TAPI: A NEW PIPE DREAM?

“The Pipeline Race to India and Pakistan”

The Middle East Institute, Columbia University

Dr. Bhamy V. Shenoy Senior Advisor, Center for Energy Economics, UT

bhamysuman@hotmail.com

TAPI: A NEW PIPE DREAM? •  India needs gas. So far no success in securing gas

through international gas pipelines. •  Turkmenistan’s gas reserve position seems to have

improved in recent years. •  Relation between India and Pakistan has improved

recently. •  But political situation while improving in Afghanistan, has

deteriorated in Pakistan. A recent News week report called “Pakistan the Most Dangerous Nation in World”.

•  What can India do? What can Turkmenistan do? What can US, and EU and other players in New Gas Great Game can do?

TAPI: A NEW PIPE DREAM?

•  Every pipeline project to secure access to Turkmen gas has been proposed earlier, and some of them by different groups.

•  They all failed for various reasons. •  What has changed now to give hopes?

TAPI: A NEW PIPE DREAM? During After Turkmenbashi rule

Oil price $20 -30/bbl above $50/bbl Reserves limited plentiful Afghanistan Taliban/Al Quaida Some form

of democracy Pakistan Less violent Most dangerous China Less aggressive aggressive to secure

to secure access access US/EU Indifferent keen to get involved Pakistan-India hostile warming up Relationship

TAPI: A NEW PIPE DREAM?

Turkmen Gas Reserves: Do we know what they are?

Source: BP Statistical Review of World Energy Report 2007

Turkmen Gas Reserves: Do we know what they are?

Turkmen Gas Production: After reaching a low point in ’98 has been steadily increasing

Source: BP Statistical Review of World Energy 2007

Turkmen Gas Sales in 2015 One possible scenario (optimistic?) BCM

Domestic Demand 20 Export to Russia 60 Export to Iran 8 Export to China 30 Export through TAPI 30 Export through TCGP 30

Total sales 178

Are gas reserves of Turkmenistan enough to supply India’s needs?

•  Even with all the potential pipelines being implemented, Turkmen seems to have adequate gas reserves to supply 30 bcm through TAPI if one were to accept a more likely gas reserves of 7 TCM.

•  If gas reserves are even 50% of what the government of Turkmen Govt. claims then reserves are more than adequate and can support even more sales.

Turkmenistan can get highest netback by selling to India

Estimates by author

But Russia and China may offer higher netbacks to win the New Gas Great Game

Estimates by author

How can India deal with gas security issue?

•  Like most large gas consumers, India should ask Indian gas consumers to have dual fuel burning capability. This will cost more. They can be compensated by an equivalent reduced gas price.

•  Since Turkmenistan is likely to get the highest price on its sales to India, it can consider not only to compensate for security risk premiums, but also investing in the pipeline without expecting India to pay for the pipeline investment.

Potential Revenue losses to Turkmenistan by forced sale to Russia in 2006

•  Sale to Russia 37.5 bcm •  Potential revenue 150 $/1000 CM •  Netback 77 $/1000 CM •  Potential loss 73 $/1000 CM •  Annual loss in 2006 5.7 $billion

Turkmenistan would have lost huge amount on its sales in earlier years when netback was as low as $35/1000CM.

TAPI: A NEW PIPE DREAM? or A New Gas Great Game?

•  TAPI need not remain a pipedream •  Turkmenistan can finance part of the investment to

implement their multi vector energy policy •  Lessons to learn from Blue Stream, South Caucasus,

BTC and Failed TCGP. Blue Stream: strategic factors more important than apparent economic factors.

South Caucasus(Shah Deniz) and BTC: reserves owned by MNCs, international financial institutions and reasonable(attractive?) transit fees. Failed TCGP: No involvement of IFCs, reserves not owned by MNCs, was structured as zero sum rather than as win-win.

TAPI: A NEW PIPE DREAM? or A New Gas Great Game?

•  India should have dual fuel capacity •  US, EU and Japan should join the project

to ensure smooth operations. •  Transit countries should be held

responsible for smooth operations through enforceable penalty clauses.

•  New Gas Great Game needs to be played in a different way for stakeholders to be real winners.