IPI gas pipeline project likely to be put on ice

The multi-billion dollars Iran-Pakistan-India (IPI) gas pipeline line project is likely to be put on ice as Iran has doubled the gas price, linking it with 80 percent of global crude oil price, sources told Business Recorder. Iran's new asking price is $7-8 per MMBTU, based on $50 per barrel of crude, and $14-16 per MMBTU if crude oil price goes up to $100 per barrel.
Sources said that during the caretaker government Iran and Pakistan had agreed to link the gas tariff with 40 percent price of global crude oil. However, at the time, crude price in the international market was $100 per barrel. Pakistan and Iran finalised the draft of Gas Sales Purchase Agreement (GSPA) that translated into $7-8 per barrel after linkage of gas price with 40 percent price of crude oil.
According to earlier agreed gas pricing formula, the gas price is determined at $4 per MMBTU in line with the reduction of crude oil price calculated at around $50 per barrel. The said price includes capital cost ie expenditure on gas pipeline to be laid in Pakistan from Gwadar to Nawabshah.
As per new demand placed before the government of Pakistan, Iran now wants to link gas price with 80 percent of global crude oil price that would make the project economically unfeasible for Pakistan. According to sources, locally produced gas price in Pakistan is $3.5 per MMBTU, considered high by consumers in Pakistan. If the government agrees to the new Iranian gas price formula the increased price to Pakistan consumers would not be acceptable.
Petroleum Ministry is expected to seek guidelines from the steering committee on IPI gas pipeline project before resuming dialogue with Iran on gas pricing issue. Pakistan and Iran had finalised the draft of Gas Sales Purchase Agreement (GSPA) during the caretaker government regime. Economic Co-ordination Committee (ECC) of the Cabinet had accorded approval to sign the GSPA with Iran.
But after the prices increased manifold in international market, Iran declined to sign the GSPA agreement and sought a revision in gas prices. Pakistan and Iran have currently locked horns over the issue of gas pricing and Prime Minister Yousuf Raza Gilani has directed the petroleum ministry and other stakeholders to hold the meeting of steering committee on IPI for guidelines prior to resuming talks with Iran on IPI gas pipeline deal.
The Government is also expected to accelerate exploration of indigenous gas resources if Pakistan and Iran fail to reach a consensus on gas prices. Petroleum ministry officials declare that Balochistan has potential unexplored oil reserves of 9 billion barrels and gas reserves of 80 trillion cubic feet.
However poor law and order situation in Balochistan province is barring exploration activities. Gas production in Balochistan has declined to 23 percent; whereas previously it was 53 percent of total gas potential in 1990. Sindh province is producing 70 percent gas, Punjab 5 percent and North-West Frontier Province (NWFP) 2 percent gas as a percentage of total gas production of the country.