Iran-Pakistan Pipeline: Iran's New Economic Lifeline GAL LUFT Asif Qamer

Outline Project ProfileEnergy Statistics of Natural GasFacilitiesEnergy Needs of India and PakistanReasons for India and Pakistan to shift to gasFrom IPI to IPWhy IP Pipeline Project is Crucial for Iran and Pakistan? Implications for the great powers Strategic alternativesEconomical aspectsConclusion

Project Profile

The idea to export gas to India and Pakistan, first was introduced by Iran in 1989.

The 2775-km land pipeline will connect South Pars fields in Iran via Baluchistan.

In Indian border it will reach to Barmer, Rajasthan to New Delhi.

Initial cost was $4 billion . In 2007- it was approx $ 7.4 billion.

Initially it would supply ~60 million cubic meters of gas per day to India and up to 30 million cubic meters per day to Pakistan.

Officials of India, Pakistan & Iran met in August 2006 to discuss pricing of gas.

Tentatively scheduled to begin much-delayed pipeline construction is in September 2009 and be completed by 2014.

The Route

Energy Statistics of Natural GasSource: Energy Information Administration Official Energy Statists from the U.S. Government - http://tonto.eia.doe.gov/

CountryNatural Gas ReservesNatural Gas ProductionNatural Gas ConsumptionPakistan31.266tcf (2009)1,324bcf (2008)1,324bcf (2008)India37.960tcf (2009)1,137bcf (2008)1,518bcf (2008)Iran111.940tcf ( 2009)6,372bcf (2008)446bcf (2008)

Facilities Iran

Development of gas from Southern Pars Fields Iran.

The field is the biggest gas field in the world, shared between Iran and Qatar, which contains 1800 tcf.

Daily gas production rate of 800mmscf/d (Million Standard Cubic Feet per Day)

At least a 1100 km, 48 pipeline from Southern Pars fields and supporting facilities from Assaluyeh to Pakistan border.

Facilities Pakistan

Laying around 1000 km of 48 pipeline and other facilities.

Construction of necessary infrastructures, like domestic transmission, distribution and others to support continuous consumption the committed off take gas.

Facilities India

Laying around 500 to 600 km of 36 Pipeline and other facilities.

Construction of necessary infrastructures, such as domestic transmission, distribution and other networks to support the continuous consumption of the committed off take gas.

Energy Needs - PakistanPakistans energy needs almost doubled during last 8 years due to large-scale industrialization Energy Crises in Pakistan Pakistans dependence on Gas Sui gas field accounts for 26% of Pakistan's gas production.Reserves are estimated to be at about 2 trillion cubic feet (tcf).Daily production is around 660 million cubic feet.Out of total energy needs, 45% gas, 42% oil, 10% hydro and 3% coal.Imported around $ 4 Billion crude oil and products in 2005.Consumes around 2.6 BCFD now and intends to increase to 5.5 BCFD in 2010.

Energy Needs - IndiaThe largest democracy in the world.India is the seventh largest consumer of energy.Natural gas consumption now 1518bcf.Power shortage of 11% of demand.1

1. Powerlessness; Indian electricity.(India's power shortage), Economist (US), The, June, 2005 (Countryside is without power around 8 hours a day.)

Reasons for India and Pakistan to shift to gasTo meet the energy requirements.

Reduce import of petroleum products.

Cleaner fuel, comparing to oil and coal.

Use in transportation.

Use in power generation.

Use in industries.

Use as feed to fertilizer plants

Increase in households.

Relief to congested infrastructure in ports, roads, railways used to move petroleum products.

From IPI to IPUS-India nuclear treaty.Irans relations with India.Rift between Iran and America.

Why IP Pipeline Project is Crucial for Iran?Iran: Underdeveloped economy, functioning well below potentialSubstantial Energy Reserves2nd Largest NG Supply Potential in WorldSubstantial oil reserves; using gas injection to maintain output

Location between Europe, Middle East, Central Asia, and South Asia: Hub between largest suppliers and largest users.

Iran wants to promote it to undermine US objective in the region.Cash Starved despite oil revenues investment & technology constrained, as is ability to maintain social subsidies.Iran can play and demonstrate its role in matters of interest in the region.Americas sanctions to invest in the Iran.Iran wants to be true regional power, overcome Western constraints Breakout to the East, South Asia & China.The New Geopolitics of Gas: the rise of Gas OPEC.

Why IP Pipeline Project is Crucial for Pakistan?Energy reserves fully domestically committed.

Limited effective demand for energy imports.

Land Bridge: Middle East - Central Asia and South Asia.

Pakistan finds in opportunity to underline its significance in the region.

Growing energy deficit NG is 60% of use, Fully absorbing internal supply need for import.

Solution to energy security challenge.

Transit fees.

Why IP Pipeline Project is Crucial for India?India: Rapidly growing (emerging market) economy facing substantial internal institutional barriers.

Potentially worlds 2nd largest consumer of NG and LNGLocated far from adequate supplies.China major competitor for supplies.Need secure and growing supply of energy.

By 2030 it is expected to become the third largest consumer of energy, overtaking Japan and Russia.

Potential (insufficient) supply from east: Bangladesh, Myanmar.

Middle-East, Central Asian supplies by pipeline must pass through Pakistan, or under ocean (up to 3000m depths).

Implications for the great powersIntense geopolitics.

Rift between America and Iran.Stephen Cohen says, India needs American investment and technology.

Tensions between India and Pakistan.

Americas ability to check Iran's hegemony.

Diplomatic setback for USA.

For Russia it is an opportunity.

Potential gain for China.

Strategic Alternatives - IranExport for revenue & to break isolation, through IPI.Export to Europe through Turkey; politically constrainedI I pipeline under sea to India; extremely costly, technologically complexLNG to world market; requires substantial investment as well as political openingCurrently lacks necessary technology; sanctions complicate acquiring it.Reserve for the (Islamic) futureDomestic useLimited export to Pakistan and/or Islamic clients.

Strategic Alternatives - PakistanIPI Provide Transit for Gas to India.

Generate substantial transit revenues.

Acquire needed energy input at low cost.

Requires investment in Infrastructure security.

Acquire leverage in relations with India and Iran. Look to Qatar, Iran, or TAP for needed increase in gas supply.

China factor.

Strategic Alternatives - IndiaIPI Meets new energy need: Iran via PakistanLowest cost alternativeSubject to Pakistani interruption or internal turmoilDependent on Iranian reliabilityUndersea Pipelines from Iran and/or QatarExtremely expensive and technologically riskyIranian reliability issueLNG from Qatar (world market)Requires substantial domestic infrastructure developmentMarket still underdeveloped, if promising(Partial) Supply Alternatives; Diversification of sourcesBangladesh & Myanmar PipelinesTurkmen gas (TAPI), also through Pakistan: 70 bcf/yr (1.98bcm)?Develop Nuclear Energy Industry (French model) with U.S. Assistance [currently only 3% of power generation]

TAPI to the rescue?More than one way to supply gas.

Turkmenistan-Afghanistan-Pakistan-India (TAPI).

Expansion to connect other fields.

TAPI is not as vulnerable like IPI.

But TAPI needs stabilized Afghanistan.

Economical aspectsLow cost alternative for NG supplyAllows range for flexible pricing agreementSatisfies India & Pakistan NG needs over 25 year horizon, and Pakistani/ Iranian revenue needs.Satisfies key Iranian strategic objectives.Raises economic costs of political conflict; confidence building measure between competitors.The possibility of having a 2,775 kilometer pipeline with a diameter of 44 inches49 that can help India save $300 million per year in energy transport50, and about $10 billion over a decade because of cheaper gas through a gas pipeline51 with a volume capacity of at least 3.2 billion cubic feet per day.For Pakistan, this gas pipeline is worth $14 billion of income over 30 years and $700 million of income every year through transit fees from India.Economic Lifeline for Iran.

Recent DevelopmentsLast year, as a result of India signing the US-India nuclear treaty, based on a US Congress law which suggests that India follow the American line on Iran, India officially quit the pipeline deal.

On 24th May, 2009, Pakistani President President Asif Ali Zardari and Iranian President President Mahmoud Ahmadinejad signed a framework agreement in Tehran which will lead to a formal agreement on the building of a pipeline.

The 2,000 km pipeline, shared half and half by the two countries, will not go through the troubled area of Khuzdar in Baluchistan but will enter Pakistan from its border near Gwadar and go to Nawabshah in Sind, which is the hub of gas pipelines in Pakistan.Pakistan will receive one billion cubic feet of gas from this pipeline.

Change in Transit route war.

ConclusionThe political will on Iran, Pakistan and India are strong and the sense of momentum has been increased.

Increasinggas demand projections in both Pakistan and India.

A number of major issues remain to be resolved - which mean that June framework agreement continues to look optimistic.

Without active US participation in the effort to alleviate Indias energy poverty, Iran could soon become to India what Russia is to Europe.

For Pakistan, it is still not too late to mull its energy security strategy and examine alternatives to Iranian gas.

Thank You

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