Price imbroglio stymies Iran
pipeline By Siddharth
Srivastava
NEW DELHI - The United States
is no longer the main stumbling block to the
planned US$7 billion Iran-Pakistan-India (IPI)
pipeline. All issues, including US pressure to
abandon the 2,100-kilometer project, have been
relegated to the back burner as India and Pakistan
team up to try to persuade Iran to soften the
price at which it wants to deliver the gas.
Tehran is demanding $7.20 per million
British thermal units, linked to global crude-oil
prices. The Iranian position is considerably
higher than India's offer of $4.25 per mBtu at its
border with Pakistan. Though Pakistan has been
voicing plans of going it alone in case India
decides to drop out, that may not happen if the
price issue is not resolved.
Iran has
rejected India's demand for a price equivalent to
international long-term
gas-supply contracts, saying that New Delhi should
forget about buying Iranian gas at a low price.
Tehran's stand has been emboldened by a Europe
desperately seeking other sources of gas after
last year's crisis due to the spat between Russia
and Ukraine.
Iranian Oil Minister Kazem
Vaziri-Hamaneh characterized the Indian offer as
based on "subsidized domestic prices" and said
that Tehran will not sell its gas at the proposed
price. Iran has forwarded a gas-pricing formula
linked to Brent crude oil with a fixed escalating
cost component.
Tehran has also said it
wants to reopen the $22 billion (at earlier
prices) commercial agreement for 5 million tons of
liquefied natural gas (LNG) signed between Indian
Oil Corp and the National Iranian Gas Exporting Co
last year. Iran had in June 2005 agreed to supply
LNG for 25 years beginning in 2009-10. Indian Oil
Minister Murli Deora has said the dispute was
about the price India will pay for LNG.
"Because it [LNG deal] is not ratified [by
the Iranian government], we think we don't have
any obligation, but the Indian side thinks it is
approved and is in effect. So we have a dispute,''
Iranian Deputy Oil Minister Nejad Hosseinian has
said.
India is not happy. "Prices of oil
have shot up, so they want a review. But we do not
want to revise it. We want the gas at the price
that was mentioned in the contract,'' Deora said.
Deora had raised the issue of implementing
the contract with Iranian President Mahmud
Ahmadinejad in Shanghai last month. New Delhi is
also looking at its legal options.
This
week, in an interview with an Indian TV channel,
Iranian Foreign Minister Manouchehr Mottaki denied
that the LNG deal is linked to India's vote
against Iran earlier at the International Atomic
Energy Agency. "Both sides know it has become a
little bit complicated because of the changing
circumstances from the time of the agreement when
it was signed. Both sides know there are
difficulties in implementing the deal as it is,''
he said.
According to Indian officials,
the price that Tehran is seeking would be the
costliest long-term LNG deal in the world.
Currently, India imports 5 million tons of LNG
from Qatar at $2.53 per mBtu. This price will rise
to $3.50 per mBtu in 2008. Qatar sells LNG to the
US at $4.5-4.8 per mBtu, and other long-term LNG
contracts around the world cost not more than
$4.75 per mBtu. India started importing gas from
Qatar in 2004 and has been promoting LNG imports
since then.
However, other options are
been looked at. New Delhi is also in talks to
build pipelines to bring natural gas from Myanmar,
but the efforts have been slowed by problems with
Bangladesh. New Delhi was hoping that supplies
from Iran would substantially ease India's energy
situation.
Concerned about the current
imbroglio, India has officially put Central Asia
on the radar screen once more, with the Oil
Ministry informing the Asian Development Bank that
it will join a $3.5 billion project for piping gas
from Turkmenistan through Afghanistan and Pakistan
(TAP). The decision, conveyed last month, raises
the bar for Tehran. Unlike the Iranian pipeline,
TAP is politically easier to implement as it has
Washington's tacit backing. The project is also
free from funding fears that surround the Iranian
pipeline because of US sanctions.
The US
has proposed a courageous energy project to tap
the energy-rich ex-Soviet republics of Central
Asia. The plan would develop a regional power grid
from Kazakhstan to India to feed India, Pakistan
and Afghanistan and help integrate the economies
of Central and South Asia, circumventing Iran and
reducing reliance on pipelines through Russia. US
assistant secretary of state Richard Boucher
presented the plan, noting that Kazakhstan and
Turkmenistan are rapidly becoming top energy
producers.
New Delhi realizes that it has
become imperative to move away from dependence on
oil. It is estimated that by 2025, today's global
demand for 84 million barrels of oil per day will
have grown to between 121mbpd and 130mbpd. India's
oil consumption was 2.2mbpd in 2003 and is
projected to grow to 2.8mbpd by 2010.
The quest for gas Natural gas
has emerged as a more environmentally sound,
cheaper and easily available substitute for oil.
When compared with oil at close to $80 a barrel,
an equivalent amount of gas costs only in the
region of $20-25. On July 17, London Brent crude
hit a record intra-day high of $78.18 a barrel as
violence raged in the Middle East.
In this
context, India has been encouraging power and
fertilizer plants to switch from naphtha to
cheaper natural gas to cut costs. This has led to
a surge in demand as domestic gas production
accounts for just half of the country's
consumption.
Recently, the state-run
Indian Farmers Fertilizer Cooperative switched a
fertilizer unit to run on natural gas instead of
naphtha to save on energy costs. The firm has
already tied up with the state-run Gas Authority
of India Ltd (GAIL) to supply gas from GAIL's main
west-north Hazira-Bijaipur-Jagdishpur (HBJ)
pipeline. The fertilizer unit in Phulpur is one of
the largest in the country and produces about 1.42
million tons of urea annually.
The push
for gas continues on other fronts as well. One of
the biggest and most significant discoveries in
the hydrocarbon sector in India took place on June
17, 2005, when the state-owned Gujarat State
Petroleum Corp (GSPC) consortium struck gas at its
Krishna-Godavari No 8 well in the KG Block off the
coast of Andhra Pradesh.
The well has an
estimated reserve of 20 trillion cubic feet (tcf),
which makes it the largest gas reserve of India,
the value of which is estimated to be Rs2 trillion
($42.6 billion) per the current rate of natural
gas. The daily production is estimated to be in
the range of 65 million to 70 million standard
cubic feet per day, which is equivalent to India's
current total natural-gas production. According to
one estimate, the power produced by the gas from
the GSPC find will be sufficient to meet the peak
energy requirements of Delhi and Mumbai.
The GSPC find eclipsed the 14tcf
discovery, also in the KG Basin, in 2002 by
Reliance Industries. Last month GSPC announced
that it had found another huge reserve of
high-quality oil and gas from the KG basin. The
reserve found in the well KG17 has a gas flow of
4.8 million standard cubic feet per day and an oil
flow of 862 barrels per day. The actual viability
of the announcements is being verified by the
federal Directorate of Hydrocarbons.
However, India's current gas reserves of
82tcf are insufficient to meet soaring demand for
fuel from power stations as well as buses and
taxis that have converted to natural gas in
India's cities. Imports are essential.
India is also looking to engage closely
with Russia to tap new energy sources. India's
flagship Oil and Natural Gas Corp (ONGC) is in
talks over exporting its share of natural gas from
Russia's Sakhalin-1 via Royal Dutch Shell's LNG
terminal. Indian policymakers are also trying to
rope in state-run Russian gas monopoly Gazprom -
by first agreeing to their proposed gas-swapping
arrangement with Iran for the IPI pipeline and
then seeking Russian cooperation for participation
in the entire LNG chain for Sakhalin.
ONGC
has kicked off negotiations with the ExxonMobil
consortium for importing 8 million tons of LNG to
India from Sakhalin gas fields. To strike the
deal, the company has set up a price negotiation
committee. Indications are that ExxonMobil, which
has 30% stake and is also the operator of the
field, is open to considering the option of
shipping the LNG.
On June 16, Russian
President Vladimir Putin said after a meeting of
the Shanghai Cooperation Organization that
Gazprom, Russia's leading gas company, is ready to
participate in plans to build the IPI pipeline.
Putin's reference was to Gazprom's
willingness to enter a swap deal with Iran whereby
the Russian company would undertake to supply
Iranian gas to Europe in lieu of being allowed to
supply gas to the IPI pipeline. Putin said
Gazprom's role could include attracting finance
for the gas pipeline. After Moscow discontinued
gas supplies to Europe last winter when Russia had
problems with Ukraine due to an intense
gas-pricing row, European Union countries have
seriously begun to contemplate an alternative
option of obtaining their energy needs from Iran.
Indian Prime Minister Manmohan Singh has
proposed a high-level task force on energy with
Russia to draw up plans for cooperation between
the two sides in this crucial area.
The
Indian government has asked ONGC to focus on
finding oil and gas instead of selling gasoline
and diesel and other retail segments. New Delhi
has drawn up an ambitious bid to garner 60 million
tonnes per annum of equity oil from overseas by
2025. India is seeking oil assets in countries
such as Kazakhstan, Iran, Sudan, Vietnam and
Ecuador through ONGC Videsh. This month ONGC and
PetroEcuador, Ecuador's state oil company, signed
an agreement in New Delhi to enable the joint
bidding.
Concerned over the unstable oil
market, India called for an Asian regional market
for oil products at the recent Group of Eight
summit. It is in this context that the Indo-US
nuclear deal as well as the focus on renewable
energy (wind, water, solar, geothermal) becomes
very important as alternative sources of power.
Siddharth Srivastava is a New
Delhi-based journalist.
(Copyright
2006 Asia Times Online Ltd. All rights reserved.
Please contact us about sales, syndication and republishing
.)
