Iran and Pakistan Agree on Peace Gas Pipeline Project Excluding India

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Researched by Industrial Info Resources (Sugar Land, Texas)--The Peace gas pipeline project, also known as the Iran-Pakistan-India pipeline project until now, is finally set to take off, with Pakistan and Iran signing documents to that effect last week. A formal agreement will be signed in a third country before mid-June. However, the project will proceed without India's inclusion and could be extended to include a link to China instead, although there is a provision within the agreement for India to participate at a later date.

The project was first proposed in 1994 and was intended to transport gas from the reserves in Iran to Pakistan and further on to India. The proposed 42-inch-diameter pipeline will cover 2,100 kilometers from Iran to Pakistan. The pipeline would start at a terminal in Asalouyeh, and cover 1,100 kilometers in Iran, with the remaining 1,000 kilometers in Pakistan. The pipeline is expected to enter Pakistan in the border area of Gwadar and flow to the Nawabshah hub for pipelines in Pakistan. Gas is expected to be supplied from the South Pars gas field.

A gas purchase agreement, signed between the National Iranian Oil Company (Tehran, Iran) and Inter State Gas Systems Private Limited (Islamabad, Pakistan), provides for the supply of 750 million cubic feet per day of gas to Pakistan for 25 years. The price of gas imported by Pakistan is expected to run at 80% of that of crude oil.

Asim Husssain, an adviser, was reported as saying that the gas supplied to Pakistan would initially be used in power plants in an attempt to generate electricity at a lower cost compared with coal-fed plants. He said that pipeline construction would cost $1.2 billion, of which $700 million would be for steel.

Work on the design of the project is set to start shortly, which, together with finalizing the financial aspects, is expected to take up to a year. Construction work is expected to start in 2010 and would take up to five years. ILF Consulting Engineers (Munich, Germany) has reportedly been appointed for the design work.

The pricing arrangements have long been a controversial issue, particularly as far as India is concerned. A major setback was encountered in 2006 when the Iranian government proposed a charge of $6.80 per million gigajoules (GJ) of gas to counter India's offer of $4 per GJ. The dispute was finally resolved in 2007 with a price agreement of $4.67 per GJ, but in 2008 India finally withdrew from the project, quoting pricing differences, transit fees and security issues.

The project has also faced criticism from the U.S., with the Bush administration favoring the purchase of energy from Central Asian republics over deals with Iran. However, the recent agreements on the project may be an indication that the new Obama regime in the U.S. has softened its stance.

While India is not a part of the newly signed agreements, a spokesman for the Pakistani Foreign Ministry indicated that although India still has reservations about the project, it could become involved at a later date. Under the original planned route, the pipeline would connect to India's domestic gas network in Barmer, Rajasthan.

If India decides to join the project before the design phase, the diameter of the pipeline will be increased from 42 inches to 52 inches, allowing for the supply of 1 billion cubic feet of gas to India.

Another possibility that exists is for China to join the project. Last year, China indicated that should India withdraw from the project, it would import up to 1 billion cubic feet per day of gas from Pakistan. China and Pakistan are working together to develop an oil pipeline across the Himalayas to carry oil from the Middle East to China.

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