When US President George W Bush was in
India this month, he caused a flurry of
commentary, especially in the Indian media, by
appearing to lift long-standing American
objections to the construction of a natural gas
pipeline from Iran through Pakistan to India.
"Our beef with Iran is not the pipeline,"
he said in Islamabad. "Our beef with Iran is the
fact that they want to develop a nuclear weapon
... We understand that you [Pakistan] need to get
natural gas, and that is fine."
Yet as
recently as mid-January, the United States had reiterated
once
more its opposition to an Iran-Pakistan-India
pipeline. A week later, US Energy Secretary Samuel
Bodman was in Islamabad to offer clarifications.
The US continued to have "serious reservations"
about the project. "Other pipeline projects are
very good and we are ready to help."
If
this was not clear enough, a White House National
Security Council spokesman added: "As we stated
before, the US government does not support the
Iran-Pakistan-India [IPI] pipeline. We have
repeatedly expressed concerns about international
participation in energy projects with Iran." The
genie was back in the bottle. Or was it?
A
project for Indian importation of Iranian gas was
first discussed in 1993, when relations with
Pakistan were much worse and an undersea pipeline
was proposed. This, however, turned out to be much
too exorbitant, so Pakistan was eventually brought
into play. Islamabad lifted its reticence to let
Iranian gas cross its territory to India in early
2000, a few weeks after US president Bill Clinton,
visiting India, met there with the Ambani family.
The Ambanis run Reliance Industries, a
likely buyer of gas from Iran that has built an
enormous petrochemical complex in Gujarat state
near India's border with Pakistan.
Bodman's trip occurred coincidentally only
a few days before the first trilateral meeting on
the pipeline among the Iranian, Pakistani and
Indian sides. Taking place in Tehran, it was
supposed to prepare for a trilateral ministerial
meeting set for April. Until relatively recently,
all contacts had been bilateral, either between
Iran and India or between Iran and Pakistan.
Last year, however, saw more than a
half-dozen India-Pakistan meetings about the
pipeline project. Meanwhile, construction costs
for the pipeline itself, estimated at almost US$5
billion near the beginning of the decade, have now
risen to over $7 billion.
Iran insists
that India sign a "take-or-pay" contract, meaning
that India would be obliged to pay for gas whether
the gas was actually imported and consumed. India
has coyly suggested a "supply-or-pay" arrangement
in which Iran is contractually obligated to
deliver gas at the Indian border with Pakistan, or
else pay for the quantity not delivered.
Further complicating the situation, the
gas would be of poor quality. India has asked to
receive gas rich in such petrochemicals as butane,
propane and ethane; but Tehran has rejected the
idea. (This is one of several reasons why the
level of Iranian gas exports to Turkey remain
relatively low: Tehran insists on selling
low-quality gas at high prices.)
Also, the
sides are still far apart on the price. A year
ago, erstwhile Indian petroleum minister, Mani
Shankar Aiyar, stated that Iran wanted India to
pay LNG (liquefied natural gas) rates for regular
natural gas. LNG is more expensive because of the
cost of liquefaction and subsequent regasification
processes. According to Aiyar, the total including
transportation and transit fees would be 50%
higher than Indian industry was generally willing
to pay. Aiyar suggested, moreover, that discounts
from the correctly calculated price would be
proper for large-quantity purchases.
The
pricing of natural gas domestically within
Pakistan is likewise an issue. The Pakistani
government heavily subsidizes that price, and any
attempt to raise it would surely provoke unrest.
Yet if the pipeline were built, Pakistan, for its
part, would reap an estimated $700 million or more
per year in transit fees and also get to use the
gas domestically.
Yet Pakistan is
prospecting for natural gas on its own territory
and seeks the right not to consume contracted
quantities of Iranian gas if it does not need it.
Thus Bodman's trip to Islamabad was specifically
intended to help provide American technical
assistance for prospecting natural gas on
Pakistani territory, and so decreasing its need
for imports, especially from Iran.
The
recent agreement whereby the US will help India
build nuclear power plants is likewise designed in
part to provide groundwork for satisfying India's
growing energy demand by means other than Iranian
natural gas. In the end, it is far from certain
that India need rely on Iran. Recent finds (since
2002) include 57 billion cubic meters (bcm) by
Cairn Energy offshore of Andhra Pradesh, 400 bcm
by Reliance also offshore of Andhra Pradesh, and
28 bcm by Reliance offshore of Orissa.
Importing gas from Bangladesh was an
option for India, but Bangladesh did not want to
export until domestic supply questions were
clarified and reserve figures better calculated.
In 2004, Unocal, the lead on the Bangladesh
project, lost interest after years of delay. A
pipeline from Myanmar across Bangladesh to the
Indian state of West Bengal remains a possibility.
Shell has contracted to receive LNG supplies from
Oman at its terminal in Gujurat.
As a
result of current conjuncture, the
Turkmenistan-Afghanistan-Pakistan (TAP) pipeline
has been getting a second look. Originally
conceived in the mid-1990s, this project was
shelved during the Taliban's years in power in
Kabul. However, the Russian-Ukrainian gas conflict
at the beginning of this year finally brought home
to President Saparmurat Niyazov Turkmenbashi the
danger of Turkmenistan's near-exclusive dependence
on Russian pipelines for exports.
Although
pipeline security in Afghanistan remains at
present problematic, recent attacks on energy
infrastructure in Pakistani Balochistan (an
energy-rich region but one still poor and
disfavored by the present government) raise
equally the question of the security of an IPI
pipeline. An interesting variant of the TAP
project sees it extended beyond Pakistan into
India.
India's natural gas consumption in
2003 was 27.4 bcm, projected to rise to almost 40
bcm by 2010 and over 50 bcm in 2015. However, the
growth of demand for natural gas in India is
dependent on the domestic power generation
industry, which at present is about two-thirds fed
by coal, but is projected to be one of the biggest
consumers of natural gas.
The Electricity
Act of 2003 foresees unbundling and eventually
privatizing the assets of India's state
electricity boards into generation, transmission
and distribution companies. Yet the Turkish
experience is a noteworthy caution. In the late
1990s, Turkey planned huge increases in natural
gas imports during the present decade, while
legislating a similar dismantlement of state-owned
and state-run electricity enterprises.
Turkey went so far as to amend its
constitution so that power industry companies were
no longer required to be state-owned. However, the
process of unbundling and privatization has
flagged. As a result, the government in Ankara
recently revised significantly downward its
projected gas import needs for the remainder of
the decade. One should therefore be cautious about
projections in the growth of Indian natural gas
import requirements, and hence about whether a
pipeline from Iran would be necessary or
cost-effective, especially given other potential
suppliers.
The US knows that it cannot
veto single-handedly the construction of a natural
gas pipeline from Iran to India via Pakistan, but
it continues to discourage the attempt. In fact,
external factors have made such a pipeline
impractical until now. In the future, other import
options for India and Pakistan, as well as
prospecting and resource development on the
territories of the two states and developments in
their electricity sectors, may well make
dependence on Iran unnecessary.
Dr
Robert M Cutler (http://www.robertcutler.org)
is Senior Research Fellow, Institute of European
and Russian Studies, Carleton University, Canada,
and consultant to non-governmental organizations,
industry, governments and international
organizations.
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