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Zombie pipelines taunt Pakistan
Pakistan is the Asian ‘energy bridge’ that never got built. Now the country is about to implode under the pressure of unaffordable energy.
Pakistan is on the brink. The state is bankrupt and trying to negotiate another IMF bailout, its fourteenth in less than four decades. Political crises are driving a thick wedge into a polarised society. Militant separatists are active in several border regions, while corruption is widespread. Inflation is decimating the poorest, energy is unaffordable for many, and blackouts are becoming deep and prolonged.
Pakistan’s tragic slide towards failed statehood can in part be ascribed to a lack of energy. The country has both the lowest per-capita GDP among its regional peers, and the lowest per-capita energy consumption. That places it in the miserable bottom-left quadrant of the energy-prosperity correlation chart:
Pakistan also occupies an important position in the regional energy landscape. Wedged between the energy-hungry economies of south Asia and the energy-rich Middle East and central Asia, Pakistan has for years been courted as a potential ‘energy bridge’. Numerous pipelines have been proposed to run through Pakistan, connecting untapped gas reserves in Iran or Turkmenistan with latent demand as far away as Bangladesh.
None have been built, but decades-old pipeline projects refuse to die. Plans and promises wax and wane between stagnation and revival, as geopolitical events cast old projects in new light. Pipelines represent economic cooperation and are a lightning-rod for political leaders keen to show their desire to get along with one another in otherwise adverse circumstances.
Sparring world powers keep Pakistani pipelines in an undead zombie state. They are impossible to build but could make or break the fortunes of their proxies. The US has for years promoted the Turkmenistan-Afghanistan-Pakistan-India (TAPI) pipeline, because it would exclude Iran from the growing Indian gas market. China and Russia are backing a rival project: the Iran-Pakistan-India (IPI) pipeline, AKA the ‘Peace Pipeline’. This project is gaining rhetorical significance as part of Sino-Russian grand plans to counter Western influence across Eurasia.
Depending on which project prevails, a major new Pakistani pipeline could either give Pax Americana a much needed shot in the arm, or help to erode its influence in a strategically significant part of the energy world. This puts Pakistan eternally under immense pressure from Washington, Moscow and Beijing.
A pawn in the Great Game
Tectonic plates are shifting quickly across the Middle East and Central Asia. The landmark entente between Saudi Arabia and Iran, brokered by China, quickly led to Syria and Saudi Arabia reopening their embassies more than a decade after cutting diplomatic ties. The Saudi Kingdom is Pakistan’s closest regional ally, so Riyadh’s pivot towards Damascus and Tehran gives Pakistan leeway to get more friendly with Iran.
Iran, for its part, is revelling in its new status as the cornerstone of a Sino-Russian plan to undermine US and NATO influence in Central-South Asia. Iran is sitting on 32.1 trillion cubic metres of untapped natural gas, or 17% of the entire world’s total proven reserves – second only to Russia’s 37.4 Tcm (20% global share). For Xi Jinping, building a pipeline from Iran to India is taking on strategic importance: India is China’s closest rival in the quest for superpower status and New Delhi exerts great regional influence, so piping gas from a key ally (Iran) into the Indian market would give China leverage when relations sour, as they inevitably do (remember: these two nuclear powers dispute large sections of their shared border territory and there are periodic skirmishes).
Pumping Iranian gas into India means building IPI, the so-called Peace Pipeline. Just like peace itself, IPI never quite materialised and has lain half-built for many years. Iran constructed its segment as far as the Pakistani border, but onward progress was thwarted by US sanctions on Iran. (This has provoked criticism that Pakistan is too timid towards America, since other countries — notably Turkey — import Iranian gas with apparent impunity.) Now, Iran is threatening Pakistan with an $18 billion fine for failing to uphold its side of the 2009 Peace Pipeline construction deal. Which way will Pakistan turn?
Both IPI and TAPI would require financiers and insurers to underwrite multi-billion-dollar infrastructure stretching thousands of kilometres across some of the most rugged and unstable territory in the world. The Taliban for years threatened to destroy segments of TAPI running through their guerrilla-controlled territory, but since taking power in Kabul in 2021 they have thrown their weight behind the project.
Militant forces including Islamic State, Tehreek-e-Taliban Pakistan (TTP) and Balochistan Liberation Army (BLA) are still at large in Afghanistan, so the Taliban government’s deployment of 30,000 troops to protect pipeline workers removes a major security threat to TAPI. The incentive is clear: TAPI would deliver huge gas transit revenues for economically crippled Afghanistan and the isolated Taliban government that presides over the deteriorating country.
India is also keen to get its hands on Turkmen gas via TAPI. India relies on coal and oil for 83% of primary energy and the scope to displace this with gas is vast: gas accounts for just 6% of primary energy and the government has a target to increase that to 15% by 2030. India consumed 62.2 billion cubic metres of gas in 2021, so achieving 15% will require almost tripling that to 155 Bcm or more, depending on India’s economic growth. Importing liquefied natural gas (LNG) will only get India so far; the goal requires secure, stable and affordable supplies of pipeline gas at scale.
If Pakistan facilitates TAPI, it would be aiding two of its closest rivals: the Taliban government, which refuses to crack down on TTP and BLA insurgents that mount separatist attacks on Pakistan from remote borderland strongholds in Afghanistan; and India, which has a long-running border dispute with Pakistan over Kashmir. Again, which way will Pakistan turn?
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Russia wades in
Pakistan’s pipeline predicament became more complex following Russia’s full invasion of Ukraine. Russia has all but lost Europe as a gas export market and is seeking alternative outlets in markets that lie to the east (China) and south (India).
China is increasing purchases but is proving reluctant to rely too heavily on Russian gas. During Xi Jinping’s visit to Moscow, Beijing and Moscow failed to seal the deal on Power of Siberia 2 – a new pipeline to send Russian Arctic molecules east rather than west. China prefers diversification of supply and would just as readily tap Turkmenistan for more (but only if it really needed it). More Russian gas will inevitably end up in China, but nowhere near enough to replace the European market that Russia has lost.
A consolation prize for Vladimir Putin is to pipe gas south into northern Iran. Tehran and Moscow signed a high-level $6.5 billion gas swap deal in October 2022. If realised, this would relieve Iran of the need to use gas from its southern Persian Gulf gas fields to meet demand in the north, and focus instead on exporting its own gas east into Pakistan via the Peace Pipeline (IPI).
Getting Russian gas into Iran is tricky because the two countries do not share a border. The pipes would have to go a convoluted route either via Kazakhstan-Turkmenistan or Azerbaijan. Alternatively, Russia could avoid Iran altogether and head for those prized south Asian markets via Kazakhstan-Uzbekistan-Afghanistan-Pakistan.
This route is making symbolic (i.e. not much) progress. Gazprom discussed a high-level trilateral gas union with Kazakhstan and Uzbekistan last November that could see Russian gas pumped south towards India via Afghanistan and Pakistan. This would cut out Turkmenistan, which is both a supplier of gas to Russia and the source of gas for TAPI. Moscow would ruin relations with Ashgabat only to then encounter the same security problems that TAPI faces on the ground.
There is an altogether different route to get Russian gas into Pakistan: via seaborne LNG. Russia is reviving another old pipeline project – Pakistan Stream – to pump regasified Russian LNG from Karachi port in the south to Kasur in the country’s north-east, near the border with India. The project has made little progress since it was unveiled in 2015 but the two countries recently signed an inter-government agreement to develop the pipeline. War is stirring yet another zombie project.
Time to slay the zombies?
Pakistan desperately needs more gas, but not at any price. Global gas prices might have softened in recent months but the gains to Pakistan are negligible because LNG is priced in dollars and the rupee is in freefall. Erratic and volatile spot LNG supplies made matters worse. The country now faces an affordability crisis of epic proportions.
Grid electricity is a luxury commodity that is as unreliable as it is unaffordable. A cascading grid failure in January left the entire country in the dark for more than 24 hours. Expensive energy is throttling economic activity and hurting fiscal revenues. With Pakistan’s foreign reserves rapidly running out, the International Monetary Fund is playing hardball over the terms of a bailout. The IMF is demanding Pakistan cut petrol (gasoline) subsidies, claiming that these will make the fiscal black hole that much deeper.
Exposing consumers to global oil prices would only worsen the affordability/inflation crisis. Instead of the IMF’s tired old recipe of deregulation and austerity, Pakistan needs a comprehensive revival plan that attacks the route cause of many problems: its reliance on imports to plug its energy deficit.
Pipelines might help stabilise domestic gas and power prices, but they would only add to Pakistan’s reliance on foreign producers. Meanwhile, a crumbling and cumbersome centralised grid is crying out for modernisation and decentralisation. In both cases, harnessing untapped domestic renewable resources could help reverse Pakistan’s deteriorating energy fortunes by shoring up grid stability and energy security.
Wind and solar will take time to scale up. In the meantime, Pakistan can do little more than watch as regional rivals and global powers squabble over decades-old gas infrastructure projects that could alleviate its misery but in all likelihood will never get built. The zombie pipelines are taunting Pakistan. Maybe it is time to lay them to rest.
Seb Kennedy | Energy Flux | 14th April 2023