July 11 - 17, 2011

Energy-deficient Pakistan has reportedly expedited work on the Iran-Pakistan (IP) gas pipeline project to import the much needed gas from neighboring Iran. The National Engineering Services Pakistan (Nespak) and ILF Germany have started work on the feasibility study of IP gas pipeline project, which is scheduled to be completed by the end of 2012. The country has to construct about 700-km pipeline from the border, passing through Makran Coastal Highway in Balochistan to connect it with existing gas transmission network at Nawabshah in Sindh province.

Last year, Islamabad and Tehran signed an export contract which commits the Islamic republic to supplying its eastern neighbor with natural gas from 2014. The United States is opposed to the IP project, which is crucial for Pakistan to avert a growing energy crisis, and US opposition to this pipeline has also been a major factor for delays in its construction.

Analysts argue that the construction of the pipeline supplying crude to Pakistan and onwards against the US pressure is still not a certainty.

The Ministry of Petroleum has given the green signal to Nespak to initiate work on the feasibility study of Pakistan's section of the pipeline from the border with Iran to district Nawabshah of Sindh. Pakistan has settled all issues with the Iranian authorities, including gas sale and purchase agreement (GSPA) and third-party certification for uninterrupted supply of gas from the source field to Pakistan for 30 years.

The project would help generate around 5,000 megawatts of electricity, which is equivalent to present peak shortage of power in the country. The energy crisis in Pakistan has resulted in the closure of various industrial units across the country.

Washington has already advised Islamabad to abandon IP pipeline project and seek other alternatives to meet the energy crisis. Critics say that Washington's advice to Islamabad not to proceed with IP pipeline project is unrealistic, as the country cannot go back on the Iran deal because of its chronic gas shortage for its own proven gas reserves are dwindling.

Having the world's second-largest gas reserves after Russia, Iran needs around $25 billion a year in oil and gas industry investment. Sanctions by the West, political turmoil, and construction delays have slowed its development as an exporter. Iran's gas production capacity of 600 million cubic meters per day is expected to rise to 1.1 billion cubic meters by 2015.

Islamabad has reportedly invited China to participate in the IP gas pipeline project, as Pakistan seeks financing from China to meet the cost of $1.6 billion for building a pipeline in its territory under the IP gas project. The Orient Group of China is interested to invest in laying gas pipeline from Pakistan to China through Gwadar Port in Balochistan

Federal Minister for Petroleum and Natural Resources Dr Asim Hussain during a recent meeting with a visiting delegation of Orient Group Incorporation headed by its Chairman Zhang Hongwei in Islamabad invited the Chinese group to invest in laying oil and gas pipelines from Gwadar Port to China.

The billionaire Hongwei, who is also the chairman of Jinzhou Port Co, a port services company, is the biggest shareholder of Hong Kong-based United Energy Group Ltd (UEG) that purchased in December 2010 the energy assets of British energy giant BP Plc in Pakistan. Hongwei reportedly informed the minister that the Orient Group was investing more into the recently acquired BP projects in Pakistan so as to increase production of oil products.

Listed in Shanghai Stock Exchange, the Orient Group Incorporation is a private-owned conglomerate. Headquartered in Harbin, Heilongjiang, the group is engaged in construction, trading, port, industry, property development, and finance.

Chinese investors to facilitate oil imports are once again taking an interest in setting up the oil refinery in Gwadar, which was shelved by China in 2009 due to the global financial crisis.

After India's withdrawal in 2009, Beijing showed interest in building an Iran-Pakistan-China (IPC) pipeline that provides it a chance of getting a secure overland gas pipeline.

A pipeline from Gwadar to western China will reduce the time and distance for transport of oil from the Gulf to China, but the analysts deem it a risky and expensive venture through a terror-hit south Asian country.

Chinese engineers have completed a feasibility study for the building of a railroad and an oil pipeline to link Kashi in Xinjiang and Gwadar in Balochistan. It will provide China with the shortest possible route to the oil-rich Middle East, replacing the dangerous maritime route through the South China Sea, East China Sea, and the Yellow Sea.

With the construction of the Kashi-Gwadar rail road and oil pipeline, Gwadar port will handle most of the oil tankers to China.

Presently, sixty percent of China's imported oil comes from the Middle East and 80 percent of that transported to China through the unsafe Straits of Malacca.

The Chinese have reportedly agreed to restart work on a refinery in the Gwadar, 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. China-funded oil refinery will have a total capacity to refine 21 million tons of oil per annum. The petroleum products so refined in Gwadar refinery may be transported to Kashghar on Pakistan's North through a pipeline. The proposed refinery and the oil pipeline is a part of the proposed Pak-China energy corridor.

Gwadar has greater scope as a free oil port in the Asian region and it can serve as the future petroleum hub 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.

Gwadar port gives China a guaranteed land-based oil supply not subject to Anglo-American naval superiority, while also cutting out the 12,000 mile tanker route around the southern rim of Asia. China needs a safe passage through Pakistan in order to maintain economic and strategic connectivity with South Asia, particularly after China has become the second largest importer of oil in the world.

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