February 05, 2008

IPI Pipeline Talks to Continue in Tehran

TEHRAN (FNA)- Iran suggested dates for continuation of Tehran talks on the Iran-Pakistan-India gas pipeline in an effort to help resolve transit fee differences between Islamabad and New Delhi.

Tehran wants to bring New Delhi and Islamabad to the table to resolve their differences over the transit fees Pakistan intends to charge India for the transfer of Iran's natural gas, UPI reported.

February 12 or 13 has been suggested as the date for talks.

India's Petroleum and Natural Gas Minister, Murli Deora, is expected to visit Pakistan next month to discuss the details of the transit fee. Deora's visit is taking place at the invitation extended by Pakistan's Petroleum and Natural Resources Minister, Amanullah Khan Jadoon, during their recent meeting in London.

Deora has said it would be a major initiative that could help to clinch the 2300-kilometer pipeline.

India and Iran also have to resolve the price for the natural gas. In June 2005 the two nations signed an agreement that linked liquefied natural gas to the price of Brent crude oil with a cap at $31 per barrel. Now Iran is suggesting a raise to $55 per barrel, upping the LNG price to $4.78 per MBTU.

Indian and Pakistani Ministers discussed this pricing dispute in their recent meeting in London as well. Further discussions will be expected at the Tehran meeting.

Pak says ready to lower transit fee for Iran gas to India, invites Deora for talks

Monday, February 04, 2008

NEW DELHI, FEBRUARY 3: Islamabad has extended an olive branch to get New Delhi back into the negotiations on the proposed Iran-Pakistan-India gas pipeline. It has offered to charge India a transport fee based on global practice rather than the arbitrary tariff it sought last February.

“Pakistan is committed to provide transit facilities to India for the gas from Iran... We are keen to restart consultations with India to arrive at a mutually acceptable tariff compatible with international norms,” says a letter from Ahsanullah Khan, Pakistan’s Minister for Petroleum & Natural Resources, to his Indian counterpart Murli Deora.

Khan has invited Deora for bilateral talks in Pakistan ahead of the trilateral meeting between the three countries “to discuss the way forward” on February 12-13. “I would like to invite you to visit Pakistan on February 7-8 before our meeting in Tehran so that we could move ahead on our bilateral transit arrangements,” he wrote.

To demonstrate Pakistan’s keenness to carry India in the multi-billion dollar project, Khan assured that the “design and infrastructure of the pipeline being prepared by us caters for the quantities of gas for India”.

At an unscheduled meeting on January 26 in London, both ministers had expressed their keenness to put the pipeline project on stream as negotiations between the three countries have been stalled because of differences between Islamabad and New Delhi over transport and transit fee to be charged from India.

The trilateral has to be preceded by the bilateral meeting, but three fixtures were deferred due to the political conditions in Pakistan.

At the fourth bilateral in February 2007, Pakistan sought $1.57 per million British thermal unit (mBTU) for supply of gas over 1,035 km pipeline it would lay in Pakistan. India, using estimates prepared by consultant Gaffney Cline & Associates, offered a transmission charge of $0.69 per mBtu.

As for the transit fee,

Pakistan wants it pegged at 10 per cent of the delivered price of gas to India which says it would pay 5 per cent considering the economic benefits to Pakistan from the pipeline.

As Pakistan was not purely a transit country and was also a gas recipient, the transit fee should be lower, India argued.

Ministry sources said that Khan’s request was sent to the Ministry of External Affairs on Friday for approval. “Since the present government in Pakistan is a caretaker and polls are scheduled on February 18, it is for the MEA to decide whether any talks at this stage would be meaningful,” they said.

Gas from Iran may cost India dear

March 21, 2005

The proposal of setting up a gas pipeline from Iran to India via Pakistan seems to be gaining momentum with Iran agreeing to take responsibility for delivering the gas to the Indian border, rather than to just its border with Pakistan, thereby accepting transit risks inside Pakistan.

Also, Iran is said to be offering to guarantee additional liquefied natural gas in case of a disruption in pipeline gas supplies.

The bad news for prospective Indian buyers is that Iran is proposing that LNG pricing terms be one of the key benchmarks to price pipeline gas for prospective Indian buyers. "It will be the cheapest gas to India," says Iranian Petroleum Minister Bijan Zangeneh.

It looks anything but cheap. Given Iran's recent 20 per cent hike in LNG prices, high construction costs due to tough terrain, security charges and Pakistan's demand for steep transit fees, gas through a 2,600-km Iran-India pipeline could end up being too expensive for Indian users' tastes.

As a thumb rule, it is cheaper to send gas through a pipeline when distances between gas fields and markets are less than 1,000 km. LNG, which involves more than a billion dollars in investments in a liquefaction facility and specialised carriers to transport gas and a regassifaction terminal, becomes viable only when distances exceed 1,000 km.

In general, cross-country pipelines are fewer in Asia compared to Europe and America. Singapore gets gas from Malaysia and Indonesia via three pipelines and Thailand gets gas from Myanmar.

None of the pipes cross a third country and so there are no transit fees involved. Moreover, the length of the pipelines are well within 1,000 km.

The Iran-Pakistan-India pipeline project was never cheap to begin with, given the political and security risks and the hostile terrain. Nearly 1,100 km of the pipe lies in Iran, 990 km in Pakistan and 510 km in India.

In Pakistan the pipeline traverses Balochistan, a hostile territory outside Islamabad's control. A report by the US National Intelligence Council and the CIA forecast a "Yugoslav-like fate" for Pakistan in a decade with the country riven by civil war, bloodshed and inter-provincial rivalries, as seen recently in Balochistan.

Militant Balochi tribesmen, revolting against Islamabad's policies of stripping a resource-rich province, attacked the Sui gas field, which supplies nearly 45 per cent of the county's gas, cutting off supplies to the commercial capital of Karachi and other cities, for a few days. The Balochis would care less for a pipeline to India.

BHP Billiton plans to bury the entire pipeline one metre below the ground. Compressor stations to pump the gas will be installed every 100 km and these will be clothed in concrete armour.

"It can withstand rocket attacks," says an official. In addition, BHP plans to have armed patrols and to install sensors all along the route. All this does not come cheap, especially for a 2600-km stretch.

Transit fees further add to the project cost. Project participants remain far apart on one critical cost component -- transit fees. Pakistan President Pervez Musharraf has been quoted as expecting fees as high as $700 million a year.

However, Iftikhar Rashid, a spokesman for Pakistan's ministry of petroleum, told an Iranian paper that Pakistan would get only $70 million to $80 million in transit fees, based on typical charges in other parts of the world.

He termed $500 million to $600 million "an exaggerated and fabricated figure" that "India would never accept."

Political risks cannot be ignored. G Parthasarathy, a former Indian high commissioner to Pakistan, said in a recent article: "Less than a decade ago when our high commissioner Satish Chandra asked Pakistan's then president Farookh Leghari what guarantees he could give that Pakistan not halt energy supplies to India, Leghari told Chandra that as

India-Pakistan conflicts had never lasted beyond a few weeks, supplies would, at best be interrupted by Pakistan for a few weeks

Finance charges and political-risk guarantees increase because of political and security risks. BHP officials insist that all three countries should take equity in the pipeline project to guarantee the success of the project.

An investment banker from Sumitomo Banking Corporation said that financing costs are likely to be high for an Iran-India pipe because of the inherent risks associated with the project.

Unlike Qatar, Iran does not have a track record in exporting gas in large quantities from multi-billion dollar projects. Insurance premiums are likely to be quite high given Iran's belligerent nuclear stance, internal problems in Pakistan and fragile relations between India and Pakistan.

Making matters worse are escalating oil prices. Iran has increased prices of gas since early last year by more than 25 per cent, sensing a hardening of global oil and gas prices.

The Iranians are linking prices of pipeline gas to prices of LNG, which they plan to supply to India under a recent long-term contract. "Iran is better off reinjecting the gas to increase oil production instead of selling at a low price," says a BHP official justifying the price hike by Iran.

Fereidon Fesheraki, an international energy consultant, in a report by Hawaii-based consultancy Facts Inc entitled Rising LNG and Oil Prices in a Seller's Market: Are We Ready for the New Game? says that gas prices are headed higher, with competition for supply from the US forcing Asians to pay crude oil parity or above for LNG, rather than the slight discount to the Japanese Crude Cocktail provided under traditional long-term LNG contracts in Asia.

The result could be delivered prices of $7 to $10 per million Btu (British Thermal Unit) before the end of this decade. Currently, with crude oil futures in New York circling the $55 per barrel mark, traders are predicting that Nymex gas futures -- soon turning into some sort of global gas pricing benchmark -- will soon test $7 per million Btu or more.

Rising gas prices does no good when you are negotiating with Iran for supply of 100 million cubic metres of gas a day -- existing Indian gas demand -- via pipeline.

So far India is paying around 20 per cent more for Iranian LNG than what it pays for LNG imports from Qatar under an existing 5-million tons a year LNG import contract.

The Indian side made substantial concessions on pricing to Iran, confirming a slide toward sell-side power in Asian LNG. The LNG contract reportedly provides for a fixed f.o.b. price of $2.97 per million Btu for three years, well above the fixed $2.5 per million Btu that Petronet is paying to Qatar's Rasgas for five years.

After that, IOC and Gail are to pay $1.20 per million Btu, plus 6.25 per cent of the per-barrel price of North Sea Brent crude, subject to a ceiling of $31 per barrel and a floor of $10 per barrel for Brent.

This is the first known case of relatively high-priced Brent, rather than the average Japanese crude import price known as the Japanese Crude Cocktail being used in Asian LNG pricing.

The $2.97 per million Btu initial price reflects Brent at around $28 per barrel, only slightly less than the $3.14 per million Btu that India would pay if indexation were applied with Brent at the $31 per barrel cap.

The variable, oil-linked portion of the price at the initial level is about 40 per cent, more than 30 per cent or so in the Northwest Shelf sale of Australian LNG to China.

The $10-$31 per barrel oil-price range over which indexation applies is also much wider than the roughly $14-$25 per barrel in the first Indian and Chinese contracts.

End users in India are worried because Iranian gas -- either in the form of LNG or pipeline gas -- will be priced much higher than Petronet LNG's $4.5 per million Btu delivered price to industrial consumers.

"The market will not pay more. Power production in India is viable only at $3 per million Btu gas prices," says Vishvjeet Kanwarpal, chief executive of Asia Consulting Group.

National Thermal Power Corporation officials insist that coal starts replacing gas as fuel in power plants once gas prices cross $3.50 per million Btu.

Power and fertiliser companies consume more than 80 per cent of India's gas demand and one cannot wish away their complaints.

No comments: