While the world was glued to Isfahan for news on the outcome of the OPEC oil ministers’ meeting on March 16, an interesting, and to some extent perplexing, development was taking place in the not too far off New Delhi, raising questions about the Iran-Pakistan-India gas pipeline project. Volatile developments in the global crude markets however, eclipsed this important development on the regional energy scene, to a very great extent. Iran is eager to exploit its immense gas resource. On the eve of the Isfahan OPEC Oil ministers’ moot, Iran signed a memorandum of understanding with Kuwait to export 10 million cubic meters of natural gas a day, beginning late 2007. The deal with Kuwait was worth more than $7 billion over 25 years. Iran is also negotiating with Oman to supply it with 30 million cubic meters of gas daily starting 2008, increasing it to 70 million cubic meters by 2012. Then the possibility of Iran supplying Ukraine with 15 billion cubic meters of natural gas from Iran every year was also discussed at an Iran-Ukraine energy commission meeting in Kiev. In May 2004, Tehran signed a deal with the United Arab Emirates to supply it with 15 million cubic meters gas per day, and in October last year it signed a preliminary $100 billion accord with China for 10 million tons of liquefied natural gas over 25 years. Other countries that have signed gas-related memoranda or at least discussed the topic with Iran include Austria, Bulgaria, Greece, Italy, and Turkey. However, the biggest potential customers for the Iranian gas could be energy hungry emerging economies of Pakistan and India. Negotiations for a pipeline, from Iran to India, stretching across Pakistan have been going on since the mid-1990s. On March 16, when the ebullient Indian Petroleum Minister Mani Shankar Aiyar announced that his country might withdraw from the gas deal, many were taken by surprise. “We will not buy gas from Iran if we cannot sell it in India,” Press Trust of India quoted him as saying. Aiyar explained that Iran wants to charge as much for natural gas as it does for LNG, about $4 per million British thermal unit (BTU), whereas the main Indian consumers — the fertilizer and power sectors — were unwilling to pay more than $3 per MBTU. With the addition of transportation and transit charges to the Iranian price, Aiyar said, the gas would end up costing $4.50 per MBTU. Aiyar added that India and Pakistan will need approximately 200 million standard cubic meters of gas daily, and Iran should offer a special price for such a large order.
According to reports in the industry press, Tehran, is insisting on a “take-or-pay” agreement, in which the buyers must pay for the agreed amount of gas even if it does not take delivery of it. India reportedly prefers a “supply-or-pay” contract, in which Iran must deliver gas to the Indian border or pay for the contracted quantity. Tehran also rejected India’s request for natural gas that is rich in petrochemicals, preferring instead to deliver “lean” gas that does not contain butane, ethane, or propane.
It could be a sheer coincidence, but Aiyar’s suggestion that the deal could fall through came at the same time when US Secretary of State Condoleezza Rice was visiting India and Pakistan. In fact, she referred to the proposed pipeline during a press conference in New Delhi, saying, “We have communicated to the Indian government our concerns about gas pipeline cooperation between Iran and India. I think our ambassador has made statements in that regard and so those concerns are well known to the Indian government.” Then in Pakistan on the next leg of her Asian tour, she shared with her hosts in Islamabad, the Bush Administration’s concerns about the gas pipeline project with Iran. Politics plays a significant role in major economic decisions and if the issue is somehow related to energy, the impact of politics becomes still more pronounced.
The timing of the Indian petroleum minister’s comments appear to suggest either New Delhi, under apparent US pressure was rethinking its position about the project or is squeezing Tehran for a better deal.