Iran, Pakistan to launch gas pipeline project

[Feyen]

 

[narcon]

http://us-mg5.mail.yahoo.com/neo/launch?.rand=7lsspvftssfvb#mail

During a ceremony on Monday, the presidents of Iran and Pakistan marked the start of construction on a natural gas pipeline, despite warnings by the U.S. that the project could incur sanctions. Iranian President Mahmoud Amadinejad said that the West has no right to block the project. Pakistan has recently faced increased blackouts and energy shortages. In efforts to further pressure the Iranian regime over its nuclear development program, the United States has opposed the project, instead proposing an alternate pipeline. This pipeline would run from gas fields in Turkmenistan to Afghanistan, Pakistan, and then to India. The United States has also promoted several electricity-generation projects inside Pakistan including assisting in renovating hydropower dams. On March 7, U.S. State Department spokesperson Victoria Nuland said, "If this deal is finalized, it would raise serious concerns under our Iran Sanctions Act." Pakistan Foreign Office spokesman Moazzam Ahmad Khan stated, "all our friends including the U.S." should show understanding of the country's energy needs.

BBC News - Pakistan-Iran gas pipeline defies US

The pipeline decision is bound to provide an additional irritant in relations between Washington and Islamabad. The US has consistently warned that the pipeline - if built - could potentially lead to US sanctions against Pakistan as part of Washington's efforts to contain Iran's nuclear programme.

Washington insiders though suggest that this would be more likely to become an issue once the gas flow was ready to be switched on. That could still be some years away, indeed one of Washington's biggest criticisms of the pipeline is that it does nothing to address Pakistan's immediate energy needs.

The US sees a good measure of domestic Pakistan politics in all of this - elections are looming - and it may be for a future government in Islamabad to face the moment of truth; either to risk US sanctions by switching the gas on or to risk domestic criticism by being seen to cave in to US pressure.

 

[Argus Panoptes]

well great step. i hope it gets completed on time.
no need to worry about the US sanctions... if we dont go for this project, we would be worse off anyways. and knowing that US needs us for another 2 years, ill put all my bets on going ahead with the project and facing some probability of sanctions.
the alternate is to not go ahead and continue facing energy shortages/deficit over the medium run with 100% probability.

so any kind of calculations (be they economic, social, or even gambling) would tell u to go ahead with the pipeline strategy.

What kind of economic calculation justifies a price for the commodity at 4 times the prevailing market prices?

 

[iPhone]

I cannot believe Zardari did it and that too in the face of immense US pressure.

 

[FarazUSA]

Here is an article doing some analysis from a Bharati source. Not sure how credible it is but senior members
can pitch in their views on it.

Iran pipeline will be Pakistan's Enron by Swaminomics : SA Aiyar's blog-The Times Of India

Swaminomics declared last week that India must forget the proposed Iran-Pakistan-India gas pipeline because of the outrageously high cost of Iranian gas. Some readers have asked, “Why is Pakistan willing to pay the Iranian price, and go ahead with the project minus India?”


Answer: The pipeline is going to become Pakistan’s Enron. It will drive Pakistan towards bankruptcy and be aborted, just as Enron drove the Maharashtra government towards bankruptcy and was aborted.


Iran and other Gulf producers have long linked the price of gas to that of oil. This was acceptable for decades when oil prices, and hence linked gas prices, were subdued. But oil shot up from $14/barrel in 1995 to a peak of $150/barrel in 2008, and it is still around $75/barrel today.


Iran and Pakistan have agreed on a gas price linked to 80% of the Brent crude oil price. This would have been fair in 1995 but not any longer as oil is up from $14/barrel to $75/barrel.

In a recent interview with Newsline magazine, former Pakistan petroleum secretary Gulfraz Ahmed declared bluntly, “I am now appalled to know that the present negotiations are in the region of 80% of Brent crude.” He adds, “We need this gas urgently, but on the other hand, not at this price.”


He recalls that his original negotiation in the 1990s was for a gas price of $2.05/mmbtu (million metric British thermal unit) from Iran. But the new gas deal implies a price of $8/mmbtu if oil is $60/barrel. If oil goes up to $100/barrel — very likely in the next year or so — the gas price will soar to $13/mmbtu. And if oil returns to its 2008 level of $150/barrel — entirely possible when the Iran-Pakistan pipeline is completed in 2015 — gas will cost a mind-boggling $20/mmbtu, or 10 times as high as originally negotiated in the 1990s.


The cost of 5,000 MW of power to be generated from the gas will rise correspondingly. If oil costs $100/barrel, the linked gas price will translate into an electricity price of around Rs 7.50/ unit. Remember that Enron had to be closed when its price rose to just Rs 4.25/unit: the Maharashtra government said this would empty its coffers.
When Pakistan begins generating power with Iran gas in 2015, oil could be as high as $150/barrel. If so, the corresponding cost of electricity will be Rs 11/unit. Producing power at that price will be economic suicide.
Why has Pakistan got itself into such a trap? Well, don’t be surprised: many Indians still want to join this project. Politicians and strategy wonks can be so fascinated by projects with political appeal that they forget commercial sense. The Left Front is dying to join the project just to spite the US. Pakistan too has foreign policy wonks who see the pipeline as a way to kick the US and display solidarity with Islamic neighbours, oblivious of the suicidal cost.


When Enron proposed its 2000 MW plant in India, this was seen as a fabulously strategic project, worth paying a premium for. At the time the state electricity boards were bust, and India had a terrible power shortage. In this energy desperation, the Enron project was grasped eagerly and cleared at record speed, notwithstanding warnings about the cost. Many hoped this strategic deal would open the gate for dozens more foreign investments.
Fifteen years later, Pakistan also has a terrible power shortage. It too suffers from energy desperation, and so is eagerly grasping a massive power project based on Iranian fuel, ignoring warnings from its own experts about the cost.


Gulfraz Ahmed mentions a third reason for Pakistan’s behaviour: lack of negotiating skills to understand the risks of a 40-year deal with an unfavourable pricing formula. This happened in Enron’s case as well. In both cases the negotiators failed to realize the risks of a contract linked to world oil prices (which could shoot up) and denominated in dollars (the electricity price shot up every time the rupee declined).


Critics of Enron shouted “corruption”. More than 20 cases were filed against the project but all were dismissed by the courts — there was no hard evidence. However, many Indians remained convinced that money had changed hands because Indian politicians are so obviously corrupt. I predict that the Iran gas deal will also be widely condemned as corrupt in Pakistan once the high cost of electricity becomes patently obvious.


Corruption charges are a distraction. The Enron fiasco was caused by a combination of energy desperation, incompetent negotiation, and fanciful notions of strategic importance. Pakistan faces a similar fiasco for the same three reasons.

 

[ajpirzada]

What kind of economic calculation justifies a price for the commodity at 4 times the prevailing market prices?

the calculation that gas load-shedding is likely to increase further. we need this gas. prices can be revisited

 

[Argus Panoptes]

the calculation that gas load-shedding is likely to increase further. we need this gas. prices can be revisited

I am not so sure. Firstly Iran has refused to renegotiate the gas prices, and secondly, this deal perversely ties in gas prices with oil prices, when future trends clearly indicate rising oil prices and falling gas prices. As presently structured, the need notwithstanding, the supplies through this pipeline will simply not be affordable, unless massively subsidized, and that will open up a whole new set of issues.

 

[IceCold]

May be you guys should learn how Diplomacy is done and how to get what you want. Whole IPI drama was for getting much better deal like Civil Nuclear deal which you guys also asked for because we got it.

Learn few tricks from us. We try to protect national interest without firing a bullet. But if diplomacy fails, we have other options.

I have no disagreeing over the above. My whole point was that India is equally involved in delaying the project as is US and Saudiarabia. Your post that we do not see the real players and only India is invalid in this case.

 

[Cyberian]

How convenient. Did you forget backing out of India from the deal. It was IPI (Iran, Pakistan, India) project.

Salaam to all the Muslims,



I guess India couldn't handle the American pressure.

Salaam to all the Muslims.

 

[ajpirzada]

I am not so sure. Firstly Iran has refused to renegotiate the gas prices, and secondly, this deal perversely ties in gas prices with oil prices, when future trends clearly indicate rising oil prices and falling gas prices. As presently structured, the need notwithstanding, the supplies through this pipeline will simply not be affordable, unless massively subsidized, and that will open up a whole new set of issues.

hmmm.. i can see ur point. makes sense! i wasnt fully aware about the cost structure of the agreement and even now.. but r u sure that its four times more than the market price?

 

[Argus Panoptes]

hmmm.. i can see ur point. makes sense! i wasnt fully aware about the cost structure of the argument.. but r u sure that its four times more than the market price?

The original negotiated rate was about $2 per MBTU, but this was back in the 90s. This rose to $8 per MBTU for an oil price of $60 per bbl and $13 per MBTU for an oil price of $100 per bbl. If oil rises to $150 per bbl, the price of Iranian gas will rise to $20 per MBTU. And this compares to present international market rates of around $3 per MBTU right now, and predicted to fall to below $2 per MBTU as shale gas production rises.

So, presently we will pay four times the going rate, with potentially paying over ten times the going rates if oil rises. How can that be a good deal for us?

 

[darkinsky]

congratulations to iran for making fool of pakistan and making a deal where gas price is linked with oil price(as argus stated, gas prices will come down where as oil prices will continue increasing)

iran is totally at the advantage here, where as pakistan will sell its wheat and all even keeo its population hungry for such a deal will pakistan will have to bear for 30 odd years

also pakistan and its economy and its people will become at the mercy for iran, also at the mercy of US sanctions)

zordiri sold us all

 

[Cyberian]

Now that the Iran Pakistan pakistani pipeline would be laid. Tapi, if at all, would be without a letter "P" It would read like TAI pipeline. So dream on....

Salaam to all the Muslims,



Will the pipeline be floating in Pakistani airspace or will it be built in the Low Earth Orbit?

Salaam to all the Muslims.

 

[Cyberian]

CONGRATS to Pakistan & Iran . This will help to lessen the energy crisis that is being faced by Pakistan .

Salaam to all the Muslims,

ALLAHU AKBAR
ALLAHU AKBAR
ALLAHU AKBAR​

I have waited and waited many many years for this day and Alhamdu'Lillah, Allah The Great has Blessed me with the opportunity to witness this Great Day in my lifetime.

Despite so much insidious and diabolic hatred against the Muslims, the Islamic Republic of Pakistan and the Islamic Republic of Iran have done it.

Congratulations to the Muslims of Pakistan and Iran.

I was watching this live on Dunya News while I was driving to work. You can't imagine how excited I feel today.

A Great Victory for the Muslims and Al-Islam.

ALHAMDU'LILLAH​

Salaam to all the Muslims.

 

[ajpirzada]

The original negotiated rate was about $2 per MBTU, but this was back in the 90s. This rose to $8 per MBTU for an oil price of $60 per bbl and $13 per MBTU for an oil price of $100 per bbl. If oil rises to $150 per bbl, the price of Iranian gas will rise to $20 per MBTU. And this compares to present international market rates of around $3 per MBTU right now, and predicted to fall to below $2 per MBTU as shale gas production rises.

So, presently we will pay four times the going rate, with potentially paying over ten times the going rates if oil rises. How can that be a good deal for us?

that very unbelievable.. so much that im finding it hard to digest