Apr 28 - May 11, 2008

Strategically located between the region with largest energy reserves of the world like central Asia and the countries with highest energy consumption like India and China, Pakistan is in a position to ensure energy security in the region by developing an efficient energy market and the cross border trade of energy. Iran-Pakistan-China oil and gas pipeline project is under consideration of Beijing and Islamabad. While addressing a gathering of students and academics in Beijing, the visiting President Pervez Musharraf on 14 April strongly favored the construction of gas and oil pipelines between Pakistan and China to bolster bilateral ties.

The two countries have already explored proposals to use Pakistan as a pipeline corridor, bringing oil and gas from the Middle East to China. He said the gas pipeline from Pakistan's south to the Khunjerab Pass, linking the two countries, would be raised till it crossed the pass at 15,000 feet, thereafter more than half of the length would be in descent. Musharraf said a proposed gas pipeline between Iran and India through Pakistan could be expanded to include China. He said, "Why this can't be IPC (Iran-Pakistan-China) pipeline?"

China has already shown interest in joining the US$7.4 billion Iran-Pakistan-India (IPI) gas pipeline project and it intends to import about 1 billion cubic feet a day from Pakistan if India opts out. The Iranian delegation is expected to arrive in Islamabad next week and the two countries are set to formally sign the Gas Sales Purchase Agreement (GSPA) on the IPI pipeline project. If China joins the project and replaces India, the pipeline might pass through Gilgit in Pakistan's Northern Area. The Chinese experts are expected to visit Pakistan to finalize the route of the pipeline. With the replacement of India by China, the IPI project will turn into an Iran-Pakistan-China (IPC) gas pipeline project. The experts of the two countries are currently deliberating the feasibility and viability of an IPC pipeline project on technical, political, economic and security grounds.

China and Pakistan are already working on a proposal for laying a trans-Himalayan pipeline to carry Middle Eastern crude to western China. The route over the Himalayas would be an expensive and challenging engineering feat, and once the oil reached China it would have to be shipped thousands of kilometers further east to coastal areas, where most energy demand is centered. The pipeline would go in tandem with Karakoram highway. The proposed pipeline would link Gwadar port with China's remote western regions, and it would be partly financed by Beijing. The Chinese are also building a refinery at the Gwadar port, from where the pipeline would originate. It would allow Beijing to reduce the portion of its oil shipped through the narrow and unsafe Strait of Malacca carrying up to 80pc of its oil imports. The two countries are currently repairing the Karakoram Highway, which connects Pakistan to China; following one of the ancient silk routes along the Indus. Chinese authorities are ready to lay a pipeline along this highway to transfer Iran's gas through Pakistan. Islamabad also plans to extend a railway track to China to connect it to the Gwadar port on the Balochistan coast.

Pakistan's Inter State Gas Distribution Company (ISGDC) has already floated a proposal for laying IPI gas pipeline project. Under the plan, Iran would build the pipelines from its Pars Gas Field to Jiwani in Balochistan (near Pakistan's border), while Pakistan would lay the pipelines from its side up to Jiwani. This would greatly save the cost of the proposed Iran-Pakistan gas pipeline project by $1 billion. Jiwani is a coastal town along southwest coast of Pakistan near Gwadar. The new port of Gwadar in southwestern Pakistani province of Balochistan is expected to serve as secure outlet for the Middle East, Central Asia and Iran oil and gas supplies through a well defined corridor passing through Pakistan. Gwadar is considered the terminus of all the proposed multibillion dollar gas pipelines reaching either from Daulatabad's fields in Turkmenistan, South Pars fields in Iran or from Qatar. From Gwadar, where China is developing an oil city, the gas would then go onto the world markets.

The southern part of Xinjiang is far away (4,500 kms) from the eastern coast of China whereas it is only 2,500 kms from Gwadar port in Balochistan. Pakistan provides China a viable and the shortest possible option to import oil from any of the Gulf countries through its coastal town of Gwadar. During his visit to China in 2006, President Musharraf had offered a 'trade corridor' to meet Beijing's energy requirements. Pakistan has already expressed its willingness to help China in constructing the strategic pipeline from Gwadar to its borders enabling it to import oil from Gulf countries.

For its geo-strategic location, Gwadar can serve as the future petro-chemical hub of the country meeting the oil transshipment requirements of different countries. For eastbound oil trade for South Asian, Southeast Asian and Asia Pacific markets, Gwadar port is emerging as the most suitable option. For every one million barrels daily outlet capacity at Gwadar, Pakistan could possibly net over a third of a billion dollars a year in revenues besides other indirect economic benefits. According to an estimate, the proposed outlet at the Gwadar deep-sea port could take a part of 10 million barrels daily increase in the eastbound oil from the Persian Gulf countries by 2020. The Gwadar port can handle very large crude containers of up to 0.5 million tons dead weight, which form a crucial part of the international oil movement.

While India maintains that only issues over the IPI pipeline project are pricing and its commercial viability, Pakistan accuses India of adopting delaying tactics in signing the landmark tripartite Gas Sales Purchase Agreement (GSPA), involving Iran, Pakistan and India. Following the US-India agreement on nuclear energy cooperation, Indian Prime Minister had cast doubts over the Iran-Pakistan-India gas pipeline project during his visit to the US in July 2005. Due to its nuclear stand-off with Tehran, Washington is opposed to the IPI project, which will accrue great economic benefit to Iran. On the other hand, India sees its deal for the civil nuclear technology transfer with US in danger if it goes ahead with IPI project against the US will. Local analysts believe that India's position on the IPI project has so far been that of running with the hare and hunting with the hound. If India fails to get its civil nuclear technology transfer deal with Washington finalized and opts out of the IPI project replacing China, she will be the ultimate looser.

New Delhi recently called the proposed gas pipeline from Iran across Pakistan "a risky venture" that would be difficult to finance. She viewed that security for any pipeline was a concern because it would run across volatile areas of Pakistan where other pipelines have been attacked in the past. In the trilateral scheme of gas pipeline project, Iran would be the supplier, India recipient and Pakistan transit facilitator. The security situation however needs to be improved in Balochistan province across which the strategic pipeline will pass.

Islamabad has however repeatedly been rejecting the India's security concern contending that it can effectively handle the security of the proposed IPI gas pipeline. Pakistan claims that it has been looking after the 6,000-kilometer-long domestic pipeline network that provided gas countrywide. But the fact contradicts the countryís claim, as the incidents of targeting gas installations and blowing up of gas pipelines have presently become a routine in Balochistan province. The acts of sabotage in the province have several times forced the gas company to shut off the main compressor plant, thus suspending gas supply to parts of Balochistan, and other provinces of Sindh and Punjab.

A stable Balochistan is essential for the success of any trans-regional gas pipeline project, as greater part of the pipeline will have to pass across the province. In case the peace and stability is not restored in the province, the IPI or IPC project is likely to meet the same fate of Turkmenistan-Afghanistan-Pakistan (TAP) gas pipeline project, which is still in doldrums due to uncertain security situation in Afghanistan.

Russia is also interested to play a role through its energy giant Gazprom in transferring Iranian gas to Pakistan and India. Gazprom recently confirmed its interest in building and managing the proposed 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. Independent observers believe that the involvement of divergent and conflicting interests of USA, Russia and China may turn the IPI project into the casualty of geopolitics.