A perusal of the negotiation processes of all the major pipeline projects in South Asia indicates a peculiar oscillating pattern. Namely, the negotiation processes have moved back and forth depending on wide-ranging commercial, geopolitical and security factors within the exporting, transit and consumer countries. Thus, owing to Iran’s long-standing isolation, potential consumer countries have recognised Turkmenistan’s role as an alternate gas exporting country that could satiate their increasing demand for natural gas. Estimates by BP shows that Turkmenistan has about 617 trillion cubic feet of natural gas.1 Therefore, unlike other proposed cross-border energy projects in South Asia, the negotiations on the TAPI pipeline project moved swiftly.2 But the successful conclusion of nuclear negotiations between Iran and the West has brought Iran back as a global energy player.3 Within India, consequently, Iran’s re-emergence on the global energy scene has reduced the country’s dependence on the TAPI pipeline project for its future gas imports.4
Despite the rationale5 behind joining the TAPI project, reports during the post 2012 phase began to indicate that the actual construction of the pipeline may face obstacles due to the rigid position adopted by the Turkmen Government on commercial aspects of the project.6 Due to this, the initial momentum gained in the negotiations process prior to 2012 could not be sustained. Further, the slow development of the project could also be partly attributed to the non-participation of international oil and gas companies owing to Turkmenistan’s reluctance to allow them to acquire stakes in the upstream sector.7 This fundamentally goes against the essential parameters of profitability that drive companies and nations towards project participation.8 One indicator in this regard is the absence of interest from major oil and gas companies during a road show on the project held in Singapore.9
Realising its folly, the Turkmen government, as reported in Natural Gas Asia 2016, recently relented to the long-standing demands of project participants on acquiring stakes in the proposed project.10 Perhaps, the changing realities of the global gas market have finally dawned upon the Turkmen policy makers and this in turn is pushing them to introduce piecemeal reforms in their energy sector.11 For India, which is likely to become the major consumer of Turkmen gas, this is a welcome development. Apart from issues related to profitability, the issue of acquiring stakes also assumes a geopolitical angle. During his field work in New Delhi, the author was told by a respondent that one way of ensuring security of supply for this pipeline project would be through India owning stakes in Turkmenistan’s upstream sector. He noted that this arrangement could help in ensuring that any deliberate gas supply disruption from Pakistan could be avoided. Over time, India and other countries should gradually encourage Turkmenistan to allow international oil and gas companies to acquire stakes in its onshore oil/gas fields as well. Doing so would provide a major fillip to the actual construction of the pipeline project.
Another factor that continues to deter international oil and gas companies from participating in the project relates to the modalities of gas exploration in Turkmenistan’s upstream sector.12 Unlike the global practice of awarding oil/gas exploration companies with the standard Production Sharing Contracts (PSC), the Turkmens are merely offering a Technical Service Contract (TSC).13 It is believed that this is a deliberate move on the part of the Turkmens to retain control over their energy sector.14 But little do they realise that by doing so they are only scuttling the prospects of comprehensive development of their energy sector.
Incidentally, until recently, this was also a policy that Iran had followed with respect to the development of its energy sector.15 But to make its energy sector more attractive for international investors, Iran has begun to introduce incremental changes in its gas exploration policy.16 With a better part of the US-led sanctions removed and its internal gas sector reforms already in place,17 Iran is set to become an important energy hub for prospective consumer countries.
Turkmenistan must take the cue from Iran in order to be able to make its upstream sector more attractive. With natural gas becoming accessible at reasonable costs in the global market,18 Turkmens need to realise that the position that they commanded once has changed and that in the present circumstances potential consumer countries have more options than the TAPI project alone.19
To ensure that the TAPI project is implemented successfully, all stakeholders must show flexibility, concessions and minor adjustments in their negotiating positions.20 The Baku-Tbilisi-Ceyhan pipeline completely changed the commercial landscape of Azerbaijan and helped connect a relatively isolated Central Asian state with the rest of Europe.21 In a similar way, the TAPI project has the potential to be a game changer for Turkmenistan. To further boost confidence among potential investors, it is imperative that Turkmenistan continues to adopt best global practices in its gas sector.
The writer is a Fellow at Observer Research Foundation Mumbai
Views expressed are of the author and do not necessarily reflect the views of the IDSA or of the Government of India.