Pakistan’s pipe dream

Published: October 8, 2013
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The writer has a master’s degree in conflict-resolution from the Monterey Institute of International Studies in California and blogs at http://coffeeshopdiplomat.wordpress.com

The writer has a master’s degree in conflict-resolution from the Monterey Institute of International Studies in California and blogs at http://coffeeshopdiplomat.wordpress.com

Nawaz Sharif appears to be making moves to capitalise on a recent thawing of relations between the US and Iran. The prime minister stated last week, at the UN General Assembly, that the multibillion dollar gas pipeline project between Pakistan and Iran will continue. Iran remains under economic sanctions due to US/Israel assertions that it is pursuing a nuclear weapons programme. Iran is a signatory of the Non-Proliferation Treaty and continues to claim that its nuclear programme is peaceful. Completion of the gas pipeline would provide some relief to Iran’s weakened economy and enable Pakistan to overcome its growing energy needs at a time when the country is enduring crippling energy shortages. However, the pipeline project faces numerous challenges and has suffered setbacks since it was originally proposed in the 1990s.

The biggest challenge yet is for Pakistan to come up with funds for the construction of the pipeline. Iran has completed its stretch of the pipeline, 900 kilometers from Assaluyeh to Iran Shehr, but Pakistan needs 1.5 billion dollars to complete its portion. Otherwise, Pakistan will face a three million dollar per day fine for failing to meet the project completion deadline of December 2014. Keep in mind that in August, the Nawaz Sharif government estimated that it could take up to two years for Pakistan to complete the pipeline. Even after completion, there are long-term risks to consider since a large portion of the pipeline will pass through insurgency-wracked Balochistan.

Securing the pipeline will also contribute to the already rising cost of gas. For Pakistanis, the estimated price of gas imported from Iran would be $13 per mmbtu compared to around $4 per mmbtu for domestic gas. One fails to understand the logic of the previous government, which agreed to link the price of Iranian gas to the international oil prices. This will lead to increasing prices in the future.

Although diplomacy between the US and Iran is improving, the US has stated that the pipeline is in breach of its economic sanctions against Iran. According to The Wall Street Journal, a state department official stated: “The way it appears at this point, the pipeline would attract sanctions … there are other options for Pakistan that are less expensive and more reliable.” It is vital to note that this particular set of sanctions has not been mandated by the UN; instead, the policy was created in the US Congress. Other countries including India, China and Turkey have not been threatened by economic sanctions — instead, they have been granted partial waivers so that they can continue to import oil from Iran. India, originally a part of the IP (Iran-Pakistan) gas pipeline project, backed away from the project shortly after signing a nuclear deal with the US.

The alternatives offered by the US include transporting gas from Turkmenistan and Afghanistan to Pakistan and India. The US has been in favour of such a pipeline since the 1990s, but the project has yet to become a reality due to the unstable and chaotic situation in Afghanistan. The second option consists of the Obama Administration injecting $7.5 billion into Pakistan, with the aim of creating energy projects by updating power plants and extending hydro-powered dams. According to Pakistan, the proposed trickling distribution of funds is unacceptable. Plus, the relationship between the US and Pakistan is so sensitive that any incident or a change of government can lead to an instant slashing of funds.

In essence, Pakistan has no money to build the pipeline. Gas prices would only increase if it is constructed and the nation may face sanctions once they find a way to build it. It sure seems wiser at the moment to take advantage of Pakistan’s immediately available domestic reserves, which is a significantly more affordable source of energy. Importing natural gas, either via pipeline through Iran or Afghanistan, makes more sense as a method to stabilise the nation’s grid after fundamental power generation deficiencies have been addressed.

Published in The Express Tribune, October 9th, 2013.

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Reader Comments (39)

  • Rex Minor
    Oct 8, 2013 - 11:16PM

    Why can’t this young author write something which is positive, productive and peaceful, insteady of writing the essay style stories abot possible conflicts. Pakistan is a sovereign and independent country and has a nuclear deterrant and must be accorded this status whereas the USA is in very precarious conditions of her own doing. Miss Khan could suggest pronto to self styled King in the USA to negotiate with the USA congress so as to avoid another wave o reession in the worl outside the USA?

    Rex Minor

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  • S
    Oct 8, 2013 - 11:54PM

    The author failed to research what will be the alternative prices? Is the gas from QATAR cheaper? How long will domestic resources last? Obviously domestic gas is much much cheaper but we are running out of it and we need to import.

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  • Parvez
    Oct 9, 2013 - 12:13AM

    That was pretty realistic.

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  • sid
    Oct 9, 2013 - 12:46AM

    pathetic writing……..this should be blog

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  • Oct 9, 2013 - 2:04AM

    Pakistans interests need to be put first regardless.

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  • J
    Oct 9, 2013 - 2:25AM

    Good. The country has no money to waste on stupid pipelines. Better spend that money on educating kids instead of wasting it on unviable pipelines. Other alternatives for overcoming energy shortage should be explored.

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  • Tom
    Oct 9, 2013 - 3:18AM

    @Rex Minor:

    Right the way, because of your dirty-bomb.!!!

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  • unbelievable
    Oct 9, 2013 - 3:43AM

    IP is a waste of time – Pakistan approved the project before knowing the cost, where the pipeline would run, how to protect, how to finance the construction cost or even how to pay for the gas. Big chest thumping emotional decision that didn’t bother with economic analysis or even “common sense” – just something to make it appear that leaders were addressing a critical issue. Doesn’t have anymore substance today than it had at the much publicized bog inauguration ceremony.
    .
    Pakistan’s energy shortage has always been a shortage of money. The World is drowning in excess natural gas – record low prices – Pakistan just doesn’t have the money to buy it.

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  • Ali Tanoli
    Oct 9, 2013 - 4:10AM

    why pakistan cant buy from iran???? can mama amreeka dont sanction turkey germany or others….

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  • Sukh Madiq
    Oct 9, 2013 - 4:33AM

    A plea for intelligence ,,, followed by comments of ignorance. The facts presented here are pretty convincing that Iran’s peace-pipe may not be the best solution.

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  • Ali Tanoli
    Oct 9, 2013 - 4:35AM

    We need Macho man in the house located at constitution ave islamabad.

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  • Observer
    Oct 9, 2013 - 4:45AM

    “The second option consists of the Obama Administration injecting $7.5 billion into Pakistan, with the aim of creating energy projects by updating power plants and extending hydro-powered dams.”

    If Pakistan gives up its anti-India obsession and false perceived threat, there is a sure and free way to solve all of Pakistan’s energy problems for the next 100 years.

    How does giving up this anti-India obsession solves Pakistan’s energy problems? It is by signing an agreement with the US to totally give up Pakistan’s nuclear bombs and bomb making capacity. In return, the US can be asked to invest, on a free aid basis, about $20B to install needed capacity well into the future. This will allow the Iran and CAR’s pipelines in addition to new hydroelectric, solar and other energy installations.

    As part of this agreement, the US will also guarantee against any Indian aggression designed to take over any Pakistani territory.

    This idea will be sure to boost Pakistan’s economy, eliminate poverty, raise the standard of living of Pakistanis and help Pakistan become a very prosperous nation in about 10 years. The problem is, will the Pakistani military establishment change its security paradigm and and act in the larger interests of Paksitanis?

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  • Kufristani
    Oct 9, 2013 - 6:02AM

    @Observer

    Why?

    Pakistan as it is, bleeding and crawling is the best deal for India! It shouldn’t collapse, and it shouldn’t get better either. Current situation is ideal. No offense, it is very naive to believe a prosperous Pakistan is good for India.

    Don’t get me wrong. I wish prosperity for Bhutanese, Bangladeshis,Nepalese, Chinese, Sri Lankans, and the rest of humanity.

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  • Raj - USA
    Oct 9, 2013 - 6:55AM

    @Observer:
    $20B !!!! You are stingy here. 8 -10 years ago, the Israeli lobby here has suggested that Pakistan be given $100 billion in return for exactly the same things you say. This report appeared in the NY Times also.

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  • Observer
    Oct 9, 2013 - 9:19AM

    @Raj – USA:

    I added a followup post that gives more good reasons for the idea I proposed. ET hasn’t published that yet.

    I mentioned $20B, because that would be enough to build energy projects. Make that $30-$40B if $20B is too low.

    I don’t think the US is going to pay Pakistan $100B to “buy off” the nuke capability. It would be a lot cheaper for the US to bomb out all the nuke facilities, the nukes and missiles in case of any serious threats from Pakistan.

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  • Hurmuth
    Oct 9, 2013 - 10:12AM

    This should be understood at the very outset that Pak-Iran Project is primarily to gather the prosperity and wellbeing of both of the countries. It is the prime need of Pakistan to get rid of the energy crisis and this project would certainly facilitate the country in the long run. While considering the US-Israel nexus, the US should remind this to itself that US has done nothing to sort out the energy crisis of Pakistan in simple words no civilian nuclear deal or cooperation. Pakistan is carving its own ways to settle down its home issues than there is no harm to broaden its spectrum. In simple words, Pakistan is coining all the horizons of cooperation from all sides not considering US as the priority. This is very problem for the West that Pakistan establishes itself as an open front not pressed any more under US. This is the need of the time on which Pakistan is trying its best to make itself productive and prosper.

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  • Rabia
    Oct 9, 2013 - 10:33AM

    Though Pakistan has domestic reserves and we are trying to the best to overcome the energy crisis. Yet on the other hand we cannot ignore this IP gas pipeline project as it would link the two neighbours and help ease Pakistan’s chronic gas shortages. Iran has the second largest gas reserves in the world but has been strangled by a Western embargo that has seen its crude exports halved in the past year. As energy demand is rising and development is directly linked to energy security, it is time we move ahead. We can do the spadework for import of gas as well as electricity from Central Asia.

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  • Sara Khan
    Oct 9, 2013 - 10:40AM

    Currently Pakistan is suffering from drastic domestic issues, including energy shortfall, poverty, gas load shedding,etc. The gas pipeline project has been under construction since a long time ago, and negotiations have been going for a quite a long time between the two governments. Pakistan and Iran if deliberately follow up the project and start constructing it, it would be beneficial for both countries in the way that it would improve healthy relations with each other.. Pakistan and Iran must not be pressurized by the USA controversies..as USA would not ever want both countries to be close to each other.. Its better for both countries to go for the welfare of each other… Other issue is Pakistan is blessed with natural resources, only the lacking point is unavailability of proper policies to implement and to make those resources useable..

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  • BTW
    Oct 9, 2013 - 11:01AM

    India, originally a part of the IP (Iran-Pakistan) gas pipeline project, backed away from the project shortly after signing a nuclear deal with the US.

    Dear Author, the two main reasons India backed off was because it found the landed cost of gas being offered was too high (which you also have highlighted and which Pakistan gladly accepted) the other was that Pakistan refused to guarantee uninterrupted supply go gas through its territory. The nuclear deal has not much to do with India backing out. India still buys large quantities of Iranian oil even after the deal and US sanctions.

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  • antanu
    Oct 9, 2013 - 11:39AM

    @Kufristani:
    what a shameful mindset….and we call ourselves as civilized.

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  • Proletarian
    Oct 9, 2013 - 12:02PM

    @Sabina Khan
    Before placing all your bets on domestic gas you should have first done your homework regarding the domestic gas situation. Already we are faced with constantly rising demand which is driving gas prices ever higher. Also you shoud know that the Sui field will be depeleted by around 2020, then we’ll be in a pickle. The government, to it’s credit, has been trying to encourage exploration for tight gas and shale gas but those kind of scraping-the-barrel hyrocarbon accumulations are much more expensive to extract than conventional gas fields. To extract them profitably they have to be subsidized in the early stages of their development. Thats what the US did. In the coming years you’ll most likely have to import from somewhere or face a disaster caused in part by know-nothings like you who pretend to be know-it-alls.

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  • Observer
    Oct 9, 2013 - 12:06PM

    ET Mods, please publish this post. It adds more facts to my previous post that has already been posted.

    I would also add another important point to my previous post.

    The idea I proposed in my post above would also help to take out one of the important motivation for global terrorists who have made Pakistan an epicenter of terrorism. These Islamic terrorists all head straight to Pakistan because of Pakistan’s nukes.

    They hope that if they manage to take over Pakistan and establish an Islamic Caliphate, they would immediately also come in possession of the Islamic bomb. They figure that the bomb would give them an unbeatable force in their quest to change the whole world into a world of Islam.

    Giving up the bomb for development ($20B) as I proposed would take away this important reason why the terrorists choose Pakistan as their #1 destination.

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  • The Failed Rebel
    Oct 9, 2013 - 12:34PM

    @Proletarian:
    Incorrect.

    Survey reports directly coming from engineers working on excavation in Baluchistan have stated clearly that there are enough oil, gas, mineral and precious metal reserves in Baluchistan to feed Pakistan for 300+ years, make it 200 worst case considering increasing demand etc. and putting a 0 to all efficient energy pursuits.

    I don’t have documented references to it since all such work is confiscated by the excavation companies and engineers coming up with the merry results are deployed elsewhere. I don’t trust the media and the reports that are broadcasted anymore. Because certain foreign influences muffle all the revolutionary initiatives in the country. As a result, many of my fellow engineers (even the ones who had inundating patriotism) have left Pakistan.

    The aforementioned reports somehow these reports never see the light of day, why? I know why. But whenever I mention the reason ET Mods censor it.

    Respect
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  • Farwa Naz
    Oct 9, 2013 - 1:09PM

    Author has raised some valid points about the international and domestic pressure indicators, which are big hurdle in development of Gas pipeline between Iran and Pakistan. Beside this author doubts about the increase in price of gas and corruption are right but importantly it can overcome energy crises, eventually to hold the decline economy.

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  • Dvonijick
    Oct 9, 2013 - 1:28PM

    Pakistan should not go for any aid from the US to overcome energy crises; time has proven the US politics is controlled by many profit earning transnational actors, those who do not have mercy for their own people. Central Asian countries and Russia is also providing such deals, Pakistan should compare them and go for the best suitable deal.

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  • darbullah
    Oct 9, 2013 - 2:17PM

    Pakistan itself is a pipe dream.

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  • The Failed Rebel
    Oct 9, 2013 - 2:24PM

    @Dvonijick:
    I am afraid I might be the only one here who understands exactly what you mean. The big game is no conspiracy theory :)
    Kudos to you.

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  • Np
    Oct 9, 2013 - 5:21PM

    @Ali Tanoli:
    It cannot buy from Iran because it does not have money.

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  • yasir
    Oct 9, 2013 - 5:57PM

    Pak-Iran Gas pipeline is more important for pakistan to deal with its energy crisis. If Iran, under lot of economic sanctions can do that than why can’t we? Its of prime importance for Pakistan to work on pipeline to end energy crisis leading economic prosperity.

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  • Kamran Choudhry
    Oct 9, 2013 - 7:12PM

    I think the writer has a point. Since long we have lost our sense of national direction and have become dependent on international donations to survive. We like it or not, but the truth is due to our poor political, economic and foreign policies and extreme obsession with India, we have become a mercenary country doing others bidding to survive.Our national budget including defense is highly subsidized by foreign donors. How many of us pay taxes? Where the government will find money to fund its share of the IP deal? Do not count on Iran. It has its own economic hardship to deal with. We should stop our obsession with India and start thinking how to stand on our two legs.

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  • gp65
    Oct 9, 2013 - 7:39PM

    ETBLOGS1987

    “Securing the pipeline will also contribute to the already rising cost of gas. For Pakistanis, the estimated price of gas imported from Iran would be $13 per mmbtu compared to around $4 per mmbtu for domestic gas”.

    Wrong logic. Securing the pipeline can be said to contribute to the already rising cost of gas if and only if
    a) either Pakistan has no gas shortage and domestic gas is enough to meet all of Pakistan’s current needs and needs in foreseeable future OR
    b) alternative sources of gas accesible to Pakistan (e.g. Qatar) are cheaper than than the price agreed with Iran.

    Since neither of these options is true, domestic gas sgortage will lead to rising cost of gas.

    “One fails to understand the logic of the previous government, which agreed to link the price of Iranian gas to the international oil prices.”.

    Pakistan needed gas and did not have forex to pay for it. IT was thus willing to strike a deal with a country who was willing to fund part of the cost of building the pipeline and also willing to setle dues in local currency or through barter.

    Incidentally army chief Musharraf had agreed to similar terms, but at that time there was no loan promised or no agreement to settle the bill in local currency, so one wonders what Musharraf’s logic was.

    All this having been said, it is unclear how serious Pakistan government is about building the pipeline given that the contract to build the Pakistani side of the pipeline is yet to be signed.

    @Ali Tanoli: “why pakistan cant buy from iran???? can mama amreeka dont sanction turkey germany or others….”

    Because Pakistan does not have the money to build the pipeline. Sanctions is not an excuse for failing to honour the agreement with Iran because Zardari had said that despite sanctions he will build the pipeline.Recommend

  • honorliving
    Oct 9, 2013 - 8:37PM

    @Unbelievable
    If you are correct in saying “Pakistan just doesn’t have the money to buy it”, there is nothing that can be done to fix the gas shortage. But, I am not so sure because in Pakistan people burning kerosene and wood are paying more per BTU when compared to natural gas.

    @Sabina Khan
    I believe, what Pakistan needs is a floating pipeline. A pipeline made of small ships and tug boats equipped with CNG storage cylinders to transport CNG (not LNG) from, for e.g., Oman to Gwadar (a distance of less than 500 nautical miles). It is already being done in Caribbean’s.

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  • Nihar
    Oct 9, 2013 - 9:23PM

    Under normal circumstances, The Iran-Pakistan gas pipeline project is beneficial to both sides. Iran possesses the second largest gas reserves in the world and Pakistan is in need of sources of energy. The gas exported through the pipeline will have low processing and transportation costs. Despite the Iran-imposed sanctions, and negative statements from the U.S. regarding the pipeline, Pakistan is determined to go further with the project.

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  • unbelievable
    Oct 9, 2013 - 10:34PM

    The other “elephant in the room” that no Pakistani wants to talk about is the fact that Iran has a history of cutting of trade and closing it’s borders whenever it gets miffed at Pakistan. It’s likely that Iran would use the pipeline to influence/pressure Pakistan in taking action to protect the Shia minorities – cutting off the gas supply would send a loud message.

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  • islooboy
    Oct 10, 2013 - 9:21PM

    this pipeline was a flop when iran gave such high pricesRecommend

  • Zen.One
    Oct 10, 2013 - 9:47PM

    @BTW:
    @gp65:
    @Observer:
    @Raj – USA:
    Here is an interesting link ‘out and about’ regarding our capital city Islamabad. Though not linked to the subject, pictures are worth a thousand words. Very enchanting city
    http://www.skyscrapercity.com/showthread.php?t=584077&page=142

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  • AK Murthy
    Oct 10, 2013 - 11:45PM

    Don’t worry Miss Khan since Pakistanis will now eat ‘grass’ to save money for the pipeline :)

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  • North west pakistani
    Oct 11, 2013 - 3:13AM

    observer
    cant distroy it and nowtrying to buys it what a shame….

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  • genesis
    Oct 11, 2013 - 5:00PM

    The idea was that India would pay for the gas and it would flow free into Pakistan but this did not happen.there was a proposal to turn the pipe towards Chins to feed its need -dropped? china said it would pay $500 mio for this.Zilch?

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