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Risks hamper Afghanistan’s exploration ambitions

Security problems will keep hampering Afghan upstream plans. Pipeline transit fees offer the best hope for energy income

In 2012, the Afghan government embarked on a major effort to kick start upstream oil and gas developments, hoping to lure explorers. There was interest, even from ExxonMobil. By the end of that year, China’s National Petroleum Corporation (CNPC) had started producing the country’s first oil. But security risks, difficult investment conditions and concerns over potential corruption have, inevitably, slowed the pace of development.

CNPC signed a 25-year contract with Afghanistan in December 2011 to drill and build a refinery in the northern provinces of Faryab and Sar-e-Pul, as the cash-strapped country attempted to cut down on a $3 billion oil-import bill spent on supply from Turkmenistan, Russia, Uzbekistan and elsewhere. However, the project faltered in mid-2013 due to a disagreement on export of some of the oil to China, and it remains unclear how production, which had an initial target of around 2,000 barrels a day, is progressing.   

Meanwhile, ExxonMobil and another seven bidders expressed an interest in bidding for exploration rights in the prospective Afghan-Tajik Basin basin in the north of the country, including Dubai-based Dragon Oil, Kuwait Energy, Brazil’s Petra Energia, India’s ONGC Videsh, Pakistan Petroleum, Thailand’s PTT and Turkey’s TPAO.

While this interest has largely failed to be converted into action, a consortium of Dragon Oil, TPAO and the Afghanistan-based Ghazanfar Group has moved forward, following the award of two blocks close to the Uzbekistan border in December 2012. Exploration and production sharing contracts (EPSC) with the Ministry of Mines and Petroleum were signed in October 2013.

Contracts have since been awarded to carry out seismic and aeromagnetic surveys on the blocks, with 2-D seismic acquisition set to start in the first quarter 2015. The agreement commits the group to drill two exploration wells on each block within a four-year initial exploration period.

The country could also earn transit fees from the proposed 33bn cubic metres a year Turkmenistan-Afghanistan-Pakistan-India (Tapi) gas pipeline, originating at the Galkynysh field in Turkmenistan. It would pass through Afghanistan.

A timetable has been drawn up for the $17bn project. But talk of gas flowing by 2017 is speculative given the security issues to be resolved not just in Afghanistan, but also in the areas disputed by India and Pakistan through which it would also run – much of the route would be mountainous and difficult to protect. 

Backing from the Asian Development Bank should help smooth some of the difficulties involved in financing the pipeline. In November, the bank said the state gas companies of Turkmenistan, Afghanistan, Pakistan, and India had established a company to build, own and operate the Tapi. Turkmengas, Afghan Gas Enterprise, Inter State Gas Systems and Gail own equal shares in the project.

The project looks unlikely to be built to schedule. Nonetheless, it offers a chance to enhance regional dialogue and cooperation, as much as a practical solution to the region’s energy supply problems, at least in the short term. 

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