Iran Offers Turkmenistan New Gas-Swap Deal To Pakistan

Iran has made a surprise offer to Turkmenistan that officials in Ashgabat might find difficult to reject.

The head the National Iranian Oil Company, Hamidreza Araqi, said on April 29 that Iran was prepared enter into a gas-swap deal that would transfer Turkmen gas to Pakistan.

Turkmenistan is currently experiencing its worst economic crisis since the country became independent in late 1991, and the Turkmen government has been desperately seeking new export routes for its major export: natural gas.

Turkmen President Gurbanguly Berdymukhammedov seems to have settled on the construction of the Turkmenistan-Afghanistan-Pakistan-India (TAPI) pipeline as the best option for boosting Turkmen gas exports and bringing in badly needed revenues to Turkmenistan's state coffers.

But doubts remain about the feasibility of realizing TAPI, which would carry some 33 billion cubic meters (bcm) of gas but must pass through some 744 kilometers of Afghan territory, where fighting between militants and government forces has been increasing in recent years.

Concerns about the Afghan part of TAPI's route has made it difficult to find investors for the estimated $10 billion project.

Araqi noted that, saying, "In the best case scenario, TAPI could be constructed in 10 years, it is still unclear which party is going to provide the project's security and funding."

"We can conduct a swap in a short time at a considerably lower cost," Araqi said.

Araqi did not mention how much Turkmen gas Iran was willing to swap, but his comment about the Iranian option being the fastest would appear to be true.

Peace Pipeline

Iran has completed its part of the Peace Pipeline, a 1,900-kilometer project that would connect Iran's offshore South Pars gas field to Pakistan and eventually to India.

The Peace Pipeline is a competitor project to TAPI. Both projects were first conceived in the mid-1990s, and each has been delayed for different reasons.

In the case of the Peace Pipeline, the United States has successfully urged Pakistan to reject gas purchases from Iran.

But Iran went ahead and built the line on its territory, so Araqi is probably correct when he says the gas-swap arrangement with Iran is the quickest option for Turkmenistan to sell gas to Pakistan.

The Peace Pipeline should have a capacity to ship some 22 bcm of gas annually to Pakistan when it is launched, but plans call for increasing capacity to 55 bcm.

Araqi did not mention how much gas Turkmenistan could ship, but given Turkmenistan's dire economic situation, anything might arguably be welcomed by Ashgabat.

Turkmenistan currently exports gas only to China, more than 30 bcm, but some of that goes toward paying off billions of dollars in loans China gave Ashgabat to develop gas fields and for the construction of the pipelines leading from Turkmenistan to China.

Turkmenistan lost Russia as a gas customer at the start of 2016, and then a year later lost Iran as a customer when Ashgabat insisted Tehran pay off a debt for gas supplies Iran received during the winter of 2007-08. When Iran refused to pay, claiming Turkmenistan had hiked the price to from $40 per 1,000 cubic meters to $360 during that harsh winter, Turkmenistan shut off the gas to northern Iran.

But Tehran did allow a gas-swap deal between Turkmenistan and Azerbaijan whereby Turkmenistan shipped an unknown quantity of gas to northern Iran and Iran made a like amount of its gas available to Azerbaijan. Armenia has been seeking a similar arrangement.

These gas-swap arrangements do not compensate for losing Russia, which once imported more than 40 bcm of Turkmen gas, and Iran, which once imported some 6-8 bcm of Turkmen gas, as customers.

And since neither Tehran nor Ashgabat seems willing to budge on its debt dispute, Turkmenistan's two gas pipelines to northern Iran, with a combined maximum capacity of some 20 bcm, are mostly empty.

So Iran's offer will be attractive to the Turkmen government, but Ashgabat must consider that, by agreeing to this swap arrangement for gas to Pakistan, it will likely make TAPI look even less feasible than it already does.

Ulterior Motive?

However, there is probably something more than generosity behind Iran's offer to Turkmenistan.

After all, last year when Turkmenistan was trying to arrange a gas-swap dealwith Iran that involved Turkey, Araqi said, "We are against the sale of a rival country's gas to Turkey via swap operations."

The United States has opposed deals with Iran that bring profits to Tehran's coffers, but Washington has not opposed the oil-swap deal Kazakhstan has with Iran or the gas-swap deal Turkmenistan has with Iran, the logic being that the main profits do not go to Iran.

By advertising gas to Pakistan as being Turkmen gas, Iran might believe it can convince Pakistan to complete and launch the Peace Pipeline on its territory.

Whose gas would fill the pipeline 10 years from now is another question, but it is unlikely Pakistan would shut down supplies of needed gas simply because it was suddenly purely Iranian gas.

Araqi's April 29 statement was the first public acknowledgement of the offer to Turkmenistan, but his comments indicated the proposal was made earlier. "We have announced our readiness to Turkmenistan, that we are ready to export their gas to Pakistan, but have not received any response from them," Araqi said, suggesting this might have been a topic when Iranian President Hassan Rohani visited Turkmenistan at the end of March.

Now the question is: How confident is Turkmenistan in TAPI?

Berdymukhammedov has been saying TAPI should be done by the end of 2019, though few believe that is the case.

Turkmenistan appears to need money now, and this Iranian deal might be the best chance for Ashgabat to receive money in the near future; but it would also be a blow to TAPI, since the opening of the Iranian pipeline to Pakistan, and possibly India, would make TAPI less important for Pakistan and India.

Copyright (c) 2015. RFE/RL, Inc. Reprinted with the permission of Radio Free Europe/Radio Liberty, 1201 Connecticut Ave NW, Ste 400, Washington DC 20036.