Pipelinistan: Russia’s $10B Offshore Pipeline Deal With Pakistan a Game Changer

IRSHAD SALIM (Jun 4, 2018) — Two energy projects are being called a game-changer for Pakistan as they will not only lead to meeting growing energy needs of the country but will also enhance regional trade, connectivity and economic integration leading to stability in the region infested with terror barons — Pakistan and Afghanistan remain two of the 5 most terror affected countries worldwide along with Iraq, Syria and Nigeria.

One is the the $10 billion Turkmenistan, Afghanistan, Pakistan and India (Tapi) natural gas pipeline to connect South and Central Asia. The construction work on the scheme in Pakistan will start in March next year with first gas flow anticipated in 2020.

Presently the Turkmenistan-Afghanistan part of the pipeline is in the works with Asian Development Bank (ADB) acting as the facilitator and coordinator for the 56-inch diameter 1,680KM pipeline with design capacity of 3.2 billion cubic feet of natural gas per annum (Bcfd).

The proposed TAPI route will pass through Heart – Kandahar – Chamman – Zhob – DG Khan – Multan – Fazilika (Pak-India Border).

The other project announced is a $10 billion offshore gas pipeline deal Russia has signed with Pakistan, a project planned by the former to capture the energy market of Pakistan and beyond. Russia has shown willingness to implement the Karachi-to-Lahore pipeline project also called “North-South Gas Pipeline” on Build Own Operate and Transfer (BOOT) model under Government to Government Agreement.

Why Russia is eager: Amid a long-running tussle with Europe and the United States over the annexation of Ukrainian region of Crimea, Russia is looking for alternative markets for its energy and wants to capitalize on growing energy demand in South Asia. Russia’s presence in Gwadar’s vicinity will also fulfill its longstanding desire for access to warm waters of the Arabian Sea and beyond.

Russia, which controls and manages huge gas reserves in energy-rich Iran, plans to export gas to Pakistan and (in future to India) by laying an offshore pipeline through Gwadar Port in Balochistan and south and south eastward. The two countries are seen by Russia as huge alternative markets because Moscow fears it may lose energy consumers in Europe over the Crimea stand-off coupled with competing geopolitical dynamics it has with the West in restive Middle East.

Russia has been a big gas exporter to European Union (EU) countries as well as to Turkey since long and despite US anger the European bloc and Turkey has continued to make imports to meet their energy needs. How long EU will withstand the pressure is a wild cared to play with at present.

As for Ankara, last week Turkey and Russia inked protocol concerning land-based part of the transit leg of the TurkStream gas pipeline to Europe via Turkey. Gazprom said work to implement it could now begin.

Moscow receives gas from Turkmenistan and then exports to EU states. With its gas deposits in Iran as well, it is looking to gain a foothold in the gas market of energy-starved Pakistan and India.

So on supply side, we have Russia, Iran and Turkmenistan all set to sell and export gas to Pakistan and through Pakistan to India which needs gas from the region in quantities far exceeding Pakistan. The combined demand for gas by Pakistan and India from the region close to their borders makes the deal for the supplier countries a windfall in geoeconomic terms — therefore the geostrategic tectonic shift in the region. Both Iran and Russia face sanctions from the West in varying degrees, and with potential for more in future if some experts’ opinions are weighed in the developing calculus.

With special economic zones to be operated and managed by China under CPEC, there will also be increased need for cheap energy sources to match its assured demand in the country, and therefore the need for assured energy supply cheaper than oil or gas from the Middle East in Pakistan will fuel the growth on all sides.

The above argument strengthens China’s and Pakistan’s symmetry of thought on geoeconomy as the main driver of CPEC — a mega state-to-state project undertaken by the two “iron brothers”. And, while CPEC’s geoeconomy would override geostrategic benefits, the two attributes actually become mutually inclusive and interdependent ultimately — much to the dismay of some of their neighbors in the short term, until disputes are settled among them and they realize Pipelinistan is akin to the girl next door.

There have been enabling events by countries such as China, Russia and Iran — considered “collective seriousness” in the region, and makes the Shanghai Cooperation Organization (SCO) — Pakistan and India are its full members — a relevant platform to synergize each nation’s efforts of keeping the region free from terrorism (read ISIS) while maintaining good neighborliness with one another and collectively. This has facilitated Pakistan to become the croupier amid efforts by its detractors to load the dice in their own favor.

The outgoing PML-N-led government’s cabinet approval to the signing of the Russian gas pipeline laying deal and the Pakistani ambassador to Russia been authorized to ink a memorandum of understanding with Moscow — as early as Monday speaks volume. During the last couple of weeks, official and local media have been highlighting also the Pakistan-Russia defense treaty signed in 2014.

Final cost of the project will be assessed following a feasibility study to be conducted by Russian energy giant Gazprom — a techno-commercial exercise skewed heavily in favor of quantum benefits and tradeoffs — therefore worth the risks.

Russia has nominated its Public Joint Stock Company Gazprom for implementing the project. Pakistan’s cabinet has also permitted the company to conduct the feasibility study at its own cost and risk. Russia is even ready to finance the study.

The Inter State Gas Systems (ISGS) – a state-owned company of Pakistan established to handle gas import projects and already working on the gas pipeline scheme Tapi, has been nominated by Pakistan to execute the offshore pipeline project along with Gazprom.

How serious is Russia in exporting its gas can be judged by the fact that in 2017 exports to Europe and Turkey, excluding ex-Soviet states, touched an all-time high of 622 million cubic meters — a significant jump from the 161.5 bcm in 2013 prior to Crimea related sanctions slapped on Russia by the U.S. in 2014.

Two years later post Crimea sanctions, Russia in 2016 exported 179.3 billion cubic meters (bcm) to Turkey and Europe. The quantum jump in figures of Russia’s 2017 gas exports reflects a new normal — good for Pakistan where the new normal is geo-economy also. Last week it said the Iran-Pakistan pipeline is on the frontburner –again.

(The writer is a business consultant and analyst, and Group Editor of PKonweb.com and DesPardes.com – His opinion articles, analysis and reports also appear in Jeddah-based Al-Bilad English Daily and UAE-based Caravan Daily)

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