Dragon Oil reportedly in talks to invest in TAPI pipeline

Dragon Oil reportedly in talks to invest in TAPI pipeline
By bne IntelliNews November 24, 2015

Dubai-owned Dragon Oil, which is developing the Cheleken field in the Turkmen sector of the Caspian Sea, is in talks to invest in a $10bn pipeline to deliver natural gas from Turkmenistan to India, the FT reports. This is “a potential boost to the project after several western oil companies failed to secure a role”, it said. However, questions arise around Dragon’s motives in investing in the pipeline without prospects for shipping its own output.

Earlier in November Turkmen President Gurbanguly Berdymuhamedov signed a decree on the construction of the 1,735km-long Turkmenistan-Afghanistan-Pakistan-India (TAPI) gas pipeline as an official order to start works on the pipeline.

The TAPI pipeline is expected to export 33bn cubic metres (bcm) of natural gas per year from Turkmenistan’s Galkynysh field, one of the world's largest fields with estimated reserves of 13,100bcm of natural gas, to the Pakistani and Indian markets, through Afghanistan, but the involvement of the latter makes it an incredibly risky project, creating uncertainty about the project’s future. In October, Turkmenistan’s gas national company Turkmengaz, Afghan Gas Enterprise, Inter State Gas Systems (Pakistan) and GAIL (India) confirmed their holdings in the TAPI pipeline at 25% each.

Turkmenistan decided to go ahead with the construction of the pipeline despite giants ExxonMobil, Chevron and Total abandoning plans to get involved in the project after Turkmenistan denied the oil majors an equity stake in the Galkynysh field to hedge their risks of building the pipeline.

Dragon Oil’s possible involvement in TAPI raises questions as the company’s developments are in Turkmenistan’s west a thousand kilometres away from the starting point of the pipeline in the country’s east. In order to supply its output through TAPI, Dragon Oil would have to build a pipeline to link its field to TAPI.

Another explanation for Dragon’s involvement may be its hope to build a pipeline from the country’s east to the west to benefit from supplying Turkmen gas to the lucrative European market should conditions become favourable. At the same time, Iran, when the Western sanctions are finally lifted, may oppose competition from Turkmenistan in order to protect its own gas supplies to Europe.

Since Turkmenistan doesn’t allow foreign companies to develop relatively easy onshore fields, getting hold of an onshore field would be a major coup for the relatively small company.

Turkmenistan has already built three lines of the Central Asia-China gas pipeline via Uzbekistan and Kazakhstan and is building the fourth line via Uzbekistan, Tajikistan and Kyrgyzstan. The total capacity of the pipeline is 85 bcm a year, of which at least 60 bcm will be supplied by Turkmenistan.

Being aware of dependence on Beijing in gas exports, Turkmenistan is frantically pushing the TAPI project to tap into the closer markets in South Asia.