Iran-Pakistan Gas Pipeline: Cost-Benefit Analysis Muhammad Munir* Muhammad Ahsan Saman Zulfqar Abstract Iran-Pakistan (IP) Gas Pipeline is considered a controversial project in Pakistan. A large number of professionals believe that IP Gas Pipeline is an energy lifeline for Pakistan. In…
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IP Gas Pipeline: A Viable Option?
Out of all the above options IP Gas Pipeline appears to be the most viable and cheapest option. In his article entitled: ‘Not a Pipedream’, Raise (2013) has described this project as the most suitable option. He argues that:
This pipeline, in a very short time frame of about 15 months, can ease pressure on Pakistan’s energy shortages and substitute the use of expensive furnace oil for power generation. A gas flow of 21.5 million cubic meters daily will have multiple positive gains for Pakistan’s economy. Secondly, we have not sufficiently realised the benefits of regional trade, investments and economic connectivity. Our markets for whatever we produce are in distant places . . . through the framework of regional organisations and at a bilateral level, we need to move towards Iran, India and Afghanistan and through Afghanistan to Central Asia. This is the region that is going to be the hub of economic growth and prosperity for the next half century. We shouldn’t miss any opportunity that opens up for us. Bringing in China in our infrastructural projects and building of the gas pipeline are steps in the right direction for a future full of positive gains.
Most Pakistani political leaders have voiced their opinions as pro-IPI pipeline, and feel that Pakistan should look into its own national interests and not to bow to US pressure. The former governor of Balochistan, Nawab Zulfiqar Ali Magsi, openly spoke out against the pressure from the West and expressed his interest in the pipeline which will be constructed in the Balochistan province. The Baloch people are hoping that the pipeline will bring economic prosperity and stability in the region. If Pakistan continues to go ahead with the deal, it will improve its bilateral ties with Iran. Enhancing economic ties will help the two countries to overcome their differences over the Balochistan province, the situation in Afghanistan and the sectarian issue of Shias and Sunnis. It will also help develop a relationship of mutual trust fostered by a common goal (Khan, 2013).
Geo-Economic and Geo-Political Implications
There are several benefits that IP Gas Pipeline may bring for Pakistan. The detail of some of these benefits is as under.
• The IP gas pipeline is an important, component of Pakistan’s overall energy requirement mix. It will help Pakistan to overcome its energy crisis by filling the gap between supply and demand. It will not only help minimize natural gas shortage of 1,000 to 1,500 mcfd but will also meet the shortage of 5000 to 6000 MW electricity.
• In total, the IP would cost around $3 billion to Pakistan but it would reduce oil imports by $5.3 billion, and help buy oil for another $2.3 billion, thus saved.
• It will help to preserve declining indigenous gas reserves of Pakistan which are expected to deplete by 2020.
• If Pakistan did not opt for pipeline projects then it would have to face even more serious consequences than the ones US was likely to impose on Pakistan in case of doing gas project with Iran.
• The imported gas from Iran will help replace the costly furnace oil being used as fuel in power houses in Pakistan that will help to save one billion dollars per annum. There is a clause in the agreement that if Pakistan arranges import of gas from other states at lower price than Iran will also do that accordingly.
• The project will provide job opportunities in Balochistan and Sindh.
• Pakistan can earn transit fee if the pipeline is extended to third country, i.e., India and China.
• Gas supply to power sector has been diminishing. Power sector would be key beneficiary from IP Gas pipeline.
• Starting of this project with Iran will also open new avenues for cooperation. Iran has proposed that an electricity transmission network can be built next to pipeline, connecting electricity grid of Iran with that of Pakistan, India and China and offered to sell electricity at a subsidised rate. Iran with the cooperation of Pakistan’s State Oil (PSO) will also invest four billion dollars to build an oil refinery at Gwadar Port having refining capacity of 400,000 barrels of oil per day (Stratrisks
, 2013)
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• The Iran-Pakistan gas pipeline deal would have provided 21.5 million cubic meters of natural gas for Pakistan on a daily basis, starting in late 2014. The pipeline could eventually be extended to India, which was also a partner in the deal before. In such eventuality, not only Pakistan but also economically growing and energy-starved India will benefit, and, consequently, India-Pakistan peace will flourish and the whole of South Asia will see the sort of stability the United States and the rest of the international community aspires for the region.
• Keeping in view that excess gas of 350 mcfd may be available after fulfilling needs of power sector, the fertilizers and captive power units in textiles and chemicals likely to be the key beneficiaries. While the government has already committed gas to fertilizer plants on SNGPL network, it is believed that a share of the excess can be diverted to FFBL urea plant which is currently operating at 50 percent capacity.
• Sectarian Bridge
–One critical aspect of the Iran-Pakistan pipeline is the simple fact that it will bring sectarian harmony in Pakistan.
Islamabad policy research institute has done a thorough cost benefit analysis for IP project
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