Iran Proposes Pricing Formula for Gas Supplies to Pakistan

Author : Mircea Birca | Sunday, September 28, 2008
Posted in category Iran, Iran News
Comments Off on Iran Proposes Pricing Formula for Gas Supplies to Pakistan

A03444643.jpgTEHRAN (FNA)- Iranian Oil Minister Gholam Hossein Nozari said that his country has proposed a formula for pricing gas supplies to Pakistan.

The minister hoped that the two sides would conclude an agreement on the final pricing formula at least one year before the start of export via a $7.4 bln pipeline which is due to take Iran’s rich gas reserves to the energy hungry Pakistan and India.

Reports said that an expert delegation from Pakistan is slated to visit Iran within the next few days in a bid to discuss various aspects of the project, including the volume of gas exports, project time line, delivery point and pricing.

The oil minister also stated that obtaining finance, supplying pipes and constructing the pipeline, which will pass through mountainous areas, is likely to take 5-6 years.

According to the minister, the new formula suggests pricing changes consistent with market fluctuations.

Iran and Pakistan initiated a Gas Sales Purchase Agreement this year. India and Pakistan have also resolved all bilateral issues including transit fee which saw New Delhi boycotting IPI pipeline talks for about a year.

India has more or less agreed to give Pakistan a transit fee of $200 million per year, which is equivalent to $0.60 per million British thermal unit for allowing passage of the pipeline through that country.

India and Pakistan finally agreed in February 2007 to pay Iran $4.93 per million British thermal units ($4.67/GJ) but some details relating to price adjustment remained open to further negotiation. There was a breakthrough in the talks in April 2008 when Iranian President Mahmoud Ahmadinejad visited Pakistan and India.

According to the project proposal, the pipeline will begin from Iran’s Assalouyeh Energy Zone in the south and stretch over 1,100 km through Iran. In Pakistan, it will pass through Baluchistan and Sindh but officials now say the route may be changed if China agrees to the project.

The gas will be supplied from the South Pars field. The initial capacity of the pipeline will be 22 billion cubic meter of natural gas per annum, which is expected to be later raised to 55 billion cubic meter. It is expected to cost $7.4 billion.

According to Indian ministry sources, the IPI gas pipeline is quite crucial for New Delhi as after signing of the agreement, 60 million standard cubic meters per day (mmscmd) of gas is expected to be supplied in phase-I, which will be shared equally between India and Pakistan.

In phase-II, 90 mmscmd of gas will be supplied to India and Pakistan. So far six meetings of the trilateral joint working group (JWG) of the participating countries have been held with the last meeting being held in New Delhi on June 28-29, 2007.

India, Asia’s third-largest economy, can produce only half the gas it needs to generate electricity, causing blackouts and curbing economic growth. Demand may more than double to 400 million cubic meters a day by 2025 if the economy grows at the projected rate of 7 to 8 percent a year, according to the Indian oil ministry.

Iran plans to start exporting gas to Pakistan in 2011. Iran has completed half the pipeline, which can carry 110 million cubic meters of gas a day, National Iranian Gas Company (NIOC) said in April. India uses about 108 million cubic meters of gas a day, according to a BP Plc report.

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