India-Pakistan-Iran Pipeline: Challenges and Prospects: Civil Services Mentor Magazine - June 2014

India-Pakistan-Iran Pipeline: Challenges and Prospects

Iran and its Potential (Free Available)
Evolution of the Agreement (Free Available)
The obstacles in the IPI Project (Free Available)
The Broader Context (Only for Online Coaching Members)
Conclusion (Only for Online Coaching Members)

Iran and its Potential

With the stock of second largest fossil fuel reserves in the World, Iran has enormous potential to serve the needs of the rapidly developing countries, like- India, Pakistan and China. While the markets of China, India and Pakistan could be well served through pipelines; those of the distant countries can be served only through Liquified Natural Gas (LNG).

Nearly three-quarters of the world’s natural gas reserves are located in the Middle-East and Eurasia region. Russia, Iran and Qatar, together account for about 58% of the world’s natural gas reserves.

Iran has its natural gas reserves in the fields of North and South Pars, Tabnak and Kangan-Nar. According to the Oil and Gas Journal, Iran has an estimated 974 Trillion cubic feet in proven natural gas reserves, which amounts to about 15.8% of the world’s total deposits. The highest yielding fields of Iran are the offshore South Pars fields.

Evolution of the Agreement

Natural Gas was discovered in South Pars fields of Iran, back in 1990. Since then, Iran has been proposing for a pipeline project that can transport the Iranian gas to Pakistan and India.

Before delving into some facts and figures about the issue, it is instructive to review the historical developments preceding the current setting of India-Pakistan-Iran market integration project.

The export of natural gas from the Gulf region to Pakistan was first considered in the early 1990s. Two proposals were initially put forth-

1. Qatar-Pakistan pipeline following an offshore route, except for a small portion to be constructed over land passing through the UAE. However, this project could not progress as the time limit set by Qatar for the allocation of the gas passed, and the project got delayed; and,
2. A Pipeline between Iran and Pakistan. This project was further stretched to make it India-Pakistan-Iran Pipeline.

Although Pakistan and Iran signed an agreement in 1995 for the construction of a pipeline to bring South Pars natural gas from the Persian gulf to Karachi, new gas discoveries in Pakistan stalled the project for a number of years. Later, during the visit of Pakistan’s Prime Minister to Iran, in 2003, the project was revisited and a bi-lateral Joint Working Group (JWG) was formed, to realise the project.

Since the discovery of the natural gas in Iran, it has been the desire of the Iranian government to develop exports market for its natural gas reserves. However, the major problem has been in the form of a conflict between the interest and strategy of the Iranian government.

Iran’s Oil Minister and the Majlis (Iranian Parliament) Energy Committee have traditionally disagreed over whether the country should welcome a major regional and international gas export, or re-inject the country’s resources for the development for the development of the petrochemical and gas-based industries.

The logic behind making the pipeline agreement with India-Pakistan is that it provides Iran with a stable initial outlet of natural gas, and exploit the international market. Thus, the Iranian government filed a request with the Pakistani government for the extension of the pipeline project to India.

For Pakistan, the project offers the urgently needed gas supplies and revenue from the transit rights. About 50% of the 22 billion cubic meter per year would go to Pakistan, while the remaining part would belong to India.

The obstacles in the IPI Project

The proposal of the extension of the pipeline project was acceptable to Pakistan, but it took India more than a decade to adapt to the idea of gas transmission over the territory of Pakistan. There have been concerns and doubts over the dependence on Pakistan for the delivery of the natural gas. That is why, despite of acute shortage of energy and natural gas resources, the Indian government has not been enthusiastic about entering into an agreement, which involves Pakistan.

Thus, India began to search for better alternatives. There was a search for a pipeline route through an offshore pipeline, which would avoid the Pakistan’s territory altogether. However, due to a number of technical and geopolitical issues, such a plan could not materialize.

Pakistan, on the other hand, has expressed a willingness to go with the project, even if India choose to stand out of it. Thus, after a series of negotiations, Iran and Pakistan signed a Memorandum of Understanding (MoU) in mid-2005, giving a go-ahead for the project.

Since then, there have been a number of meetings and negotiations, between India, Pakistan and Iran, to resolve the irritants in the finalization of the trilateral project, and iron our the problems to reach an agreement on the Gas Sales and Purchase Agreement (GSPA).

While the Indian participation for the India-Pakistan-Iran pipeline project has been very active in the initial phases, India did not attend any meetings related to the project during mid-2007 to March 2008. During this period, India came under an overwhelming pressure from the USA, to drop the GSPA. India succumbed to the pressure as a civil nuclear deal with the USA was about to be finalized then.

Finally, in December 2007, Iran and Pakistan initiated the GSPA, which included a provision to add India further downstream at a later stage, if India so desires. Pakistan also clarified that it would buy the gas volume allocated to India in the GSPA, in case India is unable to join the project.

These developments shows the eagerness of Pakistan to implement the project. Nothing more could expected, from Pakistan, to help in the materialization of the project.