Natural Gas Asia

Tuesday, May 23, 2017

Building a Case for the Trans-Afghan Gas Corridor

Timely response to their ever growing energy needs is key to India’s and Pakistan’s economic and social stability. Until present, India, and to a lesser extent Pakistan, have been relatively successful in coping with their energy needs. However, if additional energy supplies in particular for electricity generation are not available soon their prospects for economic growth will be undermined. Even today energy shortfalls are depressing India’s and Pakistan’s average GDP growth rate by 3 – 4 % annually.

Natural gas is rapidly gaining importance in India and Pakistan as a key component of energy mix, particularly in electricity generation. Gas – based power is significantly cheaper than electricity produced by fuel oil or diesel. Gas-fired power turbines are flexible and can quickly respond to peak demand. They are also cheaper to build than those of hydropower dams, nuclear-power stations and even coal-fired plants. Green energy such as wind and solar energy will gain prominence in the mid-term future. However, they will not be able to address the energy deficits in Pakistan and India anytime soon. Gas on the contrary can provide a quick solution to the energy/power deficit in these countries and is emerging as a regional energy “game changer”.

There is clearly no shortage of gas in the region. The reality is shaped, however, by obstacles that risk outweighing the advantages of geographic proximity. For example, Iran is able to meet Pakistan and India’s energy needs, but international sanctions have removed Tehran for the time being from the regional energy landscape. Qatar could be a major supplier as well, but the price it demands is already too high for India and could be unaffordable for Pakistan.

Turkmenistan located in the vicinity of South Asia can provide enough gas via the TAPI gas pipeline to India and Pakistan at a relatively affordable price. These plans are however conditional upon Ashgabat’s ability to develop its’ natural gas reserves in a fast and timely manner. Furthermore, potential gas supplies from this country are also affected by a number of important challenges.

Firstly, the security situation in Afghanistan has been complicating and de facto preventing the realization of TAPI.

China’s relationship with Turkmenistan as major consumer of the country’s gas is the second important factor complicating regional energy landscape. In 2011 almost 50 % of China’s natural gas imports or 16 billion cubic meters (bcm) came from this country. Beijing also plans to increase the imports of Turkmen natural gas to 65 bcm by 2015. Though Beijing never publicly voiced concerns regarding TAPI, one can assume that China is not eager to share its access to Turkmenistan’s gas supplies unless it can be confident that they are adequate to meet its own rapidly growing needs.

Thirdly, the transit of energy via Afghanistan will require a multitude of important regulatory and investment decisions. It would be helpful to rely for those decisions on already established and internationally accepted energy transit regulations and mechanisms for investment protection.

Energy trade could in principle play a constructive role and become a catalyzer for more regional cooperation between Central and South Asian countries, if the aforementioned challenges are resolved. Due to its major importance it might even re-create the positive spillover effect of the 1950s European Coal and Steel Agreement, which laid the foundation of the European Union, and improve political relations of India and Pakistan.

Current energy planning in the region heavily depends on China’s vested interests as a major consumer of Turkmen gas. India and Pakistan standing in comparison at the “end of the queue” for Turkmen gas might consider a joint consultative process with Turkmenistan, China and other consumers of Turkmen gas regarding allocation and timely development of Turkmenistan’s gas reserves. This process should recognize and respect the sovereignty of Turkmenistan over its natural resources. It could be achieved through an international consortium, helping Turkmenistan to rapidly increase its gas production. The consortium’s membership should be opened to all relevant energy stakeholders, active in Turkmenistan’s natural gas sector.

The Energy Charter Treaty (ECT) with its vast membership and relevant institutional mechanisms could become most appropriate and efficient institutional energy cooperation framework in the region, providing for legally-binding “rules of the game”. The Energy Charter is the only global multilateral institution with a comprehensive membership having relevant institutional mechanisms and a successful record of unbiased cooperation in the area of energy transit and investment protection. The importance of this organization appears even greater in Southwest Asia than in Europe for which it was originally formed due to the region’s poor record of genuine multilateral energy cooperation. The ECT will place TAPI in a homogeneous legal and regulatory framework and facilitate uninterrupted flows of energy. Last but not least: the Energy Charter Treaty investment protection mechanism could help to re-establish international investors’ confidence in economic and regulatory policies of regional states such as Afghanistan and Pakistan.

Danila Bochkarev is an EastWest Institute fellow. The views expressed here are those of the author and are not necessarily shared by the organisation, its board of directors or other staff. Re-published from New Europe, 26 July 20