Meeting energy shortage

The inclusion of India in the gas pipeline project will be of great benefit for all stakeholders

By Alauddin Masood

The final decision seems to have been taken for the supply of gas to Pakistan from Iran. After holding negotiations that spread over 15 years, Pakistan and Iran signed the agreement on March 16 in Istanbul for supplying 750 million cubic feet (mmcfd) of Iranian gas to Pakistan by the middle of 2015.

Understandably, the supply of gas from Iran will greatly help overcome the shortage of energy in Pakistan. The inter-state gas systems -- a semi-autonomous body of Pakistan -- and the National Iranian Oil Company finalised the agreements after having resolved all issues relating to the project, including pricing, project details and gas quantity.

Minister of Petroleum and Natural Resources, Syed Naveed Qamar, has termed the signing of these agreements as 'a historic achievement and a milestone' towards meeting the energy needs of Pakistan. The agreements will now result in the start of actual work on Iran-Pakistan (IP) gas pipeline project.

The sale-purchase agreement has already been signed for the supply of gas to Pakistan at the rate of 78 percent of the crude oil price. Under the agreement, Islamabad will make sure that it ensures unhindered gas supply to a third party, India in this case, if it wants to become part of the IP gas pipeline project at a later stage. Conceived in 1995, India quit Iran-Pakistan-India (IPI) gas pipeline project in 2008, after 13 years.

The Iranian gas will enable Pakistan to generate 5,000 MW of electricity. However, it will not be economically viable for domestic use because of higher prices. The current domestic price in Pakistan is $4 per one thousand British Thermal Units (mmbtu) while gas from Iran will cost $9 per mmbtu and could be used only for power generation.

Iran is an energy giant with one foot in the Caspian Sea and the second in the Persian Gulf. It is beneficial both for Pakistan and Iran to enter into a buyer-seller relationship for natural gas that Iran has in abundance and subcontinent's growing and energy starved economies desperately need.

Natural gas is transported either through overland or undersea pipelines in its natural state or as liquefied natural gas (LNG) in oil tankers. Liquefying gas and transporting it as LNG in oil tankers is a costly venture. For LNG transportation, the capital outlay that would need to be incurred will include an expenditure of over $2bn for a liquefaction unit, over $200 million for each LNG tanker and over $500 million for a re-gasification plant.

Amongst the other two options, the on-shore route is more economical. Costing about $2.538 billion, the more economical on-shore route has been selected as the obvious choice for the transportation of Iranian gas to Pakistan. The off-shore route for the transportation of Iranian gas to Pakistan is estimated to cost $4.46 billion, almost double the cost of on-shore route.

As per on-shore route, the IP gas pipeline, with 42-inch diameter, will enter Pakistan from Jiwani, near Gwadar in Balochistan. It will reach Nawabshah through coastal highway where it will be connected with the infrastructure of Sui Northern Gas Private Limited. Pakistan has already appointed a local franchised representative of a German designer as consultant to design pipeline specification.

Due to spurt in economy, Pakistan is facing a daily shortfall of over 400 mmcfd of gas, which is projected to increase to four billion cubic feet by 2025. To meet its growing gas needs, Pakistan has been considering four options for the execution of a gas pipeline project. These included: IPI gas pipeline, Turkmenistan-Afghanistan-Pakistan-India gas pipeline, Qatar-Pakistan under-sea pipeline and LNG pipeline.

Recently, efforts have been stepped up to revive Turkmenistan-Afghanistan-Pakistan-India (TAPI) gas pipeline project. A meeting of experts from the four countries is being convened in Ashkabad for April 17 and 18 to discuss the project route and the volume of gas Turkmenistan could spare for Pakistan and India.

There has been little progress on this project for the last four years. Earlier, in 2008, India was to host a meeting of experts on the project but it was postponed at the eleventh hour for unknown reasons.

The cost of 56-inch diameter 1,435 km pipeline (from Turkmenistan to Multan) has recently been revised to about $4 billion from $3.3 billion in 2004. The pipeline, which is to originate from Turkmenistan's Daulatabad gas field, will run 145 km in the host country, 735 km in Afghanistan, and 555 km in Pakistan (up to Multan) under the preferred southern route via Herat and Kandahar.

The Asian Development Bank, which has offered to provide technical support to the project, has concluded a thorough feasibility study which says that inclusion of India will be of great benefit not only for the project but for all stakeholders.