Pakistan oil and gas industry is going through a process of transition as

IT is experiencing a new wave of privatization. Government of Pakistan has announced its

intention of privatizing 37% of its 75% stake in Qadirpur gas field and also transferring
management responsibility to private companies. Aware of rich oil and gas reserves, oil and
gas industry of Pakistan is putting in steady efforts to make best utilization of resources and
build a strong production base. Petroleum Policy of oil and gas industry in Pakistan is
designed with a focus on promoting private sector investment in oil and gas sector. Instance
of gas and condensate discovery by Oil and Gas Development Company Limited (OGDCL) in
Exploratory Pakhro Well No. 01 is a major achievement of this sector. Austria's OMV is
credited with discovery of gas in Taijal 1 exploration well. OMV has also pointed out
medium-term growth potential in Pakistan's reserves.

Reports of oil and gas industry of Pakistan reveals this country’s current average daily oil
production is about 3,800 net barrels and natural gas of 73 net million cubic feet. Despite such
huge potential, Petroleum Ministry of Pakistan reported high trade deficit due to major gap
between import and export value. Oil import of Pakistan is expected to reach $6.5 billion in
2009 and government aims at formulating policies to reduce import dependence and promote
self-reliance by triggering exploitation.

BP, one of world's largest energy companies entered Pakistan oil and gas industry by
acquiring all of Oxy's remaining reserve in Pakistan of approximately 68 billion cubic feet of
natural gas and 3 million barrels of oil. Iran has also consented to sign gas supply deal with
Pakistan oil and gas industry and it will work to construct proposed Iran-Pakistan-India gas
pipeline although India has not expressed its decision on this regard.

POGEE or Pakistan Oil, Gas & Energy Exhibition & Conference to be held between 18th and
21st May, 2009 will discuss several imperative issues concerning oil and gas industry at
Pakistan including increasing demand for products and services in this sector. This
is an important event for Pakistan oil and gas industry as leaders of this sector get a decent
scope of displaying latest technology pertaining to energy industry. Focal point of this
conference will be to highlight contemporary developments in Pakistan’s oil and gas sector

The Iran–Pakistan–India gas pipeline

The Iran–Pakistan–India gas pipeline, also known as the IPI pipeline or the Peace
pipeline, is a proposed 2,775-kilometre (1,724 mi) pipeline to deliver natural gas from Iran to
Pakistan and India. In April 2008 Iran expressed interest in the People's Republic of China's
participation in the project. The project is expected to greatly benefit India and Pakistan,
which do not have sufficient natural gas to meet their rapidly increasing domestic demand for
energy. India is predicted to require 146 billion cubic meters (bcm) of gas per annum by 2025,
up from 33 bcm per annum in 2005.
In September 2009, the Mehr news agency reported a Pakistani diplomat as saying "India
definitely quitted the IPI (India-Pakistan-Iran) gas pipeline deal, in favor of Indo-US civilian
nuclear agreement for energy security. Iranian officials however said India is yet to make an
official declaration.
A Natural Gas Pipeline that will connect these three critical nations.
Iran, Pakistan, and India, collectively known as the IPI, are very close to finalizing the ‘Peace
Pipeline’ plan that would drop a critical natural gas supply line that would run through the
three neighboring countries. As always, there is a catch (or several) – and India is weary of
signing on because of the Price Revision Clause being imposed by Iran that would base the
price of the natural gas on a formula that utilizes Japan’s gas market as a benchmark.
Nevertheless, India’s participation in the ‘Peace Pipeline’ doesn’t seem to matter as much to
Iran and Pakistan as they continue bilateral talks that suggest India’s role as merely an added
bonus that would sweeten the deal. Pakistan’s ambassador to Iran, Shafkat Saeed, insists that
if India rejects the terms of the deal, the oil will be routed through China instead.
Though India has assured that it will take part in the TAPI (Turkmenistan-Afghanistan-
Pakistan-India) gas pipeline – it is clear that the TAPI pipeline is not a replacement for the
Iran-Pakistan-India pipeline, and their lack of an absolute decision in light of U.S. pressure is
proof that the IPI pipeline stands to bring benefit to the Indian economy.
U.S. Threatens Sanctions on Pakistan if they seal the deal with Iran – Who Cares?
Check out this Business Week editorial from June of 2005 that demonstrates the United
States’ declining ability to ‘demand’ U.S.-friendly international policies. The U.S. perhaps
using scare tactics, has mentioned that investment sanctions are a possibility for India and
Pakistan should they join hands with Iran on this business deal – But who’s economies are at
stake on a local level? There was a time when the U.S. could influence just about any nation
to favor U.S. interests – either by the diplomatic efforts of our 20th century leadership or
brute force.
Russia doesn’t care.
“Russia’s Gazprom has established a branch office in Islamabad to participate in IPI project
(Press TV Iran, Oct. 2007)” Furthermore, Russia’s president Vladimir Putin issued a
statement last week to confirm that he will continue to cooperate with Iran on their nuclear
program, identified as a deadly threat by the United States.
China doesn’t care.
Chinese officials continue to insist that sanctions are not the solution and will only complicate
the situation – and as a permanent U.N. Security Council member they have rejected any and
all U.S. involvement in Iran.
And of course…Iran doesn’t care.
Mr. ‘what me worry?’ himself, President Ahmadinejad, is not worried about U.S. sanctions.
As a matter of fact a senior Iranian military commander has warned that the Iranian
Revolutionary Guard will carry out suicide bombings throughout the Persian Gulf if
“necessary.”

The Iran-Pakistan-India (IPI) gas pipeline, once ratified, will be a building block towards
peace and stability in South Asia, and would enhance the magnitude of trade between
the three countries. But the pipeline is yet to see an agreement on prices: the prices
proposed by Iran are more than double of what Pakistan and India are willing to accept.
India wants to pay a fixed amount per unit delivered to its border, but Iran wants the
cost to be linked to the fluctuating international energy prices, saying the prices offered
by Pakistan and India is half of what it is looking for.
Also the instability in Balochistan and barrier politics played by America are major
hindrances coming in the way of the project. Trilateral talks are underway, and all three
countries are sanguine about the prospects of agreement.

With a total length of 2,775 km and an estimated cost of $7 billion (2006) the pipeline is
bound to change the face of regional politics in South Asia. The much talked about
“pipeline of peace” brings with it multi-faceted implications for gas hungry Pakistan and
India, and also for Iran, home to world’s second largest natural gas reserve.

Pakistan and India are facing acute natural gas shortage due to the rising energy
demand in both countries. In 1995 Pakistan and Iran signed a preliminary agreement for
the construction of a natural gas pipeline linking Karachi with Iran’s South Pars natural
gas field. Iran later proposed an extension of the pipeline into India. Once underway, not
only would Pakistan benefit from Iranian natural gas exports, but Pakistani territory
would be used as a transit route to export natural gas to India.

The gas pipeline which is expected to be completed in 3-5 years will pump 60 million
standard cubic meters of gas everyday to Pakistan where gas processing is still below 1
trillion cubic feet a year, while energy starved India which currently produces half of the
natural gas it needs would receive 90 million standard cubic meters per day.

The pipeline is proposed to start from Asaluyeh, South Pars stretching over 1,100 km in
Iran itself before entering Pakistan and traveling through Khuzdar, with one section of it
going on to Karachi on the Arabian Sea cost, and the main section travelling on to
Multan. From Multan the pipeline travels to Delhi where it ends. This project offers great
opportunities to Pakistan, as the gas pipeline will also set the course for possible oil and
gas pipelines to China, as China in the past has expressed its willingness to bring oil and
gas via Pakistan.

Prime Minister Shaukat Aziz has termed the pipeline as “a win-win proposition for Iran,
Pakistan and India” that could serve as a durable confidence building measure, creating
strong economic business links among the three countries. But this win-win situation can
soon be seen in doldrums if the situation in Balochistan does not stabilise. In fact, a few
days after Iran’s oil minister Bijan Namdar Zanganeh arrived in New Delhi to discuss the
future of the pipelines, two gas pipelines were blown up in Balochistan sending tremors
to both Iran and India, that this “pipeline of peace” might be anything but peaceful.

Initially, the Indian government was reluctant to enter into any agreement with Pakistan
due to the historically tense relationship the two nuclear-neighbours have. But the
potential for economic and developmental gain from natural gas for India was too strong
to hold back.

After blessing India with a civil-nuclear deal recently, the US opposed the project
because of the financial and strategic benefits it would give to Iran, and prefers a pipeline
project, which supplies gas to India via Turkmenistan.

The Bush administration has been blowing hot and cold on the issue, but by now it seems
evident that Washington would not want the IPI project to materialise. Pakistan and India
on the other hand are pressing ahead with the talks, albeit the three countries have
failed to reach an agreement on prices. Earlier this August, Iran offered a price of $8 per
million British thermal units (mBtu) to Pakistan and India, which was double of what they
were willing to pay (about $4.25 per mBtu). The initial pricing formula Iran had
forwarded hitherto linked the gas price to Brent Crude Oil with fixed escalating cost
component (10 per cent of Brent Crude oil) of $1.2 per mBtu to the Pakistan-Iran border.
The Iranian formula did not prescribe a floor and ceiling for the gas price either. Pakistan
rejected the formula, to which India followed suit calling it “unacceptable”.

A UK-based consulting firm Gaffney Cline was appointed by the mutual consent of all
three countries to facilitate them in setting a new price mechanism to sort out the issue.
(see table)

Albeit, Iran is one of the leading producers of gas in the world, it is in desperate need to
boost exports to stabilise the faltering economy, and South Asia serves as the perfect
market for this purpose. If the deal comes through Pakistan would also have the option
of exporting gas to the international market, or even siphon out gas for domestic
purposes. Pakistan whose demand for gas is expected to grow substantially in the next
two decades can earn as much as $500 million in royalties from transit fee for the gas
and pipeline in accordance to international standards, and save $200 million by
purchasing cheaper gas from this project.

Four major companies have expressed interest in constructing the IPI gas pipeline: BHP
(Australia), NIGC, Petronas (Malaysia) and Total (France). A consortium consisting of
Shell, British Gas, Petronas and an Iranian business group is presently negotiating on the
logistics of exporting gas from South Pars, Iran to Pakistan. Also involved is the Iran
National Gas company and the Gas Authority of India Limited.

The Sui Northern Gas Company (SNGC) has also joined the big names showing interest
in the tripartite gas pipeline, and recently announced that it would lay down 800km of
the pipeline, which would have an estimated cost of $1.6-2 billion.

A senior official from the Ministry of Petroleum and Natural Resources ruled out any US
pressure being the cause of postponement. “It’s all rubbish” was Indian oil minister’s
reply to media reports that India could succumb to the barrier politics played by the US,
and shelve its plan to import gas from Iran via a pipeline through Pakistan.

As trilateral meetings amongst the governments, oil companies and committees persist,
the pipeline project has come to involve a whole host of new issues, ranging from
security concerns to meeting the high demands for energy in South Asia and diplomatic
visits have ensued.

The government views the pipeline to be a pact with Iran, where India is an additional
member, and wants to go on with the project even if India does not join. This can be
connected to the hostile relationship the two countries have. But economic collaborations
such as these would certainly sow the seeds of mutual co-operation and alliance.

Both Benazir Bhutto and Nawaz Sharif’s governments halted the projects because of
reservations in the army on the type of impact this project would have on the regional
issues of Kashmir and the government’s position on bilateral trade with India. India on
the other hand accused Pakistan of funding and aiding ‘fundamentalists’ who were
disrupting supplies, and also believed that the pipeline placed Islamabad at a strategic
advantage where it can “shut off the tap” in times of crisis or conflict.

Six years ago in a meeting with the then president of Iran, Mohammad Khatami in New
York in September 2000, President Musharraf termed the development of the pipeline
and the country’s natural gas reserve as “the country’s economic salvation” which will
“break an age old dependence on cotton textiles as Pakistan’s main export earners”.

Given all this, all countries must view the project as the emergence of an economic
globalisation by which regional co-operation could save them from a common future
crisis. Once the project is ratified the two South Asian neighbours will be striking the
biggest bilateral economic deal of their history.

While the world’s eyes are focused on Iran and Pakistan, little attention has been paid to the
two countries’ decision from last week to move ahead with their plans to connect their
economies via a natural gas pipeline. What may seem like a standard energy project could
have profound implications for the geopolitics of energy in the 21st century and for the future
of south Asia, as well as for America’s ability to check Iran’s hegemony in the Persian Gulf.
For both Iran and Pakistan, the pipeline project would be highly beneficial. Iran sees in the
pipeline not only an economic lifeline at a time when the United States and its European allies
are trying to weaken it economically, but also an opportunity, should the pipeline be extended
to India, to create an unbreakable long-term political and economic dependence of one billion
Indian customers on its gas.
Pakistan, for its part, views the pipeline as the solution to its energy security challenge.
Pakistan’s domestic gas production is falling and its import dependence is growing by leaps
and bounds. By connecting itself with the world’s second-largest gas reserve, Pakistan would
guarantee reliable supply for decades to come. If the pipeline were to be extended to India it
could also be an instrument for stability in often tense Pakistan-India relations as well as a
source of revenue for Islamabad through transit fees.
For the Obama administration, the signing of the pipeline deal is a diplomatic setback which
could undermine its policy of weakening Iran economically. Unlike the Bush administration,
which vocally opposed the project, the Obama team chose to remain mute, either in order to
facilitate rapprochement with Tehran or due to its reluctance to burden U.S.-Pakistan relations
at a volatile time when the Taliban is at Islamabad’s gate. Should the worst happen and a
Taliban-style regime take over Pakistan, the economies of the world’s most radical Shiite
state and that of what could be the world’s most radical Sunni state would be connected to
each other for decades to come, like conjoined twins.
But all’s not lost for the United States. Years would elapse between the signing of the deal
and the actual running of gas in the pipe. Baluchistan, where the pipeline is supposed to run,
is one of Pakistan’s poorest and most restive provinces. In recent years it has been a
battleground of militias belonging to Baluch tribes who hate the government of Tehran as
much as they hate the one in Islamabad. Taliban or Al Qaeda members who have reportedly
moved from the tribal border region to Baluchistan and who are known for their dislike of
both governments may find common ground with the Baluch. One can rest assured that the
Baluch Liberation Army (which for years has conducted sporadic attacks against water
pipelines, power transmission lines and gas installations), and Al Qaeda members (who
perfected the art of pipeline sabotage in Iraq) would not spare the Iran-Pakistan pipeline,
causing delays in construction and perhaps even termination of the project altogether.
Open U.S. support for those opposition groups is unthinkable, as any collaboration—overt or
covert—would severely cripple our relations with Islamabad. What the United States can do
is minimize the pipeline’s damage to its strategic objectives by ensuring that it ends in
Pakistan and does not extend further into India, as both Iran and Pakistan wish. To date, India
has been hesitant to join the project and entrust its energy future in the hands of its unstable
neighbors. The deterioration in the India-Pakistan relations following the terror attacks in
Mumbai has effectively taken the project off the table. But this could easily change in the
future as India’s energy crunch deepens: some 400 million Indians already suffer from energy
poverty. This is what the Obama administration should preempt today, by increasing energy
cooperation with India. Pressure on India to curtail its use of coal for power generation may
help reduce carbon emissions, but it could force India to shift to cleaner burning natural gas
and hence drive it right into the welcoming arms of Iran.
It is in the interest of the United States to help India increase its share of nuclear power and
renewable energy while constructing liquefied natural gas terminals along the coasts of the
Indian subcontinent to allow diversity of supply. Without active U.S. participation in the
effort to alleviate India’s energy poverty, Iran could soon become to India what Russia is to
Europe.
Rehmani Ashfaq
Columnist
The post (www.thepost.com.pk )