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Afghanistan Faces Challenges in Developing 'Viable Resources'

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Security concerns and political problems hinder Afghanistan's efforts to attract outside investment to develop oil and gas resources that the U.S. Geological Survey says are larger than previously believed, experts say.

Afghan officials see energy development as a component of their country's economic reconstruction. A joint survey by the USGS and Afghanistan's Ministry of Mines and Industry estimates the northern region contains between 3.6 trillion and 36.5 trillion cubic feet of natural gas and between 0.4 billion and 3.6 billion barrels of oil.

The mean estimates are 15.7 trillion cubic feet of gas and 1.6 billion barrels of oil. Abdullah Abdullah, the country's outgoing foreign minister, yesterday said during a speech at American University that survey shows "Afghanistan has viable resources."

USGS, in announcing the results, said the assessment is "likely to be of interest to oil and gas exploration companies" and provides the country with some information it needs to conduct lease sales. But outside analysts say that if violence and security problems persist, energy company investments will be quite uncertain. The resource base -- while perhaps larger than believed -- may nonetheless not be large enough warrant major risks.

"There are serious political hurdles to actually exploiting the resources likely in that country, law and order being the most obvious one," said Amitabh Dubey, South Asia analyst with the Eurasia Group. While security problems related to the Taliban have been focused on the South, he said it affects development efforts more broadly. "It makes it harder for the government to focus efforts on state building, as opposed to protecting itself from this," he said.

But Afghanistan's ambassador to the United States, Said Tayeb Jawad, told Greenwire yesterday that security problems should not keep the country from developing its resources. "Right now, most of the oil reserves are in the north of the country, which is very safe and secure, so the environment is conducive to conducting business and exploring the oil reserves in Afghanistan," he said, while last week he believes the country provides opportunities for "visionary" investors.

Jawad said last week there have been discussions with energy companies but did not provide specifics.

Officials tracking the issue say several more steps remain necessary to make oil and gas development a reality, including seismic work, rehabilitation of existing wells, and other steps. The U.S. Trade and Development Agency provided the $2 million funding for the USGS assessment of the two northern basins, but next steps are not clear with respect to the agency's involvement, said Daniel Stein, USTDA's regional director for Europe and Eurasia.

'High political risk and huge costs'

Amy Myers Jaffe, an energy expert at the Baker Institute at Rice University in Houston, points out that Iraq, even with its gigantic reserves, is having trouble attracting investment. Iraq's 115 billion barrels are the world's third largest behind Saudi Arabia and Canada.

"There is so much oil in Iraq but, [but] the security climate is so bad that Iraq is having trouble getting people to really make a push," she said. The costs of building a pipeline to move Afghan oil could also be a significant issue, she added.

"You are going to have this very limited resource and high political risk and huge costs of piping it somewhere," she said. On the gas side, she said resource base may be more promising when asked about the USGS estimate, but again flagged security risks. Afghan gas could be put into the proposed Turkmenistan-Afghanistan-Pakistan gas pipeline, which could include India as well. But she noted that India may focus more on seeking gas from more secure suppliers.

While it is not clear what energy companies may eventually prove interested, Dubey believes that smaller companies that have a larger appetite for risk than the majors could become interested. "It all depends on the terms and conditions they [the government] offer, and we are not really there yet," he said. Another possibility, he said, is that state-owned Indian or Chinese companies could become interested -- he noted that India has generally good relationships with the "-stans," including Afghanistan.

Jawad said the legal infrastructure is mostly in place to allow leasing and exploration, and told the Associated Press he could envision exploration within two or three years, while a U.S. government source indicated leasing could occur within five years.

The country's hydrocarbons law is in place. Regulations addressing its implementation it and other regulatory issues remain to be worked out, said Mariam Nawabi, vice president for business development with Afghanistan Market Development Inc., a company seeking to open markets between Afghanistan and other nations.

Stein said in an e-mail yesterday that there are "no firm plans" for additional work related to Afghanistan's oil and gas development. He also noted the recently announced cabinet shake-up by President Hamid Karzai, which includes a new head of the Ministry of Mines and Industry.

"Since that Ministry has responsibility for oil and gas, we will need to determine what the new Minister's priorities are before considering future activities," Stein said.

Copyright 2006 Greenwire. All Rights Reserved. Visit E&E Publishing for a free trial.


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