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Iran-Pak-India gas pipeline: implications and prospects

The Iran-Pakistan-India (IPI) gas pipeline, once ratified, will be a building block towards peace and stability in South Asia, and would enhance the magnitude of trade between the three countries. But the pipeline is yet to see an agreement on prices: the prices proposed by Iran are more than double of what Pakistan and India are willing to accept. India wants to pay a fixed amount per unit delivered to its border, but Iran wants the cost to be linked to the fluctuating international energy prices, saying the prices offered by Pakistan and India is half of what it is looking for.

Also the instability in Balochistan and barrier politics played by America are major hindrances coming in the way of the project. Trilateral talks are underway, and all three countries are sanguine about the prospects of agreement.

With a total length of 2,775 km and an estimated cost of $7 billion (2006) the pipeline is bound to change the face of regional politics in South Asia. The much talked about “pipeline of peace” brings with it multi-faceted implications for gas hungry Pakistan and India, and also for Iran, home to world’s second largest natural gas reserve.

Pakistan and India are facing acute natural gas shortage due to the rising energy demand in both countries. In 1995 Pakistan and Iran signed a preliminary agreement for the construction of a natural gas pipeline linking Karachi with Iran’s South Pars natural gas field. Iran later proposed an extension of the pipeline into India. Once underway, not only would Pakistan benefit from Iranian natural gas exports, but Pakistani territory would be used as a transit route to export natural gas to India.

The gas pipeline which is expected to be completed in 3-5 years will pump 60 million standard cubic meters of gas everyday to Pakistan where gas processing is still below 1 trillion cubic feet a year, while energy starved India which currently produces half of the natural gas it needs would receive 90 million standard cubic meters per day.

The pipeline is proposed to start from Asaluyeh, South Pars stretching over 1,100 km in Iran itself before entering Pakistan and traveling through Khuzdar, with one section of it going on to Karachi on the Arabian Sea cost, and the main section travelling on to Multan. From Multan the pipeline travels to Delhi where it ends. This project offers great opportunities to Pakistan, as the gas pipeline will also set the course for possible oil and gas pipelines to China, as China in the past has expressed its willingness to bring oil and gas via Pakistan.

Prime Minister Shaukat Aziz has termed the pipeline as “a win-win proposition for Iran, Pakistan and India” that could serve as a durable confidence building measure, creating strong economic business links among the three countries. But this win-win situation can soon be seen in doldrums if the situation in Balochistan does not stabilise. In fact, a few days after Iran’s oil minister Bijan Namdar Zanganeh arrived in New Delhi to discuss the future of the pipelines, two gas pipelines were blown up in Balochistan sending tremors to both Iran and India, that this “pipeline of peace” might be anything but peaceful.

Initially, the Indian government was reluctant to enter into any agreement with Pakistan due to the historically tense relationship the two nuclear-neighbours have. But the potential for economic and developmental gain from natural gas for India was too strong to hold back.

After blessing India with a civil-nuclear deal recently, the US opposed the project because of the financial and strategic benefits it would give to Iran, and prefers a pipeline project, which supplies gas to India via Turkmenistan.

The Bush administration has been blowing hot and cold on the issue, but by now it seems evident that Washington would not want the IPI project to materialise. Pakistan and India on the other hand are pressing ahead with the talks, albeit the three countries have failed to reach an agreement on prices. Earlier this August, Iran offered a price of $8 per million British thermal units (mBtu) to Pakistan and India, which was double of what they were willing to pay (about $4.25 per mBtu). The initial pricing formula Iran had forwarded hitherto linked the gas price to Brent Crude Oil with fixed escalating cost component (10 per cent of Brent Crude oil) of $1.2 per mBtu to the Pakistan-Iran border. The Iranian formula did not prescribe a floor and ceiling for the gas price either. Pakistan rejected the formula, to which India followed suit calling it “unacceptable”.

A UK-based consulting firm Gaffney Cline was appointed by the mutual consent of all three countries to facilitate them in setting a new price mechanism to sort out the issue. (see table)

Albeit, Iran is one of the leading producers of gas in the world, it is in desperate need to boost exports to stabilise the faltering economy, and South Asia serves as the perfect market for this purpose. If the deal comes through Pakistan would also have the option of exporting gas to the international market, or even siphon out gas for domestic purposes. Pakistan whose demand for gas is expected to grow substantially in the next two decades can earn as much as $500 million in royalties from transit fee for the gas and pipeline in accordance to international standards, and save $200 million by purchasing cheaper gas from this project.

Four major companies have expressed interest in constructing the IPI gas pipeline: BHP (Australia), NIGC, Petronas (Malaysia) and Total (France). A consortium consisting of Shell, British Gas, Petronas and an Iranian business group is presently negotiating on the logistics of exporting gas from South Pars, Iran to Pakistan. Also involved is the Iran National Gas company and the Gas Authority of India Limited.

The Sui Northern Gas Company (SNGC) has also joined the big names showing interest in the tripartite gas pipeline, and recently announced that it would lay down 800km of the pipeline, which would have an estimated cost of $1.6-2 billion.

A senior official from the Ministry of Petroleum and Natural Resources ruled out any US pressure being the cause of postponement. “It’s all rubbish” was Indian oil minister’s reply to media reports that India could succumb to the barrier politics played by the US, and shelve its plan to import gas from Iran via a pipeline through Pakistan.

As trilateral meetings amongst the governments, oil companies and committees persist, the pipeline project has come to involve a whole host of new issues, ranging from security concerns to meeting the high demands for energy in South Asia and diplomatic visits have ensued. 

The government views the pipeline to be a pact with Iran, where India is an additional member, and wants to go on with the project even if India does not join. This can be connected to the hostile relationship the two countries have. But economic collaborations such as these would certainly sow the seeds of mutual co-operation and alliance.

Both Benazir Bhutto and Nawaz Sharif’s governments halted the projects because of reservations in the army on the type of impact this project would have on the regional issues of Kashmir and the government’s position on bilateral trade with India. India on the other hand accused Pakistan of funding and aiding ‘fundamentalists’ who were disrupting supplies, and also believed that the pipeline placed Islamabad at a strategic advantage where it can “shut off the tap” in times of crisis or conflict.

Six years ago in a meeting with the then president of Iran, Mohammad Khatami in New York in September 2000, President Musharraf termed the development of the pipeline and the country’s natural gas reserve as “the country’s economic salvation” which will “break an age old dependence on cotton textiles as Pakistan’s main export earners”.

Given all this, all countries must view the project as the emergence of an economic globalisation by which regional co-operation could save them from a common future crisis. Once the project is ratified the two South Asian neighbours will be striking the biggest bilateral economic deal of their history.

TABLE

Country          Natural Gas Reserves           Natural Gas Production          Natural Gas

Consumption

          (billion cu m)*          (billion cu m)**          (billion cu m)**

Pakistan          795.9 bcm    23.8 bcm    23.8 bcm

India   853.5 bcm    27.1 bcm    27.1 bcm

Iran    26.62 tcm     79 bcm          79 bcm

bcm: Billion Cubic Meter          tcm: Trillion Cubic Meter

*2005 estimate          **2003 estimate

Source: CIA Fact book

 


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