|
Iran-Pak-India
gas pipeline: implications and prospects
By
Sohaib Shahid
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
|
