Iran’s gas
diplomacy
India faces a major challenge
by Bhaskar Balakrishnan
Iran
and Pakistan signed an
agreement on March 17 in Istanbul to launch the construction of the
$3.2 billion Iran-Pakistan (IP) onshore gas pipeline project, which
includes a provision for India's possible participation at a later
date.
Iran will deliver 750 million cubic
feet per day (mmscf/d) of gas to Pakistan for the next 25 years
under a controversial gas purchase agreement signed in Istanbul in
May 2009 by the newly formed Inter-State Gas System (ISGS). The
accord gives Iran great leverage and sets the price at $7 per
million Btu (mBtu, at crude prices of $50), going up to $13 per mBtu
(at crude price $100), making it far more expensive than the gas
available from Pakistan’s domestic sources. The 900-km 42-inch
diameter gas pipeline is planned to become operational by 2015 and
run from the Assaliyeh Gas Field in southern Iran to Pakistan.
The pipeline was initially planned
to also run up to India, but due to concerns about the security of
the project and deteriorating political relations India withdrew
from the project in 2009. Pakistan and Iran have sought China’s
participation but without success so far. China has decided not to
participate due to questionable economic feasibility and technical
reliability, as the pipeline will run through high mountains with
complex terrain, giving rise to concerns of operational safety and
maintenance requirements. China has indicated its preference for
buying gas directly from Iran. It has also been tying up gas
pipeline arrangements with Central Asia.
The project raises several major
issues — an intractable and bitter political conflict in Balochistan
through which the pipeline passes, US concerns, high pricing and the
threat posed by religious militants. People of Balochistan will not
get commensurate benefits. Unless these issues are resolved, the
pipeline will remain just a pipedream.
India would like to access Iran’s
large gas reserves in a secure and stable manner. Iran would like to
have countries like India and China as long-term customers and to
get a certain amount of political leverage with India vis-a-vis US
efforts to isolate it. However, since the pipeline through Pakistan,
the lowest-cost option, will not assure the security of supply,
other alternatives have to be explored.
India’s reaction to this
development has been reported as the NSC’s advice to the Petroleum
Ministry, suggesting a mixed land/sea pipeline, running undersea
between points in Iran and India, thereby avoiding crossing Pakistan
territory. This advice is flawed and poses formidable political,
environmental and technical problems. These problems can be gauged
by a look at the Nord Stream pipeline project for the supply of gas
from Russia to Germany via a combined onshore and offshore pipeline,
due to be completed in 2011.
The political problem arises from
the fact that transit through Pakistan’s EEZ requires its consent.
This was the case with the Nord Stream project which involved
consent of Finland, Denmark and Sweden. Given Pakistan’s attitude,
the proposed undersea pipeline will have to avoid Pakistan’s EEZ as
well, and possibly the “natural prolongation of its continental
shelf” over which it might have economic rights under the Law of the
Sea Convention.
The technical problems arise from
the depth of the water through which the pipeline will pass. The
Nord Stream project has the longest undersea gas pipeline today,
some 1200 km, with two legs of a 48-inch-diameter capacity, 27.5
billion cu metres per year each; and an operating pressure of 220
bars. Construction of the undersea portion of the pipeline is to
start only in 2010, and the technical problems that occur will need
to be assessed. The high pressure and wall thickness of 38 mm are
needed to withstand water pressure, which increases at the rate of 1
bar per 10 metres depth. Pipelines require compressor stations to
raise gas pressure at several points, and these cannot be built for
the undersea stretch.
The environmental concerns arise
from the fact that the seabed needs to be stabilised for laying the
pipeline by digging trenches. This would have environmental impact.
The pipeline has to withstand possible seismic events in the seabed
as well as severe monsoon weather in the region. Chemicals used for
pipeline maintenance should not damage marine life. The Nord Stream
project has been objected to by environmental groups on these
counts.
A consortium (SAGE) has done a
preliminary study for a commercial project for deepwater pipelines
that will cross the Arabian Sea to the south of the territorial
waters and EEZs of all third-party countries and will mainly follow
a route, reaching a depth of 3500m, linking India to the Gulf gas
resources. Some estimates put the transit cost for gas at around
$1.8 per mmBTU, which is probably too optimistic. These studies need
to be clarified further.
Transporting LNG as an alternative
has many advantages. Firstly, India has already invested in LNG
terminals and tankers for the transportation of gas from Qatar. This
infrastructure can be scaled up to handle gas from Iran as well. The
infrastructure built by Iran can be used for gas supplies to many
other countries. The LNG system is competitive when transport
distances exceed about 1200 km. The system is flexible and does not
tie India down to one supplier, a useful option since Iran is known
to be a difficult business partner, prone to bringing in political
linkages and facing US-led sanctions. Nor does LNG tie Iran down to
one buyer, but offers it export markets in Japan, South Korea and
China.
The LNG system can accommodate
future large gas resources that may be discovered in other parts of
the world, including in the Bay of Bengal, regarded as very
promising for gas. The gas can be landed at points along the Indian
coastline, where energy demand is greatest, or where facilities
exist for movement to internal consuming areas. The system can
accommodate gas supplies from countries such as Myanmar, avoiding
transit problems. Thus, for both the exporting and importing
country, gas movement by LNG offers many advantages; the technology
if proven and time-tested and may be less expensive than deep-sea
pipelines.
On this basis, India should plan to
step up its LNG facilities and seek long-term arrangements with all
major LNG-exporting countries to secure its supplies as well as
encourage countries such as Iran to go this way.
The writer is a former
Ambassador and has participated in India-Iran gas pipeline talks.
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