the outlook for Afghanistan’s oil and gas potential

Ravaged by years of war and geographically disadvantaged, Afghanistan nonetheless believes it has the potential to be a future oil producer of some note.

The odds are stacked against it: the country is landlocked and mountainous, and investors could well be put off by fears of political instability and the presence of foreign troops. But this has not stopped Kabul from launching its first international oil and gas licensing round.

The Ministry of Mines unveiled the round in March and announced this month the five pre-qualified companies, which feature a mixture of bidders. Two major companies have put their names forward: China’s CNPC and oil services giant Schlumberger. Three smaller private upstream companies make up the shortlist: Pakistan’s Petroleum Exploration, Australia’s Buccaneer Energy and Canadian-listed Tethys Petroleum.

Minister of Mines Wahidullah Shahrani believes the development of oil and gas resources could drive Afghanistan’s economic recovery after years of war following the US offensive against the Taliban in October 2001. “This group of bidders shows the keen interest in the resource potential of Afghanistan’s oil and gas sector,” Shahrani said in a statement April 13. “The development of these blocks will increase opportunity, improve infrastructure and enhance the lives of citizens in Afghanistan.”

The three blocks on offer are estimated to contain more than 80 million barrels of oil, the ministry said. One of the blocks, Kashkari, contains the Angot field that is the only field on production in the country. The other two blocks, Bazarkami and Zamuradsay, have no producing fields. Nevertheless, the ministry is optimistic of the potential of the blocks: “The three blocks contain not only the known oil reserves, but also prospective areas that may contain additional oil and gas.”

The ministry also said this round is likely to be the first of several tenders for Afghanistan’s oil and gas resources over the next few years. “Northern Afghanistan could contain undiscovered resources of more than 1.6 billion barrels of crude oil, 16 Tcf of natural gas, and 500 million barrels of natural gas liquids,” it said.

The geology of northern Afghanistan is similar to the vast oil and gas reservoirs of Turkmenistan, Uzbekistan and Tajikistan across the northern border. “At present the priority for hydrocarbon exploration is northern Afghanistan because of its similar geology to known regions,” the ministry said, adding though that other regions of Afghanistan are believed to
contain oil and gas potential.

Tethys is already present in Kazakhstan, Uzbekistan and Tajikistan, and CEO David Robson has been to Kabul for talks with Shahrani. “The Afghan government is running the tendering process in an open, transparent and efficient manner,” Robson said April 17 following the meeting with Shahrani. “Given the risks and dangers that have existed in Afghanistan, and the enormous emerging potential in the minerals sector, I believe the way these matters have been handled is providing a model for the future and is bound to have a positive impact on the attitude of foreign investors,” he said.

Bids are due from the companies by early June, with the public opening of bids and announcement of the winners expected shortly after. The award of exploration and production sharing contracts is set for July 31.

The challenges for any company attempting large-scale investment in Afghanistan are many, however. There is almost no oil infrastructure in the country–in a licensing round question-and-answer sheet on the Ministry of Mines website it states: “No oil pipeline exists in Afghanistan other than the 3 km, 6-inch line from Angot to the bottom of the hill nearby.” There are also no oil service companies in Afghanistan and no seismic data exists on the three blocks on offer. There is also no data on oil production to date in the country. “Only the Angot field has ever been on sustained production, however no known production volumes have been logged,” the ministry said. The size of the task facing a new investor is supported by the fact that “no true full-fledged development plan has ever been implemented.”

Nonetheless, Kabul believes with the right exploration company the Amu Darya region can become a “successful” oil and gas province.

The government has said its primary objective in launching the bidding round is to achieve early oil production. This, it says, will enable it to “gauge the hydrocarbon potential both inside and outside of the known hydrocarbon accumulations on each block on offer.”

Whether Afghanistan can ever support a real oil and gas industry remains very much to be seen. Its geology is structurally complicated and although the blocks on offer are in the relatively peaceful north, concerns over political stability remain. It would be a courageous company to be the first to brave Afghanistan’s mostly untested energy terrain.

Platts