Iran-Pakistan gas project: U.S. no, Russia yes

Analysis Materials 20 September 2012 14:42 (UTC +04:00)
Pakistan lives in an energy crisis
Iran-Pakistan gas project: U.S. no, Russia yes

Azerbaijan, Baku, Sept 20 /Trend /

Azer Ahmedbeyli, Trend analytical centre expert

Pakistan lives in an energy crisis. The country faces an acute shortage of energy resources which greatly hinders its economic development. Implementation of the Iran-Pakistan gas project could really help Pakistan's economy, but the question largely depends on the positions of the great powers.

According to the Pakistani newspaper The Express Tribune, Russian and Pakistani representatives discussed Russia's possible participation in the Iran-Pakistan gas pipeline construction project (Pakistan's section) during a meeting in Islamabad on the level of the joint intergovernmental commission. The Russian side expressed its desire to help Pakistan to overcome its energy crisis and stressed Russian Gazprom's readiness to participate in financing the project.

A meeting of the Russian-Pakistani commission was of a preparatory nature ahead of President Putin's visit to Pakistan in October. It is planned to sign a number of major agreements with Pakistan and it is assumed that the Iran-Pakistan gas pipeline project will be one of them.

Half the energy resources consumed by Pakistan fall to natural gas. So far, the country produced and consumed its own gas without importing it from other countries.

In 2011, Pakistan extracted 39 billion cubic meters of gas and consumed the same volume. However, the home grown amount is not enough to ensure the normal functioning of the Pakistani economy. According to Pakistani sources, at present, up to 10 billion cubic meters of gas per year are required now. In 2014-15, this figure will increase to 25.7 billion cubic meters a year. A year later, it will amount to 30.8 billion cubic meters and in 2017 the supply deficit will reach 36 billion cubic meters a year.

Besides the acute need for gas, Pakistan is in a position close to critical due to a lack of funds for the construction of its part of the project in terms of limited time. According to the contract, the Pakistani section worth $1.5 billion must be constructed and a full-scale exploitation of the gas pipeline must be launched by late 2014. If the terms are violated, Islamabad will have to pay huge fines to the Iranian side which is completing the construction of its section of the pipeline.

Everybody has an interest in this game.

Pakistan is trying to ensure gas supplies as soon as possible for the needs of its economy which is suffocating from a lack of energy resources. Pakistan's leadership stresses its firm determination to complete the construction of a pipeline from Iran by all means as the Iranian gas is much more accessible now, than the Turkmen (TAPI project). This does not mean that the Turkmen gas will be superfluous. These figures testify to the fact that Pakistan will need it in the short term prospect.

Taking into account the recently discovered huge gas reserves, Turkmenistan is trying to enter new markets. The Turkmenistan-Afghanistan-Pakistan-India (TAPI) pipeline project looks very promising. Something was done to promote it. An inter-state agreement between the participating countries was signed in 2010. Turkmenistan signed a memorandum of understanding with Afghanistan in May 2012. The purchase-sale agreements of Turkmen gas were signed with the State Gas Systems of Pakistan and Indian GAIL ltd.

According to many experts, the main obstacle for the project is the security in the Afghan section of the route. Potential investors are hesitant to finance the construction without serious guarantees which no one can offer.

However, Turkmenistan is holding a series of world road-show business trips to attract investment for the TAPI project construction in the three largest financial centres of the world - New York, London, Singapore these days.

Many U.S. companies are very interested in participating in the TAPI project, U.S Assistant Secretary of State for South and Central Asia Robert Blake mentioned it during a visit to Central Asia in August. Blake stressed that progress on this issue depends on what will be offered.

"The participation in the construction of these pipelines is associated with many risks. In particular, firms will consider issues such as the incentives Turkmenistan is ready to offer to international companies to take part in the project. Let's wait for the road shows."
He said that concrete discussions about who will form and lead a consortium for the practical construction of the pipeline will begin after their completion.

The issue of diversification of export routes is important for Iran having more gas reserves than neighbouring Turkmenistan. However, as opposed to Ashgabat, a political aspect in the implementation of its own gas pipeline project is important for Tehran.

It is necessary for Tehran to demonstrate the failure of the sanctions regime, the presence of partners and allies and its international isolation, especially such as Pakistan, the U.S. old strategic partner in the region amid the US-Iranian confrontation.

It is important for the U.S. to ensure Iran's maximum isolation, especially its oil and gas potential to weaken the economy and at least force it to abandon its nuclear programme. Accordingly, Americans want to prevent the construction of a pipeline from Iran to Pakistan under any circumstances by putting pressure on Islamabad by persuasion and poorly hidden threats.

What does Russia want? As always, it has the most unpredictable plans. The idea of "what is good for the enemy of America is good for Russia" may have a right to exist. In the future, under any pretext it is possible to refuse an agreement to finance the Iran-Pakistan project, whilst demanding the U.S. offers concessions on other foreign policy issues. This action is allowed in politics.

However, Russia's attempt to establish its own interests including economic in Pakistan - one of the two largest countries in South Asia, having nuclear weapons, is still more real. It should be recalled that Putin's visit in October will be the first visit of a Russian president (USSR) to Pakistan, since 1948, that is during diplomatic relations between the two countries.

Ironically, or, if you like thanks to the principles of the free market heavily implicated in the geopolitics, there is such a situation that the U.S. and Russia seem to change their roles. The U.S. for the TAPI project, originating in Turkmenistan, a former Soviet republic, Russia's partners in the CIS, while Russia can finance the Iran-Pakistan project and therefore support Islamabad - the U.S. strategic partner in the South Asian region.

There is another important point in this story. According to the contract, Pakistan will initially import annually around eight to10 billion cubic meters of Iranian gas. Gas production in Iran in 2011 was 151.8 billion cubic meters, while consumption in the same year amounted to 153.3 billion.

The excess of the domestic consumption over the volume of production in Iran has recently become a trend. The country is short of gas given such a significant level of production and it imports gas from neighbouring Turkmenistan. Iran's Northern provinces have not yet been gasified and are suffering from the cold every winter. Where does Iran plan to take gas for export to Pakistan? Formally from the South Pars field, but in fact?

A Pakistani edition published sceptical comments of local experts that Russia's deal on financing the project or the participation of Russian companies in the construction of the Iran-Pakistan gas pipeline are unlikely to be concluded because of the U.S. position. This would put pressure on the Russian leadership as happened previously with China. It will become clear in October whether Pakistani sceptics are right or not following President Putin's visit to the country.