Iran May Cancel $7B Pipeline Project With Pakistan

Iran has said it may cancel its high-profile, US$7-billion ‘peace pipeline’ project with Pakistan over lengthy construction delays, with would deprive energy-starved Pakistan of the some 22 million cubic meters of gas a day it would have received from its neighbor.

If negotiations fail to come up with a way to feasibly realize the project, Iran’s National Gas Company Head Hamid Reza Araqi said on Friday that the project could be cancelled entirely.

The project has already undergone 15 years of negotiations, beginning as the Iran-Pakistan-India gas pipeline project. Pakistan and Iran finally signed the initial agreement in 2009, while India withdrew from the deal. The deal was signed by Pakistani President Zardari and Iranian President Mahmoud Ahmedinejad. In accordance with this deal, Iran was to provide 22 million cubic meters per day of gas.

Pakistan was slated to begin importing Iranian gas imports in early 2015, but the country has not yet begun construction of the related pipeline, nor has Iran completed its project to transit South Pars gas to the Pakistani border. Iran was planning to build a 180-kilometer pipeline.

The pipeline was intended to connect Iran's giant South Fars gas field with Pakistan's southern Baluchistan and Sindh provinces.

The project is crucial for Pakistan if they are to avert a growing energy crisis already causing severe electricity shortages in the country of about 170 million, while it also grapples with Islamist militancy.

Tehran had at one point offered to loan Pakistan US$500 million—a third of the cost of Pakistan’s portion of the pipeline—to start pipeline construction in Pakistan’s territory. This offer was later revoked due to financial problems caused by sanctions.

Pakistan’s Petroleum Minister Shahid Khaqan Abbasi recently noted that in order for the ‘Peace Pipeline” to be feasible, all sanctions against Iran would have to be removed.

The deal has also been plagued by pricing disputes, with Pakistan demanding that Iran lower gas prices. Pakistan has also claimed that gas prices offered by Turkmenistan through the TAPI pipeline are lower than those proposed by Iran.

By Damir Kaletovic for Oilprice.com

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