Clare Nuttall in Astana -

There are signs that restrictions in Turkmenistan on foreign ownership of oil and gas fields could be at least partially lifted in order to pave the way for international oil companies to join the TAPI (Turkmenistan-Afghanistan-Pakistan-India) gas pipeline project.

There is a high level of political support for TAPI, which will deliver Turkmen gas to the energy-hungry markets of south Asia. However, access to Turkmenistan's oil and gas reserves, together with security concerns in Afghanistan, have held back the project's launch.

The planned 1,735-kilometre TAPI pipeline will run from Turkmenistan's Caspian oilfields via Afghanistan and Pakistan to India. Both the US government and the Asian Development Bank are firmly behind the project, which they believe will contribute substantially to regional development. Washington is keen to get the private sector to play a "lead role" in the project, Fatema Sumar, US Deputy Assistant Secretary of State, tells bne in an interview in Astana. However, no major oil company has yet signed up, despite a series of roadshows held in New York, London and Singapore in 2012, attended by representatives of companies including BG Group, BP, Chevron, ExxonMobil, Petronas and RWE.

The main sticking point for potential private sector participants is Turkmen legislation preventing foreign companies from taking stakes in its oil and gas fields. This has held back foreign investment in Turkmenistan's energy sector, despite it having the world's fourth largest gas reserves, according to a 2008 audit by consultants Gaffney, Cline & Associates.

However, Sumar claims that there has been "positive momentum" on TAPI in 2013. "We are having very productive discussions with the Turkmens on how they can best move forward with international oil companies. Once we have progress on that, the oil companies can come in to work on the project and identify commercial opportunities," she says.

AfPak problems

The other big stumbling block is the question of securing the Afghan section of the pipeline, and the uncertainty surrounding Afghanistan's future following the withdrawal of international forces in 2014. Admittedly, construction of infrastructure such as roads and irrigation systems has gone ahead in Afghanistan in recent years, and back in the late 1990s US oil company Unocal was considering participation in TAPI even while the Taliban was in power. However, the security needs are likely to push the costs up further, with estimates of the project costs ranging from $7.5bn to as high as $12bn.

Nor is Afghanistan the only security issue. Although India and Pakistan are both participating in the project, the two countries remain at loggerheads over the region of Kashmir. In August, Pakistan boycotted the latest round of talks on TAPI after an increase in tensions over ceasefire violations in the disputed territory.

However, the growing need for energy in both countries has forced them to work alongside each other on the project. All four of the participating countries are keen to accelerate TAPI and - with no clear idea of if or when construction work will begin - have already signed purchase agreements for future deliveries of Turkmen gas. In July, ministers from the four countries also signed a protocol agreeing to set up a Dubai-based special purpose vehicle - the TAPI Ltd consortium - whose role will include selecting a company to manage the project.

India is expected to account for a substantial share in the increase in global energy demand, which is forecast to rise by one-third by 2035, according to the main scenario set out in the International Energy Agency's 2013 World Energy Outlook. "The shift in global energy demand to Asia gathers speed, but China moves towards a back seat in the 2020s as India and countries in Southeast Asia take the lead in driving consumption higher," says the report, published November 12. India is set to become the largest single source of global oil demand growth after 2020. Meanwhile, natural demand is expected to increase by 5.4% per annum between 2007 and 2030.

To meet this demand, India is looking to access the oil and gas rich Caspian region. ONGC Videsh Limited (OVL), the overseas arm of Indian state oil company ONGC, acquired a 25% stake in Kazakhstan's Satpaev field in 2011, and in 2013 bought Hess Corporation's stakes in both Azerbaijan's Azeri-Chirag-Guneshli project and the Baku-Tbilisi-Ceyhan pipeline. However, OVL lost out in an attempt to buy into Kazakhstan's giant Kashagan field, when the Kazakh government blocked the Indian company's deal with exiting shareholder ConocoPhillips in favour of bringing China's CNPC into the project.

Meanwhile, Bangladesh has also indicated an interest in joining TAPI. The country has a daily shortfall of 500m cubic feet (14.2m cubic metres) of gas, according to the Financial Express. However, extending TAPI to include Bangladesh would add around 2,000km to the already ambitious pipeline project.

Meanwhile, from the Turkmen side TAPI will help the country further diversify its gas export markets away from Russia. China is Ashgabat's primary interest, as the country has become China's top gas supplier, and the two countries are also keen to push ahead with expansion of the Central Asia-China gas pipeline. However, Turkmenistan is also mulling construction of a pipeline to Baku under the Caspian Sea, which would allow the export of gas to Europe, bypassing Russia, as well as the southern TAPI route.