After some delay, a significant step was taken yesterday towards the implementation of the TAPI natural gas pipeline project. This project, first conceived in the late 1990s, is regarded as a major regional initiative for the transportation of natural gas.
Following recent political changes in Afghanistan, many observers expressed doubts about the implementation of TAPI and other regional economic projects aimed at connecting Central and South Asia with Afghanistan at the center. However, in recent years, not only have the conditions for such large-scale projects not worsened, but new geopolitical developments in the region and the world have created new opportunities. In October 2022, Russia’s invasion of Ukraine led to significant shifts in the global energy market. One such change was that Russia lost its traditional energy market in Europe due to Western sanctions and began seeking new opportunities. In September of the same year, Russian President Vladimir Putin proposed a gas pipeline project to transfer gas to Pakistan and India through Central Asia and Afghanistan during the Shanghai Cooperation Organization summit in Uzbekistan. This was not good news for Turkmenistan, a country rich in fossil fuels, as it has long looked to the two populous energy markets of South Asia—Pakistan and India—as key consumers.
The TAPI pipeline passes through Turkmenistan, which possesses the world’s fourth-largest gas reserves, following Russia, Qatar, and Iran. The Galkynysh gas field in Turkmenistan, located near Afghanistan’s northwestern border, holds approximately 27.4 trillion cubic meters of gas. This makes it possible to supply natural gas to Pakistan and India through a relatively short distance, cheaply and easily via Afghanistan. As a result, Turkmenistan sees itself as being at the forefront of ensuring the success of this project and is closely monitoring the situation.
Meanwhile, considering the rapidly growing demand for energy globally, especially in the two populous South Asian countries of Pakistan and India, it is estimated that by 2030, Pakistan’s annual demand for natural gas as a key energy source will rise to around 60 billion cubic meters, while India’s will reach 160 billion cubic meters. The TAPI pipeline has a total annual capacity to transport 32 billion cubic meters of gas.
Given this backdrop, there is fortunately a consensus among the major stakeholders of the project that recent political changes in Afghanistan should not hinder its implementation. At the last shareholders’ meeting of the TAPI Pipeline Company, held in Ashgabat in August after a five-year hiatus, all participants expressed their eagerness to see the project through, reflecting the unwavering commitment of its stakeholders.
There is now a need to reassess the financial structure of the project in light of new circumstances. Completing the pipeline from the Afghanistan-Turkmenistan border at Torghundi to the Guzara district in Herat, spanning 152 kilometers, is a realistic decision. This segment, known as the “Herat Section,” is estimated to cost around $580 million, which will be financed in cash by Turkmenistan’s state-owned company, Turkmengaz, instead of relying on international loans.
Completing the Herat section offers numerous benefits, with the most important being the ability to meet the growing energy needs in Herat, a significant industrial city in western Afghanistan. The key sector for consuming TAPI gas in Herat is the industrial park, where a substantial portion of the gas can be allocated to large-scale manufacturing plants. Additionally, other sectors hold strong potential for gas consumption, and it is expected that up to 400 million cubic meters of gas per year could be absorbed in Herat alone, paving the way for a major economic transformation in the region.
Moreover, completing the Herat section would encourage potential financiers to contribute to the project, while also reassuring other stakeholders of its feasibility.
On the other hand, given the ongoing political and security challenges in Pakistan, which heighten the financial risks associated with the project, it is necessary to employ a de-risking strategy. The Herat plan can effectively manage the financial risks of this billion-dollar project. Fortunately, according to the latest monitoring report on the security situation from the TAPI company, released at the end of 2023, the current security conditions in Afghanistan were deemed favorable for the project, showing an extraordinarily positive improvement compared to 2018.