IRAN-PAK GAS PIPELINE

S. KAMAL HAYDER KAZMI,
(feedback@pgeconomist.com)
Research Analyst
, PAGE
Sep 27 - Oct 3, 2010

Natural gas is one of the principle sources of energy for many of our day-to-day needs and activities and it is a valuable resource. It is not surprising that the natural gas industry generates a great deal of commerce in Pakistan and worldwide. The natural gas industry is an extremely important segment of the Pakistan's economy. In addition to providing one of the cleanest burning fuels available to all segments of the economy, the industry promotes commerce activities.

To fulfill the demand of natural gas in the country, currently, Pakistan has signed a $7.5 billion deal with gas-rich Iran paving the way for laying the much-delayed natural gas pipeline that was originally envisaged to extend up to India.

The 900-kilometre pipeline is expected to mitigate the crippling energy crisis in Pakistan, which has seriously hit the country's industry. The initial capacity of the pipeline will be 22 bcm of natural gas per year, which is expected to be raised later to 55 bcm. The pipeline will have diameter of 48 inches (1,200 mm).

PRODUCTION OF NATURAL GAS (MMCFD) JULY-MARCH

REGION 2008-09 2009-10
BHP 435.36 524.11
ENI 416.6 434.11
Dewan 40.45 16.12
MGCL 469.07 494.32
OGDCL 920.11 872.1
OMV 467.61 439.13
OPII 54.14 7.54
POL 25.81 24.55
PPL 812.17 794.99
Tullow 12.69 1.61
PEL 30.66 28.19
BP 222.99 246.53
Petronas 15.4 16.26
MOL 63.45 149.2

The Inter-State Gas Systems, a semi-autonomous body that will take care of Pakistan's interests in the import of gas through the pipeline, and the National Iranian Oil company signed the agreement and an operational accord.

The signing of the pacts is a historic achievement and a milestone towards meeting the energy needs in the country.

The pipeline is being built between Asalouyeh in southern Iran and Iranshahr near the border with Pakistan and will carry the gas from Iran's South Pars field. The pact also addresses the issue of transportation tariff, which will be worked out in line with international practices.

During 2007, India and Pakistan agreed to pay Iran US$4.93 per million British thermal units (US$4.67/GJ) but some details relating to price adjustment remained open to further negotiation. In April 2008, Iran expressed interest in the People's Republic of China's participation in the project. Last year, India withdrew from the project over pricing and security issues, and after signing a civilian nuclear deal with the United States in 2008. However, in March 2010 India called on Pakistan and Iran for trilateral talks in May 2010 in Tehran.

Pakistan and Iran declared last year that they would go ahead with the project bilaterally if India maintained its stance of not joining the venture.

For both countries Iran and Pakistan, the pipeline project would be highly beneficial. Iran sees the pipeline not only an economic lifeline at a time when the United States and its European allies are trying to weaken it economically, but also an opportunity should the pipeline be extended to India to create an unbreakable long-term political and economic dependence of one billion Indian customers on its gas.

Pakistan, for its part, views the pipeline as the solution to its energy security challenge. Pakistan's domestic gas production is falling and its import dependence is growing by leaps and bounds.

By connecting itself with the world's second-largest gas reserve, Pakistan would guarantee reliable supply for decades to come. In the country, the supply of gas has exhibited an increase of 1.6 per cent during July-March 2009-10. The increase in supply owes to higher production of 1.6 per cent in natural gas during the period under review. Due to this increase in availability of natural gas, the overall consumption of gas remained higher during the period.

Furthermore, the consumption of gas by the household, commercial, fertiliser and transport sectors witnessed growth during 2008?09. If the pipeline were to be extended to India it could have also been an instrument for stability in often tense Pakistan-India relations as well as a source of revenue for Islamabad through transit fees.

Moreover, the United States has urged Pakistan to reconsider its deal with Iran for building a multibillion-dollar pipeline intended to bring the much-needed natural gas to the energy-starved country. The US advised Pakistan to seek other alternatives because of Iran's dispute with the international community over its nuclear programme. The US opposed large investments in any Iranian project.

For US administration, the signing of the pipeline deal is a diplomatic setback, which could undermine its policy of weakening Iran economically. Unlike the Bush administration, which vocally opposed the project, the Obama team chose to remain mute, either in order to facilitate rapprochement with Tehran or due to its reluctance to burden US-Pakistan relations.

CONCLUSION

Pakistan's need for energy is rising rapidly. The country is facing severe energy crisis from last two years, which continues to grow. A land base gas pipeline to fulfill energy needs is many times cheaper than other available sources to import energy. No doubt, the IP pipeline is a mutually beneficial project for both the countries.