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Analysis - Iranian gas pipeline: facts and fiction

There is no reason for India to hesitate to proceed with the IPI pipeline, merely because of apprehensions of the adverse impact of possible American sanctions. If Washington expresses displeasure, it can be told that we have no option but to seek access to natural gas to meet our energy needs. – analysis by G. Parthasaraty

The debate on the Iranian-Pakistan-India (IPI) gas pipeline has generated more heat than light. There has been a wide chasm between rhetoric and reality, with little informed public debate. It is indisputable that the booming, but energy-starved, Indian economy needs to tap every possible source of energy that is economically viable, with its security and continuity suitably guaranteed.

By 2020, India’s demand for natural gas is expected to rise three-fold to 270 million cubic meters daily, with 200 million cubic meters coming from existing sources-domestic and foreign. India currently has only one significant contract with Qatar, for import of liquefied natural gas (LNG), which is presently for five million tons per year, with an additional two million tons annually being available from 2009. Natural gas shortages have left electric power plants and fertilizer plants underutilized for the past few years.


DEAL WITH IRAN

In June 2005, India signed a $22 billion-deal with Iran for supply of five million tons of LNG annually, with Iran agreeing to consider supply of an additional 2.5 million tons annually. Iran unilaterally repudiated this agreement and demanded higher prices, calling into question its credibility as a reliable energy supplier. Talks are on to renegotiate this agreement. But India should be under no doubt that despite sentimental rhetoric about “civilizational ties” with Iran, the Iranians are hard-headed negotiators, not given to sentimentalism, merely because our officials claim that we have a large population of Shias in India.

In today’s global scenario, three countries — Russia, Iran and Qatar — account for 58% of global gas reserves. Japan imports LNG primarily from Australia and its neighbors. With natural gas meeting 20% of its power needs, the growing US demand is being met largely from Canada and to a lesser extent from the Middle East countries. Within the European Union, Norway alone has exportable surpluses of natural gas — surpluses, that are, however, relatively limited. Russian strategic analysts would like to use their energy resources to make Europe extensively dependent on Russia, to counter NATO’s inroads into Russian strategic space in former Soviet Republics such as Ukraine and Georgia.

Russia would, therefore, support Iran’s quest for markets towards its East in countries, such as China and India. China’s State-owned Sinopec signed a $60-billion agreement in 2004 to buy 250 million tons of LNG over 30 years from Iran and develop the giant Yadavaran gas field. Iran is also committed to export 150,000 barrels per day of oil to China for 25 years. Given the Russian strategic interest in dominating the energy markets of the European Union, Russia has a substantial interest in Iranian gas being sold increasingly to Asian economies, rather than European markets.


US PRESSURES OVER PIPELINE

Should India worry about US pressures over the IPI pipeline?
In August 2006, the US Congress unanimously passed the “Iran, Libya Sanctions Act” (ILSA), which provides for imposition of US sanctions on companies, irrespective of their “corporate nationality” that invest more than $20 million annually in the Iranian oil and gas sector. Despite this legislation, Iran has attracted more than $30 billion of foreign investment in its energy sector since the sanctions were imposed. The European Union has opposed the ILSA sanctions and passed a Resolution on November 22, 1996 directing its companies not to comply with the sanctions.

A number of European Companies, including Total of France and Italy’s Eni, have ignored the sanctions, as have Petronas from Malaysia and the Russian energy giant, Gazprom. In these circumstances, there is no reason for India to hesitate to proceed with the IPI pipeline, merely because of apprehensions of the adverse impact of possible American sanctions. If Washington expresses displeasure, it can be politely told that, given our need for environmentally friendly sources of energy we have no option but to seek access to natural gas to meet our energy needs.


ECONOMIC VIABILITY
According to Russian estimates, the 2,700-km IPI Pipeline will have a capacity of 54 billion cubic meters of gas per annum, with 32 billion cubic meters supplied to India and 22 billion cubic meters to Pakistan. The project is estimated to cost $7.6 billion. China has not yet expressed interest in extending the IPI pipeline to its Xingjian Province. Despite Pakistani advocacy, the economic viability of such a pipeline through the high Himalayas is questionable. President Ahmedinejad exuded optimism that negotiations on the ISI Pipeline could be finalized in a matter of months. The Foreign Secretary, Shivshankar Menon, however, noted that much work needed to be done to ensure that the IPI Project was commercially viable, financially acceptable and India’s security concerns were addressed.

In 1996, the then Pakistan President, Farooq Leghari, told Indian High Commissioner Satish Chandra that it was entirely conceivable that Pakistan could cut off supplies at times of tensions, nonchalantly adding that as conflicts between India and Pakistan seldom lasted more than a few weeks, India should not be unduly concerned about temporary dislocations in gas supplies! Moreover, the pipeline will traverse through both Iranian and Pakistan Baluchistan.

Over the past three years, Pakistani pipelines have been systematically blown up by Baluch separatists. In Iranian Baluchistan, a shadowy Sunni organization (believed to be American backed) called Jundullah, has been attacking Iranian Government targets. The new Government in Pakistan appears to be more realistic in dealing with Baluch aspirations than General Musharraf. But would it be prudent for New Delhi to become heavily dependent on a pipeline through Baluchistan till it is clear that issues like royalty payable to the province are sorted out and Baluch aspirations addressed? Financially, given the spiraling costs of oil and that gas prices are linked to prices of oil, at what stage will gas-based energy plants become uneconomical for India? Finally, any agreement has to provide penalty clauses for non-delivery and for gas reserves to cater for disruptions in supply.


SECURITY CONCERNS

These are issues that need to be sorted out in discussions with Iran and Pakistan. At the same time, India’s interests require that a major power like Russia be involved in investment and construction of the pipeline, as a guarantor of continuity of supplies. Gazprom would be an ideal partner to play such a role. Gazprom could probably be persuaded to agree to undertake an undersea pipeline from Iran bypassing Pakistan, which would substantially meet concerns of energy security.

Moreover, New Delhi should show caution in proceeding with the proposed pipeline from Turkmenistan, through Afghanistan and Pakistan for the supply of gas to India. The situation in Southern Afghanistan, where the Taliban controls vast tracts of the countryside is far too turbulent, for requirements of energy security to be met. Moreover, given the vast influence Moscow wields in Central Asia, it is only prudent to consult the Russians on this project. The Manmohan Singh Government has been less than transparent and forthcoming in explaining such issues to the public in India. In the absence of informed public debate, demagogues voicing the empty rhetoric of the Cold War, inevitably dominate the public discourse. (The Hindu Business Line)

 

The author is a former High Commissioner to Pakistan.

 

The opinions expressed in this article are the author’s and do not necessarily represent those of BBJ.