity. This will send the price up and add to the related financial risks. On top of this, the South Korean and Japanese markets, two potential destinations of liquefied gas, are fully satisfied with contract gas supplies from the Middle East and Malaysia that will hardly hail a rival.

There are plans to lay a parallel power line, a highway and a railway to cut down the price. Ashghabad is trying to revive the projects oil component under which Turkmenistan and Russia could fill in both pipelines: the gas line could carry 80 percent of Turkmenian and 20 percent of Russian gas while the oil line could be filled with 80 percent of Russian and 20 percent of Turkmenian oil.3

One of the projects flaws is its being an alternative to the Iranian route in which Russia, Kazakhstan and companies from other countries are interested; there is information that TotalFinaElf is working on feasibility studies for an oil pipeline from Kazakhstan via Turkmenistan to Iran with an outlet in the Persian Gulf and a possibility of branching off to western Pakistan. The project will cost $1.5 billion. In an effort to add to its advantages Tehran offered discounts on oil transit. According to Kazakhstani sources, the share of oil exports of Kazakhstan may reach 30 to 35 percent, while the pipeline can be completed by 2008-2012.

Pessimists expect the trans-Afghan project to be completed within the same period of time. Afghanistan and Turkmenistan are two countries that need it more than the others. The former tries to revive its economy and expects to earn hard currency on transit routes. According to the already concluded agreement, one can expect the transit payments (that will become the largest and probably the only one legal source of hard currency in the foreseeable future) will bring not less than $300m to the budget; on top of this the country will receive 12 percent of the gas carried by the transit pipeline. It will also acquire 12,000 jobs needed to service the main pipeline and its infrastructure. This is not much: according to European assessments, Afghanistan will need not less than $45 billion of investments to come back to normality.

In Turkmenistan the recoverable gas reserves on land alone are about 3 trillion c m concentrated on 100 main gas, gas condensate and oil and gas condensate fields. Experts believe that the Turkmenian sector of the Caspian shelf contains 5.5 trillion c m. Today the country that extracts 67 billion c m of gas a year and that is rich in gas wants to liberate itself from Moscows transit monopoly and gain alternative accesses to the world market. The current volume of gas extraction in Turkmenistan is limited to the needs of its main customersRussia, Ukraine, and Iranwhile energy fuel exports bring nearly 75 percent of the countrys incomes.

According to information Turkmenian TV supplied on 17 December, 2002, Ashghabad plans to bring up annual gas extraction to 85 billion c m by 2005 and to 120 billion c m by 2010. These optimistic plans are probably based on the 1989 figures when the republic extracted 89.9 billion c m. One can say that similar figures were cited in the 1994 program Ten Years of Prosperity under which the level of 112 billion c m a year was planned for 2000. Alas, this proved unrealizable.

To cope with the formulated tasks the country hopes to attract over $25 billion of foreign investments in the oil and gas sector. Its infrastructure needs modernization while new fields have to be prepared accordingly. Under the cabinet-endorsed program of geological prospecting up to 2010 Turkmenian and foreign investors must obtain 32 licenses to carry out geological prospecting on the shelf and 15 licenses to carry out and develop oil and gas fields on land. According to expert assessments, the hypothetical hydrocarbon reserves on the Turkmenian shelf are 16.5 billion tons of standard fuel; the prospected shelf reserves are 203m tons of oil and 70 billion c m of gas.4

Ashghabad expects to leave behind the present crisis in drilling and processing of gas and the general technical failure of the fuel sector with the help of the trans-Afghan pipeline. There is no doubt that the capacious Indian and Pakistani markets hold enticing promises.

According to specialists, the Dauletabad field with about 1.7 trillion c m of gas is one of the largest in the world. The reserves remain virtually untapped, however, because of the limited carrying capacity of the northern route. This gas field alone will be able to fully load the trans-Afghan pipeline for at least 30 years to come.

How It All Started

Having won several tenders for developing large gas fields in eastern Turkmenistan and the Caspian coast back in the first half of the 1990s, Bridas S.A.P.I.C. of Argentina hatched an idea about a trans-Afghan main. In July 1993, President Niyazov approved the idea, in March 1995 he and Premier of Pakistan Benazir Bhutto signed an agreement on feasibility studies. The project attracted several larger companies such as Unocal of the United States and Delta Oil Co. of Saudi Arabia that pushed Bridas away. In October 1995, they signed a contract with the Turkmenian government. At that time, the estimated cost was $1.8 billion.

Unocal was also planning a parallel oil pipeline from Chardzhou in Turkmenistan to the Arabian coast (at that time the CPC and the Baku-Tbilisi-Ceyhan projects were at the stage of discussion). The Central Asian oil pipeline (total length 1.6 thou km of which 670 km will be laid in Afghanistan) was expected to cost $2.7 billion and carry Siberian oil from the Omsk-Pavlodar-Shymkent-Chardzhou pipeline, the oil extracted on the Caspian shelf of Kazakhstan and Turkmenistan and in Uzbekistan.

In May 1996, Turkmenistan, Afghanistan (the Rabbani government), Pakistan, and Uzbekistan signed a Memorandum on Mutual Understanding on the trans-Afghan Project.

On 25 October, 1997 a Central Asia Gas Pipeline, Ltd. (CentGas) consortium was set up in Ashghabad with the following shares: Unocal, 54.11 percent; Delta Oil, 15 percent; Government of Turkmenistan, 7 percent; Itochu (Japan), 7.22 percent; Crescent Group (Pakistan), 3.96 percent.5 It was planned to invite Gazprom (Russia) and offer it 10 percent of shares. Ashghabad struck it off the list of shareholders. Afghanistan was left outside the consortium. The Taliban that came to power with the lightning speed intended to unite the country, stabilize the situation and create a context conducive to the projects realization. Instead, the situation deteriorated, the work on the project was first stalled and later discontinued altogether. However, a preliminary feasibility study was completed, it was determined that the line would be 1,300 km long and would cost $2.5 billion. In October 1997, Unocal invited a large group of the Taliban members to its training center in Omaha (Neb) to make construction and exploitation specialists out of them.

In February 1998, CentGas headed by Unocal fell apartthe project sank into oblivion. The antiterrorist operation and stationing of American troops in the region rescued the projecttoday it is being actively revived.

In late October 2001 President Niyazov in his talk with Kenzo Oshima, the U.N. Under-Secretary-General for Humanitarian Affairs and Emergency Relief Coordinator, invited him to support the project as an efficient instrument for restoring peace in Afghanistan and act as its political sponsor. After a series of bilateral meetings and consultations the leaders of Turkmenistan, Pakistan, and Afghanistan signed an agreement on the main pipeline. Felix Iurlov, Sector Head at the Institute of Oriental Studies, Russian Academy of Sciences, says: This agreement should be discussed in the broad geopolitical context. On the one hand, Turkmenistan is seeking an outlet to the world scene. Niyazov needs international projects. On the other hand, the United States is actively supporting the project in the hope of extending its influence in the region.6

It seems that today the project is at a stalemate because the Afghan part of the line will go across the areas controlled by warring groups and field commanders. The investors are not naïve enough to take the regimes assurances seriously: so far it cannot ensure its own security. The American units currently stationed close to the possible route will hardly be able to control the lines entire Afghan stretch (746 km). On top of this, there is no stability in the northwest of Pakistan peopled with Pashtoon tribes outside of Islamabads control.

Market Outlets

Afghanistan with its 28m strong population and the worlds lowest purchasing power ($800 GDP per capita) has no gas supply infrastructure to speak of and a very low gas consumption (about 400 HW/hour of electric energy). Only 6 percent of the total population can enjoy electric power; economic devastation makes it hard to estimate how much natural gas the country may need. A more or less relevant figure of about 4.8 billion c m can be derived from per capita consumption of 172 c m a year in Pakistan in 2002.

According to Soviet specialists, Afghanistan has 142 billion c m of natural gas; there is no recently confirmed figures from independent international auditors. There is no doubt, however, that the country does possess a certain amount of gas that can be used to meet at least part of domestic requirements. But one has to bear in mind that, first, the mountainous terrain makes gas extraction difficult and costly. In the 1980s, 90 percent of the locally extracted gas was exported to the Soviet Union; in 1984, the peak year, gas exports reached 3m c m; early in the 1990s, the government of Afghanistan made an attempt to export gas to the Czech Republic and Hungary. Second, high seismic activity in Afghanistan adds to the other risks.

In the nearest future American military presence alone will be able to ensure safe gas transfer, yet the currently stationed units are not numerous enough to cope with the task. Americans will not remain in Afghanistan foreversooner or later the units will be removed. Safety is not the only problemin fact, Pakistan does not badly need Turkmenian gas.

Pakistan with its population of 148m is one of the most attractive regional markets; 41.5 percent of energy consumed there is created by gas. The needed amount is locally produced. The country has 747 billion c m of gas; it annually extracts over 20 billion c m. The figure for 2002 was 21 billion.7 This is done by the local PPL and OGDC and BP of Britain, ENI of Italy, OMV of Austria, BHP of Australia, Petronas of Malaysia. A dramatic increase in gas consumption is expected in the nearest future to reach 35-37 billion c m by 2005.

The two countries consume about 30 billion c m of gas every year; the figure may increase to reach 40-45 billion in 2005 and 50-60 billion in 2010.

Recently Pakistan found more gas on its own territory in Savan, Miano, Zamzama, Bhit, Hassan, and Badim. When developed they will annually produce up to 20 billion c m of gas more to cover domestic supply and get rid of the larger part of gas import. If the present level and pace of annual increase continues (in the last decade it was 8 percent, or 1 billion c m), the local reserves will last for 30 to 35 years more. The newly discovered reserves will help: in 2004, the Bhit gas field may produce up to 2.4 billion c m of gas. Even if the country needs imported gas in the mid-term perspective, the requirement will only be never close to the volumes to ensure the trans-Afghan pipelines profitability. The project will only pay off if it reaches the Indian market, yet the Indian state security structures resolutely oppose the countrys dependence on energy fuel supplies from Pakistan (gas transit across the neighboring country will make such dependence inevitable).

Today Indian annual gas consumption is not large (about 22 billion c m); the current 5.5 percent annual growth is easily covered by domestic extraction. There are plans of building steam power plants that will send the countrys consumption up: to 34 billion c m in 2005 and over 40 billion in 2010. Early in 2003 the local proven reserves amounted merely to 762 billion c m found mainly on the shelf, on which extraction is fairly costly.

So far India buys liquefied natural gas from Qatar and Oman; it concluded a contract with RasGas of Qatar for the construction of two gas terminals. One of them (in Dahej) will be completed in 2003; the terminal constructed by Shell will receive gas from Oman in 2005. This is an expensive variant that will pay off if the volumes received are relatively small. In future the country will badly need an infrastructure of gas import with low transportation costs. Turkmenistan, Iran and Bangladesh are the only sources of large amounts of gas available to India.

Iran is the worlds second gas-richest country (21 trillion c m) that annually extracts about 70 billion c m with an annual domestic consumption of 60 to 63 billion c m. Over half of its gas reserves are found on the Southern Pars gas field out in the Persian Gulf. Gazprom of Russia that is involved in its development and that has already acquired relevant experience while working on the Blue Stream mainline offers a project under which gas will reach India via Pakistans shallow coastal waters (with a booster compressor station either on a sea platform or in Karachi). The project will cost about $3.5 billion. It seems that international ownership of the project is needed because Gazprom cannot fund it single-handedly. India cannot accept a gas pipeline running across Pakistans territorial waters; in addition, one cannot exclude Washingtons pressure on potential investors to frighten them away from the project.

Shell and Unocal support the Bangladesh variant: the line will be shorter than the Iranian one while Pakistan will be completely excludedsomething that India likes very much. Moreover, the foreign companies now operating in Bangladesh believe that the gas reserves there (the official figure is 500 billion c m) are underestimated at least by half. This shows that the trans-Afghan line will remain shelved until Pakistan needs much more gas than today or when Islamabad and Delhi reach a stage at which cooperation in the gas transfer will become possible.

Hercules Choice

Gas export variants are much more varied: Turkmenistan may sell its gas to China and further on to Japan (via Kazakhstan); to Turkey (TengizTurkmenbashiBakuTbilisiErzurum), to Iran and to Western Europe via Russia (with the use of the Central Asia-Center system of gas pipelines). The Chinese variant requires a main pipeline and a ramified pipeline system inside China. The project has already been discussed at all levels and all its aspects have been investigated: it is expected to be 6 thou km long with an annual carrying capacity of 28 billion c m and an estimated cost of about $12 billion. This was all. According to the World Bank, gas transfer may cost over $115 per 1 thou c m (in the 1996 prices), which deprives the project of competitiveness. It can be realized in a very distant future if at all.

Under the Turkish variant before reaching Europe Turkmenian gas should cross the Caspian Sea, Azerbaijan, Georgia, and Turkey. The project that the Western countries endorsed at the 1999 Istanbul OSCE summit and expected to be commissioned in the middle of 2002 also failed because of bitter contradictions between Ashghabad and Baku over certain fields and transit tariffs. Officially Turkmenistan has never abandoned the project, yet it showed no signs of being prepared to insist on it in the nearest future probably because of its high cost. According to the Ministry of Oil and Gas Industry and Mineral Resources of Turkmenistan, the project was suspended at the stage of a framework agreement between the four participants.8 This agreement that the presidents of Turkey and Turkmenistan signed in Ankara on 29 October, 1998 envisages that for the next 30 years 16 billion c m will be annually delivered to Turkey and 14 billion c m to Europe via the Turkish territory. The Conception of the Development of the Gas Branch of Kazakhstan up to 2015 says: The Caspian Sea status does not permit to regard the gas pipeline as a potentiality.

The Iranian variant proved to be the only success so far: in 1997, an export pipeline Korpeje-Kurtkui was commissioned. It was the National Oil Company of Iran that supplied 80 percent of the needed sum of $195m; the remaining 20 percent came from the government of Turkmenistan (the line is 230 km long, its annual carrying capacity being $4 billion). Ashghabad prefers to regard it as part of a much longer (over 3,000 km) and still unrealized main TurkmenistanIranTurkeyEurope the memorandum on which the three countries signed back on 14 May, 1997. It was expected that by 2005 the volume of gas supplies would reach 22.5 billion c m and 30 billion by 2010. A gas pipeline Artyk-Lutfabad was commissioned late in 2000. Another gas pipeline is plannedthis will send the amount of gas supplies up to 8 billion c m a year.9

Export of gas to Russia and further on to Europe is the only real variant. According to Deputy Energy Minister of the RF Oleg Gordeev, the existing system of gas pipelines created by the Soviet Union makes it possible to address the transit problem of Turkmenian gas at the lowest price possible.10 According to information supplied by Gazproms press service, on 15 May, 2003 Gazprom Chairman Alexey Miller met Premier of Kazakhstan I. Tasmagambetov in Astana. They reached an agreement on designing reconstruction and modernization of the functioning system and on building a new gas pipeline within the Central Asia-Center program. This directly refers to Turkmenistan that sends its gas to European Russia, Ukraine and the Transcaucasus by the Kazakhstani system of main pipelines. While in 2001 transit of Turkmenian gas in the Central Asia-Center system amounted to 32.5 billion c m, in 2005 it will reach 50 billion c m according to KazTransGaz forecasts. Astana and Tashkent are Ashghabads main rivals when it comes to the use of the pipeline system.

An idea of a Eurasian gas alliance is also being discussed. The Turkmenian president has not yet expressed his opinion, while the Conception of the Development of the Gas Industry of Kazakhstan up to 2015 contains several references to it. The idea is an attractive one: the members will follow a coordinated strategy on the world market; they will pay unified transit tariffs and follow the same customs rules; have equal access to the infrastructure, etc. The idea can be translated into reality if Russia, Kazakhstan, and Turkmenistan become equal members and if Moscow agrees to certain concessions. This creates a possibility of exporting Central Asian gas to Europe. An agreement between Russia and Kazakhstan about transit of gas from Kazakhstan to the EU countries is the first step in this direction.

Early in April 2003, Russia and Turkmenistan signed an agreement under which Gazprom of Russia will buy from Turkmenistan about 2 trillion c m of gas during 25 years (starting with 2004). (Early in 2002, Turkmenistans total gas reserves were assessed at 2.86 trillion c m.)11 Gas will be delivered under the following schedule: 5 to 6 billion c m in 2004; 60 to 70 billion c m in 2007; 70 to 80 billion c m between 2009 and 2028. Turkmenistan has to export a certain amount of gas to Iran under a contract according to which gas deliveries should be increased to 13 billion c m and to Ukraine under an intergovernmental agreement on deliveries of 250 billion c m between 2002 and 2006 (40 billion c m in 2002; 50 billion c m between 2003 and 2005; 60 billion c m in 2006). Itera of Russia received President Niyazovs permission to sell Ukraine 46 billion c m of Turkmenian gas in 2003.12

It follows from the above that even if Ashghabad wants to double gas extraction with the domestic demand of 10 to 12 billion c m, there might be not enough gas for the trans-Afghan pipeline. It will remain on paper.

1 Nezavisimaia gazeta, 21 October, 2002.
2 Quoted from: M. Brazhnikov, Transafganskiy gazoprovod: namerenia i realnost, Kontinent, No. 23, 2002.
3 Ibidem.
4 See: Vedomosti, 29 October, 2002.
5 See: O. Vinogradova, Bumazhniy proekt, Neftegazovaia vertikal, No. 4, 2003. p. 97.
6 [].
7 See: O. Vinogradova, op. cit., p. 98.
8 See: S. Pokrovskiy, Turkmenia toropitsia uvelichit dobychu, Neftegazovaia vertikal, No. 4, 2001, p. 45.
9 See: V. Gurbanov, Razvitie transportnoy infrastruktury kak factor izmenenia geopoliticheskoy situatsii v Prikaspiiskom regione: vzgliad iz Baku, Collection of Documents of the Conference The Caspian Region at the Present Stage: Problems, Trends, Perspectives, KISI, Almaty, 2003, p. 120.
10 Nezavisimaia gazeta, 24 October, 2002.
11 See: O. Vinogradova, Gazovye postulaty Rossii, Neftegazovaia vertikal, No. 18, 2002, p. 34.
12 See: Vedomosti, 29 October, 2002.

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