Blessing or Curse? Exploration of oil discoveries in Afghanistan not without risk

In September 2010 the Afghan government announced the discovery of an oil field containing an estimated 1.8 billion barrels in the northern region between Balkh and Jawzjan provinces. The find was made after a survey conducted by Afghan and international geologists and represents a key opportunity for the country to resume commercially viable industrial activities.

Previous exploration activity

This is not the first time natural resources have been uncovered in the challenging Afghan terrain. Oil and gas exploration started back 1957 and the first success was attained in 1959 – in the form of the Angot oil field in Sar-i-Pul province. Exploration continued until 1984 and over 27 years a total of 15 discoveries were made, seven oil fields and eight gas fields, with the last discovery made in 1978. Yet to date, Angot is the only oil field to achieve anything close to sustained levels of production prior to being shut down in 2006. Foreign contractors have been involved in E&P activities in Afghanistan from the very start and up until the outbreak of hostilities in 1979, the Soviets helped in the development of three Afghan gas fields – Khwaja Gogerdak, Djarquduk, and Yatimtaq which are located in the area surrounding Sheberghan, about 120km west of Mazar-i-Sharif where the latest finds were made. Afghan natural gas production grew steadily to 275 million ft³/d in the mid-1970s and at its peak towards the end of the decade, Afghanistan supplied 70 – 90% of its natural gas output to the Soviet Union's pipeline network via a link through Uzbekistan.

Geopolitical Concerns

Afghanistan is a landlocked country and thus requires reliable access to a number of external transit networks in order to market its oil and gas products abroad. There are currently two proposed pipeline projects involving Afghanistan on the table, one being the projected Iran-Pakistan-India (IPI) pipeline, whilst the other is the Turkmenistan-Afghanistan-Pakistan-India (TAPI) pipeline. These rival routes have helped spur geopolitical manoeuvring in the region, with the US supporting the less politically contentious TAPI pipeline, and Russia backing the IPI pipeline. This geopolitical rivalry leaves Afghanistan in the middle of a modern-day version of the 19^th century “Great Game”. Despite the growing intensity of this rivalry, it remains doubtful if either of the projects will ever get off the ground; the lack of regional-level consensus on how best to export any eventual Afghan energy products pre-dates these latest finds and so far no concrete steps have been taken towards starting pipeline construction.

Foreign Dependency Exacerbating Security Concerns

Afghanistan has neither the financial resources, nor professional expertise and equipment to explore the discovered oil itself, and is therefore dependant on sustained foreign investment and assistance to extract it. With unemployment rife, contracting this work out to foreign nationals could provoke resentment of the industry amongst local populations and serve as a useful recruitment tool for anti-government groups, such as the Taliban. For the mid-term the security landscape of Afghanistan will remain volatile. For a capital-intensive industry like the oil and gas sector to develop, good security is of utmost importance. Whilst these fields were discovered in northern parts of the country, which are notably less affected by the militancy blighting other provinces, it is possible that the effective establishment of a domestic energy industry could draw insurgents’ attention to this region, given both the potential financial gains to be made from criminal activities, as well as the political and economic impact of targeting such facilities. These risks would be increased by the overt participation of foreign investors, who could find themselves the target of kidnap for ransom, as well as spectacular terrorist attacks.

Corruption

Considering 90% of Afghanistan’s annual budget is currently dependent on foreign aid, the recent discoveries present a significant opportunity, not only for the country to secure its domestic energy supplies, but even potentially resume commercial export activities. There are however multiple obstacles potentially hindering the development of these fields. While oil revenues would undoubtedly bolster an ailing, agriculturally dependent economy, the initial increase in oil revenue could also de-industrialise Afghanistan’s economy by raising the exchange rate and making the manufacturing sector less competitive. Furthermore, the public bodies responsible for this development risk becoming even more entangled with business interests, which is likely to increase overall levels of corruption in a country already facing a plethora of political and social problems due to near-endemic levels of corruption.

Hope for the future

Despite the potential difficulties in extracting and exporting Afghan oil, the discovery of further reserves is certainly good news for Afghanistan, providing a further incentive for both the government and international donors to expedite the stabilisation of the Afghan political and security scene. If properly managed and sufficiently funded, the growth of this industry will make a tremendous contribution towards the long-term development of the country.

Authors:

Fraser Bomford is the Head of AKE Intelligence and an Afghan regional specialist.
Samantha Wolreich is AKE’s Eurasia analyst and energy security specialist.

Read the article online at: https://www.oilfieldtechnology.com/drilling-and-production/18102010/blessing_or_curse_exploration_of_oil_discoveries_in_afghanistan_not_without_risk-/