Copyright 2002 Petroleum Economist Limited   * Reprinted for Fiar Use Only
Petroleum Economist
February 11, 2002

LENGTH: 39680 words [NOTE: we have only included




Following the removal of the Taliban and the establishment of a more
stable, internationally accepted government, the prospect of Afghanistan
becoming a major central Asian energy transit route has re-emerged.
At a first glance, investment in and revenues from pipeline projects
crossing Afghanistan could improve economic stability and encourage the
inflow of foreign capital at a critical time. But the reservations of the
international investment community, wary of becoming involved in a
still-volatile area, suggest enthusiasm about pipeline projects in the
country may be premature.


The Taliban promoted Afghanistan as an oil and gas transit point for
exports from the Caspian to the Mideast Gulf. In 1997, Turkmenistan
brokered the creation of an international consortium, CentGas, under the
leadership of Unocal, which planned to build a $2bn gas line across
Afghanistan. The imposition of US and, later, UN sanctions against the
country and then Unocal's withdrawal put a stop to the plan.
The project envisaged a 1,270-km, 20bn cubic metres a year link from the
border with Turkmenistan, along the Herat-Kandahar road, to the Pakistan
border, at Quetta, ending at Mulat.
Another pipeline project had been discussed to carry up to 1m barrels a
day of crude from Chardzhou, in Turkmenistan, to Pakistan's Arabian Sea
coast, across Afghanistan. The Central Asian Oil Pipeline Project would
have been linked via the Chardzhou refinery to western Siberia's
oilfields. However, the US' Energy Information Administration says "this
project remains highly doubtful for the time being".
A recent policy paper on Afghanistan by US-based Carnegie Endowment (a
non-profit organisation that aims to improve co-operation between nations
and promote active international engagement by the US) says building
pipelines across Afghanistan could become "one of the main ways to breathe
life" into the war-ravaged country.
Just as important, the paper says, will be the development of an energy
infrastructure policy for the region, especially with countries that
border Afghanistan to the north.
This sentiment is echoed by the World Bank, which says the "regional
environment around Afghanistan ... is very important for a reconstruction
strategy". It adds that: "The spillover of ethnic groups and conflict into
the bordering areas of neighbouring countries, which, for the most part
are sparsely populated and poor, means targeted development programmes are
also needed in these 'risk areas' to prevent them from continuing to be
reservoirs for conflict in Afghanistan and in their own countries."
However, schemes to build pipelines in Afghanistan could be to Russia's
detriment and it is unlikely Moscow would support any such schemes,
especially given its major pipeline plans and their importance to the
national economy (see main article).
But some Caspian states would favour any revitalisation of the Afghanistan
pipeline projects. Last October, the president of Turkmenistan, Saparmurat
Niyazov, was reported to have written to the UN expressing his support for
a gas pipeline across Afghanistan to Pakistan, claiming this would help
rebuild Afghanistan and "accelerate the social and economic development of
the adjacent region". Turkmenistan, like neighbouring Uzbekistan, has
massive gas reserves, but very limited export routes.
Nonetheless, a swift revival of high-risk projects is unlikely. As the
World Bank points out, the Afghanistani economy is in a state of
"The key economic institutions of state - central bank, treasury, tax
collection and customs, statistics, civil service, law and order, judicial
system - are extremely weak or missing. Basic infrastructure - roads,
bridges, canals, telecommunications, electricity, markets - have been
destroyed or oriented toward the war effort."
The detailed paper recommends a three-stage approach to rehabilitate
Afghanistan, with the first initial phase focusing on restoring basic
social and economic elements. However, other steps, as part of a
reconstruction strategy "will take time to reach fruition", the paper
says, noting that this includes the energy sector.
(HH) Analysis - Pipeline survey - Facing rapid growth.
(SH) Spurred by expectations of rising demand for natural gas over the
next 20 years and with development of Arctic gas riches an immediate
prospect, pipeline construction across North America is on the verge of
unparalleled growth, writes WJ Simpson.
(PP) 14