Energy: Key To India’s Central Asia Reset

Via Eurasia Review, a look at the energy objectives of Prime Minister Narendra Modi’s current tour of the five Central Asian republics:

Prime Minister Narendra Modi’s current tour of the five Central Asian republics will signal whether India has the capacity to become a major power in Eurasia. Occurring half on his way to the July 9-10 SCO Summit in Ufa, Russia, and the other half on his way back, Prime Minster Modi’s tour is a critical opportunity for New Delhi to reverse the strategic setbacks India suffered in Central Asia under the previous government. India has already made some limited gains in its strategic cooperation with Central Asian partners, notably the March 2015 India-Kyrgyzstan joint military exercise held on Kyrgyz soil. Yet for New Delhi to achieve a strategic comeback in Eurasia’s energy heartland, India will need to become a key player in Central Asian energy markets.

In the most significant blow dealt to India’s “Connect Central Asia” policy, Beijing thwarted New Delhi’s attempt to develop a stronger foothold in Central Asian energy by acquiring ConcoPhillips’ 8.4 percent share in Kazakhstan’s massive Kashagan oil field. Although Astana indicated that it would approve the $5 billion sale of ConocoPhillips’ share to India’s ONGC Videsh Ltd. (OVL) the Kazakhstani government blocked the transaction and bought ConocoPhillip’s stake in July 2013. Kazakhstan then turned around in September 2013 and sold an 8.33 percent stake in Kashagan to China’s CNPC for an equivalent $5 billion along with CNPC’s agreement to provide $3 billion to cover half the cost of Kashagan’s Phase 2 development.

During the just-concluded Kazakhstan leg of his tour, Prime Minister Modi ceremoniously jointly inaugurated with Kazakhstan’s Prime Minister Karim Massimov the first exploratory drilling of Kazakhstan’s Satpayev oil field. OVL owns a 25 percent stake in the field in which it has invested US$150 million. Even with OVL’s expected additional investments that could raise the total to $0.5 billion, China has outspent India by 16-fold with its Kashagan expenditure, excluding the rest of China’s energy investments in Kazakhstan. So far, nothing concrete about further Indian involvement in Kazakhstan’ energy sector has emerged from Modi’s visit.

The prime minister’s visit to Turkmenistan after the Shanghai Cooperation Organisation (SCO) summit will take the real measure of how much Modi can effect a Central Asia turnaround in the near term. Turkmenistan is so critical because of the Turkmenistan-Afghanistan-Pakistan-India (TAPI) pipeline slated to transport 33 billion cubic meters of natural gas annually to South Asia from Turkmenistan’s Galkynysh field, the world’s second largest. In addition, to helping provide stability to energy-starved Afghanistan and Pakistan, the 41 million cubic meters per day that India will receive will help the world’s fastest growing major economy meet its own skyrocketing demand.

However, the $10 billion pipeline will have to traverse a dangerous route, passing through Afghanistan’s Kandahar province and the neighboring Quetta region of Pakistan, traditionally the heartland of Taliban militancy. Because of the risk involved, progress on TAPI has stalled. While the Asian Development Bank, transaction advisor for the pipeline’s construction, and the four nations themselves have agreed to an accelerated timetable for the pipeline’s completion, the selection of a consortium leader has proved problematic. Western energy majors have declined the role because of Asghabat’s refusal to issue an equity stake in the Galkynysh field in exchange for assuming the risk of construction.

As in Kazakhstan, China has made deep investments in Turkmenistan’s energy infrastructure. Turkmenistan’s Galkynysh gas field itself was developed by a CNPC-led consortium, and CNPC will be the sole service contractor for Galkynysh’s second development phase. If CNPC is selected to be the consortium leader, instead of expanding India’s influence in Central Asia, the TAPI pipeline could provide China with undue influence over India’s natural gas supply.

For its part, Turkmenistan is reluctant to see CNPC become the TAPI consortium leader. In fact, Turkmenistan has vital interests in increasing India’s involvement in its energy sector to offset its deepening dependence on Beijing. Russia’s 80 percent reduction of Turkmen gas imports leaves China as Turkmenistan’s only major market. While Turkmenistan exports 35 bcm annually to China, the revenues that Ashgabat earns are offset by the debt it owes CNPC for building the China-Turkmenistan pipeline. Turkmenistan is contractually obligated to export at least 65 bcm to China by 2020, through two additional pipelines that CNPC is building. The TAPI pipeline would help alleviate Turkmenistan’s desperate need to diversify its export markets.

Despite the common interests between New Delhi and Ashgabat, Modi has much ground to make up on his visit. It is 20 years since an Indian prime minister visited Turkmenistan, the last being the 1995 visit of another transformational Indian prime minister, the late P.V. Narasimha Rao. New Delhi must step up with financing or other measures to expedite the consortium leader selection.

The Central Asian energy architecture is the commercial framework of the region. New Delhi can begin to establish itself as a major force in Central Asia with the construction of the TAPI pipeline. Modi’s Turkmenistan visit may be the moment.


This entry was posted on Saturday, July 11th, 2015 at 6:03 am and is filed under India, Kazakhstan, Turkmenistan.  You can follow any responses to this entry through the RSS 2.0 feed.  Both comments and pings are currently closed. 

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