Low LNG Prices Divert Pakistan’s Interest From ‘Peace Pipeline’

Low LNG Prices Divert Pakistan’s Interest From ‘Peace Pipeline’Low LNG Prices Divert Pakistan’s Interest From ‘Peace Pipeline’

Low prices of liquefied natural gas have dissuaded Pakistan from taking meaningful measure to complete the long-delayed Iran-Pakistan 'Peace' Pipeline project, a senior gas official said in Tehran on Sunday.

“The more LNG prices fall, the more reluctant Pakistanis tend to be in developing the joint initiative,” Azizollah Ramezani, National Iranian Gas Company's director for international affairs was quoted as saying by ILNA.

Underscoring that Pakistan has adopted a new policy to meet its natural gas needs, the official added, “Instead of going for costly, long-term gas contracts, they have taken advantage of low LNG prices and prefer short-term LNG deals.”

He said "serious negotiations" should be held with Pakistan to make it clear whether or not they are interested in buying Iranian natural gas. Ramezani added that the glut in the international LNG market is expected to persist and explains why Islamabad has decided to meet a big portion of its energy needs via LNG.

"There is a major difference between oil and LNG," he noted, saying that a few  new LNG export terminals can significantly tip the global supply/demand balance.

Negotiations with the Pakistani government has been a challenging task as they now have more economically feasible options, observes say. Furthermore, the two neighbors have yet not settled some major technical and financial issues of the cross-border pipeline project.

Pointing to the pipeline which has reached Pakistan's border with Iran, Ramezani said, "The pipeline is currently used for domestic needs because the future of the deal with Pakistan remains bleak.

"Almost 80% of the pipe-laying work on the Iranian side (1,100 km of the 1,400-km stretch) has been completed," he stated, adding that the Pakistani side has not even started laying the pipes on its side of the border after extended delays and lengthy negotiations.

Natural gas prices have hit historic lows since April, including the Henry Hub spot where natural gas was traded at around $2 per Million Metric British Thermal Unit.

  Penalty Clause on Hold

On some details about the gas contract with the Pakistanis, based on which either side can claim fines if the other party fails to fulfill its contractual commitments, the official said Iran has so far not asked Pakistan to pay any fine. "However, a new approach could be adopted."

 The idea of a pipeline stretching from Iran's gas-rich southern regions to Pakistan all the way to India goes back to the 1950s. But the first real move was taken when the three sides signed a preliminary agreement in 1999.

Since then, the project has hit multiple financial and political hurdles. In 2009, India withdrew from the project over pricing and security issues, and after signing a civilian nuclear deal with the United States in 2008.

The pipeline's construction was to commence in 2012 and be completed in two years. But that too was postponed after the introduction of international sanctions against Iran over its nuclear program.

Pakistan has seemingly opted for procrastination in finishing the pipeline in its territory. In the past it has often blamed financial woes and international restrictions in doing business with Tehran.

However, it is not clear what position the neighboring country holds now that the nuclear-related restrictions have been lifted and Iran has reopened for normal business with the outside world.