Iran-India natural gas pipeline: reality or myth

Updated: Nov 29 2004, 05:30am hrs
The natural gas pipeline from Iran to India, traversing through Pakistan, has taken a top priority in recent dialogue between India and Pakistan. Iran-India peace pipeline, as it is widely described in the media, will stretch over 2,670 km between South Pars gas fields of Iran and India. Some 707 km of which would pass through Pakistani hostile territory like Balochistan and other provinces, where even Pakistani government has little say in most of the matters.

South Pars, which is the northern extension of Qatars giant North Field, covers an area of 500 square miles and is located 3,000 m below the seabed at a water depth of 65 m. It is estimated that the Iranian side of this gas fields accounts for 10% of the worlds and 60% of Irans total gas reserves. Irans portion of the field contains an estimated 436 trillion cubic feet of gas. A larger portion of the gas field is with Qatar, which is exporting natural gas mainly in the form of liquefied natural gas (LNG). Iran, which is facing US sanctions, has not yet set up its own first liquefaction facility. Iran is left with two options, either to penetrate the European market or to focus on the energy-hungry Indian market for piped gas supply.

Following a substantial improvement in Pakistan-India relation in recent months, Iran seems to have focused more on its efforts to revive $4.3 billion proposal of supplying South Pars gas to India through Pakistan. Iran-India gas pipeline was originally proposed in 1993. However, not much progress has been achieved mainly due to the strained relation between India and Pakistan.

Its over $50 per barrel crude price, which has apparently forced both India and Pakistan to acknowledge the harsh reality of energy economics. Although India has commissioned its first LNG receiving and re-gasification facility at Dahej, piped natural gas from Irans South Pars gas fields is one of the most economical solutions for the fast growing Indian economy. The cost of the Irans natural gas is unlikely to be higher than over $4 per mmbtu end-user price of imported LNG in India.

However, the success of the project will largely depend on how fast India and Pakistan can resolve issues like the ownership of the pipeline and assurance over safety and security of the pipeline. India has associated export of diesel to Pakistan with the pipeline project and Pakistan is yet to react to it.

Pakistan, which is expected to face huge deficit in energy supply and demand around 2010, is also keen on Iran India pipeline project as this one is one of most viable options for Pakistan which is facing hostile situation on its Eastern border with Afghanistan.

Pakistan is exploring three different options to assure future supply of natural gas. Its first option is to bring in Turkmenistan gas via Afghanistan. Highly volatile security situation in Afghanistan and lack of evidence of proven gas reserves in Turkmenistan has deterred Pakistan government. The second option for Pakistan is to bring in Qatar North Field gas through under sea pipeline. Pakistan has tied up with a Sharjah-based oil company, Crescent Petroleum, for the project. However, little progress is made in last 12 years since the project was conceived and the cost factor in Qatar gas project is not favourable to Pakistan. This situation has left Pakistan with the third option and that is to bring in Iran gas through pipeline, which will further go to India.

Pakistan has commissioned Asian Development Bank (ADB) and its expected to submit its report next month in December on most viable natural gas import option for Pakistan. India as an option to pipeline project is also negotiating a separate deal for five million tonne of LNG from Iran. A swap deal in the form of a share in one of 15 phases of South Pars gas development project or in oil fields is discussed on Indian side.

In fact, Iran has already made an offer to give Oil and Natural Gas Corporations (ONGC) overseas arm ONGC Videsh Ltd (OVL) a 20% stake in its potential 300,000-barrel-a-day Yadavaran oilfield, against LNG import.

The fate of the project will depend mainly on how much important India and Pakistan attach to the fact that oil prices are unlikely to go down below $30 per barrel and natural gas is the sole option left with the world to deal with future energy crisis.

The author is CEO,