Oct 29 - Nov 04, 2007

This month Islamabad and Tehran could also not agree on the pricing of a gas import plan but decided to finalize the draft of an agreement to move as quickly as possible to start work bilaterally on the gas pipeline project. Pakistan while proposing a ten-yearly revision reportedly told the Iranian side that the agreement should be signed not later than December this year. The Iranian side promised to respond to the offer by the first week of next month and agreed that early signing of the agreement would be in the larger interest of both sides.

Russia is also poised to play a role through its energy giant Gazprom in transferring Iranian gas to Pakistan and India. Gazprom has confirmed its interest in building and managing the proposed $7 billion Iran- Pakistan-India (IPI) gas pipeline to feed the growing energy needs of the subcontinent. The pipeline is also expected to go as far as to China, which is a big market. On the other hand, the United States has strongly opposed the proposed IPI gas project. With the involvement of Russia and China, the IPI project is likely to become the casualty of geopolitics.

Iran has reportedly welcomed Gazprom involvement in the planned gas pipeline project. The construction of the pipeline is likely to start in mid-2008 and expected the gas to start flowing by 2012. Both Pakistan and India are in desperate need of more energy sources to fuel their fast-growing economies. Pakistan anticipates a major shortage of oil and gas by 2010. India, which imports 70 percent of its crude oil and produces barely half the gas it consumes, is hunting stakes in foreign oil projects and importing liquefied natural gas.

While Islamabad and Tehran have agreed to accelerate the pace of work on IPI gas pipeline project, New Delhi is yet to take a final decision on the project, which has been opposed by the United States. The United States opposes the project on the ground that it violates a 1996 law that requires the US president to impose sanctions on any international firm that invests $40 million or more in oil or gas projects with Iran. The 1,500-km-long pipeline, if materialized, will bring two billion cubic feet of gas per day from Iran to South Asia.

Iranian South Pars gas field is being developed by the Gazprom of Russia, TOTAL of France and Petronas of Malaysia. New Delhi views this development as inimical to US strategic consensus in the region, as the Americans, who project Iran as 'safe heaven for terrorists', would not be happy with this since they do not have control over the project.

There are three different routes, which have been under consideration for the Iran-India gas pipeline viz. deep sea, shallow water and over-land. Feasibility study for the deep-sea route was conducted by M/s Snam progetti of Italy, while that of overland route by M/s BHP of Australia. The feasibility study for the shallow water route is to be conducted by Gazprom of Russia.

Economic Co-ordination Committee (ECC), Pakistan's highest economic decision-making body has already approved the construction of project on a 'segmented basis'. Under this approach Pakistan and Iran will construct their portion of the project. Islamabad will award contracts worth up to $3 billion to construct its portion of a pipeline to transport Iranian gas to India. The ECC recently approved gas-sharing with India and the gas-pricing mechanism at the Iran-Pakistan border under the $7.4 billion IPI gas pipeline project. The ECC meeting constituted a committee to oversee the project implementation, including feasibility studies, inter-governmental agreements, framework agreement and other related discussions on the pipeline.

The gas at the Pakistan border has been indexed with Japan customs cleared crude (JCC). In practical terms, this gas will be priced much higher than the locally produced gas which is also indexed with international oil prices. Currently, the average gas production price in Pakistan is $2.6 MMBTU. The Iranian gas under the approved formula will translate into $3.67 per MMBTU when the JCC price is $40 per barrel of oil -- a rate least expected given current international prices. The gas price will be $4.3 per MMBTU at $50 per barrel and $4.93 per MMBTU at $60 per barrel. The gas rate at the Pakistan border will rise to $5.56 per MMBTU when crude prices reach $70 per barrel. The tariff will further rise to $6.56 per MMBTU and $7.06 in case oil prices increase to $80 and $90 per barrel, respectively.

Why does the US oppose the IPI pipeline project and support the Turkmenistan-Afghanistan-Pakistan (TAP) pipeline project? Why has Russia been the supporter of the IPI project and opponent to TAP project?

The proposed multibillion-dollar TAP gas pipeline project involves the construction of a pipeline about 1,700 kilometers up to Gwadar in Balochistan. This pipeline would be able to transport up to 20 billion cubic meters of natural gas annually. From Gwadar, this gas would then go onto the world markets. The Caspian Sea resources of oil and gas are the real focus of US attention. It wants to corner this wealth through safer routes. From Pakistan, according to the plan, the pipeline will extend to India. In fact, rebuilding of Afghanistan is more a political course than economic and humanitarian process.

By 1995, Taliban rose to power in Afghanistan. Later on, a consortium led by the U.S. oil company Unlocal and the Saudi Arabian company Delta Oil joined the pipeline scene and won over the favors of Turkmenistan. Unlocal withdrew from the pipeline project because of strong pressure from human rights groups who were against Taliban's policies on women. Negotiations for this project continued till July 2001 with the Taliban. The US had even tolerated Pakistan's Taliban policy for Unocal's project.

Russia has been trying hard to make the TAP pipeline project a failure. Moscow and Gazprom have been active to create and lead a Eurasian gas cartel. That is why, Moscow wants Turkmenistan's gas to be firmly under its control. Russia has done everything it could to frustrate the TAP pipeline project. Gazprom has been active in suggesting different safe options to India in order to channel gas from South Pars fields in Iran to India. It is worth mentioning that deep-water pipeline option was first proposed by Gazprom in 1997. With the commencement of Iran gas pipeline project, the Russian energy giant could make its full-fledged entry into the Iran's energy market.