Iran urged to end gas price deadlock

Posted in Iran , Pakistan , Energy Security | 27-Jan-09 | Author: Ahmad Fraz Khan| Source: (Pakistan)

ISLAMABAD, Jan 26: The Senate Standing Committee on Petroleum urged Iran on Monday to end the deadlock over the pricing formula for the proposed Iran-Pakistan-India (IPI) gas pipeline project.

"We fear that the IPI project will be dropped if we don't reach an early agreement over the gas price with Iran," chairman of the committee Senator Talha Mahmood told reporters after presiding over a meeting of a sub-committee of the Senate panel.

Adviser to Prime Minister on Petroleum Dr Asim Hussain told the meeting that a Pakistani delegation would visit Tehran next month to try to sort out differences with Iran. He said India had lost interest in the project because it considered that the price proposed by Iran was too high. "But Pakistan will hold further talks with Iran and seek some discount," he added.

The meeting was informed that Iran had indicated that it might reduce the price by 10 per cent, to 70 per cent of the crude price in the Middle East market.

Pakistan wants the price to stay around 60 per cent in parity with the crude.

The controversy over the gas purchase agreement emerged recently after Iran changed its position of fixing the price at of 44 per cent of the average crude price and raised it to 78 per cent. Iran has made a number of changes in the purchase agreement, including the first revision of gas price after one year, instead of two years that it had earlier proposed.

Iran had suggested that the subsequent revision of price would be made on an annual basis after the first revision, but it is now saying that after the first revision, subsequent revision will be made after three years.

Pakistan's share from the IPI project -- about 1.05 billion cubic feet daily -- will be very expensive for domestic or commercial consumers.

Dr Hussain said that Pakistan's share would rather be used for generation of 5,000 megawatts of electricity to enable the country to bridge the gap between demand and supply.

The meeting was informed that about 48 per cent of thermal power generation was based on furnace oil of which 62 per cent was imported. This import cost the country over $2 billion during the last financial year (2007-08). Compared to imported furnace oil, imported gas is a better and cheaper option.

According to petroleum ministry officials, imported natural gas, even at Iran's latest price offer, remained the most feasible option, compared with other imported fuels such as furnace oil, liquefied natural gas and coal.