File photo of a gas pipeline. PHOTO: FILE
A Pakistani advocacy group has said the plan to import natural gas by pipeline from Iran will be an economic ‘death sentence’ for the country, the Associated Press and Kyodo reported on Thursday.
Citing a report released by the Islamabad-based Sustainable Development Policy Institute (SDPI) on Wednesday, the reports state that under the deal struck with Iran, the gas sold to Pakistan would likely be several times more expensive than domestic gas.
SDPI experts recommended the government renegotiate the natural gas import price with Iran under the Iran-Pakistan gas pipeline project due for commissioning by the end of next year.
“It is imperative for Pakistan to renegotiate the import price of natural gas at earliest,” Arshad Abbasi, who heads the energy team at SDPI said.
The gas purchase agreement links the gas price from Iran to the ‘Japan Crude Cocktail’ which is determined by the price of crude oil when cleared by Japan Customs.
But Abbasi said that formula does not take into consideration the global trend of delinking gas prices from oil prices.
“In Asia, Japan has already asked Qatar to consider a pricing mechanism different from oil-linked contracts,” Abbasi said. “The energy landscape has transformed and gas prices have fallen during 2007 to 2011 in all gas hubs. In the current scenario, the liquefied natural gas import price after incurring the shipping and re-gasification cost for 2012 show that the price of the pipeline’s gas might be even costlier than LNG import prices,” Abbasi said.
SDPI President Shafqat Kakakhel said the report’s purpose was not to find fault with those who negotiated the gas prices, but he added the skills of the Pakistani negotiators “were not up to the mark.”
A member of the study team said that by linking the gas price with the Japan Crude Cocktail, the Pakistani negotiators had inflated prices by $2 per barrel. He said the price should have been linked to the import price of crude oil at the factory gate in Pakistan.
Published in The Express Tribune, October 25th, 2013.
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The report is covering most hard fact that "The pricing formula for the Iran-Pakistan Gas Pipeline agreed upon in 2009 will be an economic death sentence for Pakistan, a report by the Sustainable Development Policy Institute revealed on Monday. Therefore, it is an eye-opening moment for Pakistan's policy makers that whether they will choose their personal interest or otherwise. It further reveals that '' In 2007, Pakistan agreed on an average crude oil parity of 45 percent of , crude oil parity but this saw a dramatic increase to an 85 percent crude oil parity under the 2009 Gas Sale Purchase Agreement (GSPA) with Iran, according to the report. Pakistan’s Economic Coordination Committee (ECC) on 10th April 2007, had approved gas purchase formula, indexed with Japan Customs Cleared Crude (JCC), a crude oil price index. In year 2007, the average gas production price in Pakistan was $2.6 MMBTU “According to agreed formula, the gas rate at the Pakistan border was to be, $ 6.56. $ 7.06, $7.87 $8.6 per MMBTU and $9.3 in case oil prices increase to, $80, $ 90, $110 and $1200 per barrel, respectively,”.
it seems that before signing the agreement, personal motives were more prior than national interest. In the report everything was demonstrating with facts & figures e.g. Iran is buying gas from Turkmenistan @ $4/MMBtu while Iran will sell same gas linked with Japan Custom Cleared Crude Oil (JCC) meaning by the current rate of IP Gas is $ 16/MMBtu and it has been rightly proposed that Pakistan should re-negotiate the price of the gas to be purchased from brotherly country Iran.
An economic analysis comparing the fully loaded delivered cost of various energy sources is in order. Why would anyone enter into a muli Billion commitment without having a handle on the cost of the pipeline, security, maintenance, financing etc - clear sign that people making decisions are more focused on chest thumping than rational decision making.
There is no doubt the gas imported by Iran will be costlier than domestic gas. But will it be costlier than the oil we import as well? We very conveniently try to distort the facts by comparing costs but not in terms of net financial burden on national exchequer. Intellectual dishonesty at its peak in this article. Should you require more information with authentic sources and references, do not be reluctant to ask.
Economic death sentence for Pakistan ??? You Must be kidding ! Water: life line of Pakistan but no major dam is completed in Past 3 decades Electricity: Whole country is still facing about 50% short fall Natural Gas: 1.5 billion cubic feet shortfall