Energy

Construction Of TAPI – The Pipeline To Deliver More Than Gas – Wrapped Up In Mystery

Fuad Muxtarlı Analysis 22 January 2020
Construction Of TAPI – The Pipeline To Deliver More Than Gas – Wrapped Up In Mystery

The end of 2019 and the beginning of 2020 saw the launch of a number of large projects for the transportation of natural gas, namely, the Trans-Anatolian Gas Pipeline (TANAP), Power of Siberia and TurkStream.

The Nord Stream 2 gas pipeline is in the final phase of construction. The demand for natural gas in the global energy market continues to grow, which leads to the emergence of increasingly large-scale projects. So, at the beginning of the year, an agreement was officially announced on the construction of the East Mediterranean Gas Pipeline (EastMed), which could become the longest and deepest gas pipeline in history.

Against this background, the achievements of the participants in the Turkmenistan-Afghanistan-Pakistan-India (TAPI) gas pipeline project look very modest. In early January 2020, President of Turkmenistan Gurbanguly Berdimuhamedov signed a decree that allows the State Bank for Foreign Economic Affairs to conclude financial agreements with the Saudi Development Fund to finance the TAPI project. Similar news indicates ongoing work on the Turkmen section of the gas pipeline.

Given that in 2017, the Saudi Development Fund already allocated financial resources to the Turkmengaz State Concern for the purchase of pipe products from the Global Pipe Company, it can be assumed that the new loan will also be used to create pipeline infrastructure.

At the same time, it is obvious that the deadlines for putting the TAPI gas pipeline into operation have again been extended. In February 2018, the Turkmen president was optimistic that a gas pipeline with a total length of 1,814 km would be launched by the end of 2019. It is noteworthy that such a statement was made during the launch ceremony of the construction of the Afghan section of the TAPI gas pipeline, which was held in the Turkmen city of Serhetabad on the border with Afghanistan.

However, the question of the degree of completion of the Turkmen sector remains open. Over the past year, information appeared on the ongoing Turkmen procurement of gas pipes for the TAPI project. So, in April 2019, the tender announced by the Turkmengaz State Concern for the supply of pipes was won by the Chelyabinsk Pipe Rolling Plant. The deal in the amount of $219m was completed with the participation of Russia’s Sberbank and the State Bank for Foreign Economic Affairs of Turkmenistan, which in turn was a borrower from the Islamic Development Bank.

In December 2019, the Chelyabinsk Pipe Rolling Plant officially announced that under the contract it had delivered over 150,000 tons of pipes with a diameter of 1,422 mm to Turkmenistan. Thus, about 200 km of the TAPI gas pipeline will be laid from Russian-made pipes. At the same time, the length of the Turkmen part of the highway is 214 km.

As a result, deliveries of pipe products revived construction activity in the Turkmen gas pipeline segment. This is confirmed by reports from the Turkmengundogarnebitgurlushyk trust, whose specialists are involved in the laying of the TAPI gas pipeline. In November 2019, it became known that the main works were concentrated on 120 km of the route. Initially, it was assumed that the construction of the TAPI gas pipeline would be carried out by analogy with the East-West pipeline project. So, to accelerate the work, construction was to begin simultaneously on six sections of the gas pipeline. However, it is somewhat difficult to evaluate the efficiency of the work of the Turkmen pipe-layers.

From the very start of the construction of TAPI, Ashgabat is scarcely providing information on the progress of pipe laying process. In February 2016, the Turkmengundogarnebitgurlushyk trust announced the completion of welding work on a site more than 7-km long. However, until recently, the details of the construction of the pipeline did not fall into the public domain. That is why the symbolic welding of the first seam of the gas pipeline on the Turkmen-Afghan border, which marked the launch of the project in Afghanistan, raised great doubts about the readiness of the Turkmen section of TAPI. As we see, skepticism was not unfounded.

It should be noted that the process of preparing the pipeline project in Afghanistan was officially launched back in 2016. In January 2017, the TAPI Pipeline Company Limited consortium, which is constructing the pipeline, signed a contract with the German company ILF Beratende Ingenieure GmbH. As a result, a month later, the parties began to develop a package of pre-project documentation for the Afghan-Pakistani section of the TAPI gas pipeline.

In November 2019, a representative of the Board of Directors of TAPI Pipeline Company Limited, Muhammetmyrad Amanov, confirmed that so far only the preliminary design and feasibility study for the gas pipeline project has been fully completed. Topographic and geodetic work, as well as work on assessing the environmental impact of the project in Afghanistan and Pakistan, was completed.

It should be noted that in December 2018, the Pakistani government approved the gas pipeline route, however, the official launch of the construction of the pipeline continues to be delayed. After delaying the launch three times, the Pakistani authorities announced that they plan to begin construction of TAPI in January 2020 and to complete the construction of a section 826-km-long without compressor stations by 2022.

Another delay was caused by disagreements between the parties on the terms of the contract for gas export. Islamabad sends a clear signal to the Turkmen partners that construction work will begin only after negotiations on setting a new price for the gas supplied are completed.

The estimated cost of blue fuel under the developed contracts is about $350 per 1,000 cubic meters, which under current conditions is an excessively high price. Due to the continued growth in LNG supplies to Europe from the United States in 2020, the price of natural gas could drop further to $120 per 1,000 cubic meters.

In such circumstances, it is clear why Pakistan seeks to agree on the terms of the final version of the agreement with the host government (Host Government Agreement), the first version of which was signed in March 2019 between Islamabad and the TAPI Pipeline Company Limited consortium.

In December 2019, the Pakistani press reported that Ashgabat made certain concessions and agreed with Islamabad’s offer to insure gas supplies. It is, in particular, that in the event of the undermining of the Afghan part of the TAPI gas pipeline, Islamabad could count on receiving compensation. Ashgabat traditionally sells natural gas to its customers at the border, thereby relieving itself of responsibility for its transportation. However, in the case of TAPI, the Turkmengaz state concern owns an 85% stake in the gas consortium, which will inevitably increase the share of its involvement in organizing the process of raw material delivery.

It should be noted that security issues, in particular, the functioning of the Afghan TAPI segment, remain on the agenda. In May 2018, the TAPI Pipeline Company Limited consortium already reported an attempt to attack the company's facilities in Maiwand County in Afghanistan. And although the incident did not entail problems with ensuring the safety of the company’s personnel, the fact that the main pipeline route will pass through territories poorly controlled by the Afghan government continues to cause considerable concern.

That is why the Afghan authorities are trying to mitigate security threats. So, for the protection of the pipeline, which has not yet been built, a special unit of 700 Afghan troops has already been formed, who will serve in five provinces: Herat, Farah, Nimroz, Helmand and Kandahar. However, the formation created may not be enough to ensure the safety of the 774-kilometer-long section of the Afghan pipeline.

Since this problem has a long-term nature, the priority task for Turkmenistan at the present stage is to conduct negotiations with Pakistan to finalize the conditions for gas transit and transportation. It can be assumed that in the first quarter of 2020, the focus of Ashgabat will be shifted precisely in this direction.

At the same time, it is obvious that even if consultations with Pakistan are successfully completed, the TAPI Pipeline Company Limited consortium still needs to attract additional investments. The situation did not change even after the cost of constructing the pipeline was officially reduced from $10bn to $7.6bn.

In addition to the pipeline itself, the TAPI project involves the construction of compressor stations, launch units for treatment facilities, access roads and power lines. As a result, the pipeline operator has yet to find investors and hold a series of tenders to attract contractors to carry out the relevant work. In such circumstances, it is very difficult to identify the exact timelines for the completion of construction and commissioning of the TAPI gas pipeline.

However, despite all the difficulties, the Turkmen side is determined to complete the construction of TAPI. Ashgabat rightly believes that the emergence of a new energy corridor will bring the interaction of Central and South Asian states to a new level. High interest in the project is maintained by its direct participants. However, in the current context of political will to complete the project may not be enough. The chance that the TAPI gas pipeline will turn into an unprofitable long-term construction remains high.

CONNECT & FOLLOW