Irrational Exuberance Again

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Turkmenistan already has large supply commitments to China and Europe, and it may not be able to deliver the promised quantity of gas.

India is an energy-starved country. Could this explain why its government suffers such frequent bouts of irrational exuberance over hydrocarbons? Look at all the pats that government officials have been giving their own backs for the proposed Turkmenistan-Afghanistan-Pakistan-India (TAPI) gas pipeline. They expect it to deliver huge quantities of Central Asian gas to the country. Energy experts, however, remain doubtful about both Turkmenistan’s reserves and India’s access to its gas.

“It’s a political pipeline being pushed more by something other than economics,” says Lydia Powell, an expert with the Observer Research Foundation. According to her, an Iran-Pakistan-India (IPI) gas pipeline would make far more economic sense, not only for the certitude of Iranian reserves, but also for the security of supplies. But the world’s sole superpower wants Iran isolated. Turkmenistan already has large supply commitments to China and Europe, and even if its reserves are double the earlier estimates, as it claims, TAPI’s assurance of 14 billion cubic metres of gas each to India and Pakistan (and 5 billion to Afghanistan) every year looks like a promise it may not be able to meet. What makes the project trickier is its “security” says Mriganka Jaipuriyar, an energy expert with Platts, “which nobody has talked about openly”. The treacherous Afghan terrain may be bulldozed to make way for the pipes, but the same cannot be said of the numerous insurgent groups in that country. Co-opting them would be too ambitious an aim, and estimates suggest that 7,000 personnel would be needed to guard the Afghan stretch of the pipeline—about half its total length of 1,680 km—which will increase transit costs.

Then, there are problems of India’s own market that need sorting out before 2018, when the gas is projected to start flowing. “For any gas pipeline to succeed,” says Powell, “its anchor customer has to be a big power or fertiliser sector [company].” But with gas prices indexed to prevailing crude oil prices, a formula by which its current price would be $10-12 per unit, Indian fertiliser plants and electricity generators might struggle to stay financially viable. These are sectors long spoilt by state subsidies, and producers are accustomed to low input costs. Luckily, gas-fired power plants are cheaper than others to set up. Plus, energy supplies are always welcome. According to Jaipuriyar, “There is ample demand for gas by Indian industrial clusters even in a price band upwards of $11 [per unit].”