Feb 02 - 08, 2009

There are two options before the government for overcoming the potential energy shortage in the country. The first is the exploration option under which the government must discover a new gas reserve. And the second is the import option for which the government must decide one of the three options for importing gas from Turkmenistan, Iran, or Qatar. Imported gas is the most economical option against other imported fuels, according to the recent studies. Imported natural gas, even at Iran's latest price offer, remained the most feasible option, compared with other imported fuels such as furnace oil, liquefied natural gas and coal, according to petroleum ministry officials.

The government has still not decided about selecting any one of the three gas importing projects. If no alternative arrangement is made by the year 2010 the country would face severe gas shutdowns. Officials claim that all issues regarding Iran-Pakistan-India (IPI) gas pipeline project have been settled with Iran, with the exception of pricing.

Islamabad and Tehran are likely to finalize the gas sales purchase agreement (GSPA) on the IPI project next month. Pakistan plans to link gas price on the IPI project to 70 percent of crude, or a 10 percent discount on Tehran's latest offer of 78 percent to crude price, which is still not acceptable to Pakistan. Iran had first agreed to link the gas price to 44 percent of crude, but it later revised it upward to 85 percent of crude as the price of crude rose. This created controversy over the gas purchase agreement after Iran changed its position of fixing the price. Earlier, the two sides had agreed on correlation between Japan Cocktail Crude (JCC) and LNG, but Iran is now seeking a co-relation between contract price and weighted average price of Iranian exports to it buyers.

Pakistan has been working to finalize at least one cross-border gas pipeline project to meet its growing demand for natural gas, which is expected to reach 5.5 billion cubic feet a day by 2012 from about 2.19 billion cf/d in 2002. The main reason for going for imports is the depleting reserves of domestic gas. Pakistan's energy scene is marked by rising fuel demand and growing supply shortfall. There has been a doubling of gap between demand and supply of oil during the past decades. During the last five years, the indigenous production in country's oil sector has remained static at about 55,000 to 65,000 barrels per day. The nation wide sales of petroleum products have reflected an upward trend for the last three years.

Talks on the proposed multi-billion-dollar pipeline - to supply Iranian gas to India through a 2,600km pipeline via Pakistan - began in 1994. The talks stalled due to tensions between India and Pakistan but were re-started following the launch of a slow-moving peace process in February 2004. In August 2007, the three countries agreed to appoint a consultant to resolve the row over the fees. Iran was seeking higher price after a rise in global gas prices. While India wanted to pay a fixed amount per unit delivered to its border, Iran wanted the cost to be linked to fluctuating international energy prices.

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.

In the year 2007, the Economic Co-ordination Committee (ECC), Pakistan's highest economic decision-making body 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 had also 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.

Some experts in Pakistan are of the view that the government should not proceed with its plan to import natural gas through pipelines without reforming the local gas market. According to the experts, before any commitment is made to import gas, the government should reform the gas market, enforce an open access regime of gas pipelines and create an open market free from any price controls and that would be accessible equally to domestic gas producers, gas importers and all the consumers. Pakistan Petroleum Exploration and Production Companies Association (PPEPCA) has viewed the country's natural gas production can be increased by an average 6-10 per cent if the government implements gas sector reforms and state-run gas buyers maximize consumption from each field.

At present, the SSGC and SNGPL are supplying gas to the numerous industries and if they continue it with the current rate, the country's reserves would be spent in 10-15 years time. This will necessitate having another source of gas for protecting the reserves from over exploitation. The country needs more natural gas to feed new power plants to meet a potential energy shortfall, as it needs at least an additional 1,000MW of power. This shortfall is expected to increase to 5,000 MW by 2012. Potential investors are unable to proceed with gas-fired power plants due to uncertainty of natural gas availability.

In fact, transportation of hydrocarbons from energy-rich Central Asia and Iran to energy-starved South Asia is a complicated business involving strategic interests of big powers and corporate interests of global energy giants. The proposal of laying gas pipelines from Daulatabad fields in Turkmenistan or South Pars fields in Iran to Gwadar in Pakistan has triggered a cold war between pro-project and anti-project actors in the regional geopolitics. Iranian South Pars gas field is being developed by the Russian Gazprom, 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.