Iran gas: China waits as India wavers

Posted in India | 06-Mar-08 | Author: Siddharth Srivastava| Source: Asia Times

NEW DELHI - China is emerging as a potential partner in the proposed multi-billion dollar, 2,700-kilometer gas pipeline originally intended to link Iran, Pakistan and India.

Washington, at odds with Iran because of its perceived pursuit of nuclear weapons, has been hostile to the US$7.5 billion IPI pipeline and has urged India, considered a new strategic South Asian ally, not to go ahead with the project.

China, always on the lookout for new energy sources, has conveyed to Pakistan it would be willing to import 1.05 billion cubic feet (bcf) of gas per day if India opts out of the project, according to reports quoting officials in Islamabad.

Pakistan, which is smarting under Washington's decision to offer a nuclear-technology agreement to India but deny a similar deal to Pakistan, plans to import 2.2 bcf of gas a day from Iran through the pipeline.

Last month, a Pakistan Foreign Office spokesman said, "If there are prospects of China joining the IPI project with or without India, we will welcome it. Pakistan is committed to the pipeline because of its desire to achieve energy security."

In similar vein, an Iranian Foreign Ministry spokesperson said in Tehran, "Other countries are eager for implementation of the [IPI] project. China is putting pressure that she wants to join the project. We don't have a lot of time. It is time to expedite the decision-making."

New Delhi is not taking the "China threat" very seriously, at least for now, with part of the argument being that India will pay more for the gas. An Indian official at the Petroleum Ministry said, "Going by China's past record, it is unlikely that Beijing will pay as much as Iran is likely to get out of India."

The official said Iran and Pakistan had "deliberately" introduced China as a possible party in the IPI to "pressurize" India, as it would be "politically unwise for India to let China walk away with the extra gas as has happened in Myanmar".

A gas purchase agreement has been finalized by Islamabad and Tehran that will be formally signed this month, while India has kept away from recent talks, citing various reasons, including political instability in Pakistan.

Speaking in Parliament recently, India's Petroleum Minister Murli Deora said, "No official communication has been received regarding China joining the IPI gas pipeline project. Such multilateral projects involve protracted discussions as all the aspects have to be carefully examined."

While Pakistan and Iran remain keen to move ahead with the project, it does seem that Tehran and perhaps even Islamabad would prefer India rather than China on board because China is unlikely to pay the kind of price that India would for the gas. This is a matter that will pinch Iran the most.

China, for example, has reportedly paid a third of the price India agreed to to import similar armaments from Israel.

Iran's Foreign Ministry has denied reports that the tripartite talks over the IPI pipeline have collapsed. "All three countries [India, Iran and Pakistan] believe that this project will provide stability and security to the region. There is a serious will and determination to realize this project," a statement recently said.

Over the past couple of years, India, Pakistan and Iran have mutually agreed to a price of US$4.93 per million British thermal units (mBtu), an industry measure, for the gas from Iran, which many observers feel is not the kind of money Beijing will settle for.
This price was negotiated when crude oil was $60 a barrel. It is now trading in the $100 a barrel range.

India will also have to pay Pakistan a transit and transportation fee, which should raise the price at the India-Pakistan border to about $7 per mBtu, a price much higher than domestically available gas.

Iran, which possesses the world's second-largest gas reserves after Russia, has completed nearly 20% of the work on the pipeline, which will supply gas from the South Pars fields up to the Iran-Pakistan border. Pakistan is yet to begin work on a 1,000-km stretch of the pipeline to link Iran with India.

In the event that China joins the project, the pipeline would run via Gilgit in Pakistan's Northern Areas, which is very difficult terrain. Pakistan, which has already approved a Karakoram highway project in the same location, is also looking to extend a railway link to China to connect with Gwadar port in Balochistan province, in the south.

New Delhi has been concerned about issues related to safety, commercial viability and security of the IPI pipeline and has thus been promoting involvement of independent monitors as well as the Russian firm Gazprom as an investor in the project.

Given its suspicions regarding its neighbor, India does not want Pakistan to be the only stakeholder in the transit section of the pipeline. According to some Indian analysts and officials, India is looking to have a deeper interest in the IPI project rather than being a mere beneficiary of the gas. Nor does it want future supplies of gas to be held to ransom by Pakistan. Security and consistent supplies over the next 25 years are major issues.

However, it is also apparent that New Delhi is keen not to annoy Washington in the immediate future, even as Indian officials say it is political uncertainty in Pakistan (elections were held last month and followed the assassination of former prime minister Benazir Bhutto) that is causing delays in the IPI project.

Analysts and officials admit this is just an alibi to bide time until matters with Washington - particularly their agreement on nuclear issues - are sorted. New Delhi's approach has been to push the civilian India-US nuclear deal that promises access to foreign technology to generate nuclear power, before firming up the IPI project.

The Indian position is eased in the short term by the fact that the Reliance Industries-managed Krishna-Godavari gas fields in the east of the country are set to be productive from this year, pointing to no acute gas shortages in the near future.

Over the longer term, however, India will need access to new energy resources to sustain its growing and modernizing economy. Whether Iran will be a key source will hinge on settlement of numerous issues related to sanctions on that country, internal and external politics, geostrategy and security and construction problems.

Some analysts say Iran is unlikely to become a major exporter of gas for more than a decade, given the tough attitude of Western countries, especially the US, which has threatened sanctions against any nation dealing with Tehran.

Siddharth Srivastava is a New Delhi-based journalist.