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Iran- Pakistan – India Pipeline: Reality in Dream

Girijesh Pant Jawaharlal Nehru University

India

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IPI Cross Border-Transnational Project

Drivers •  Energy Security. •  Peace Dividend. •  Strategic returns. Barriers •  Indo- Pak Hostility. •  Iran Under Sanction. •  Strategic Constraints.

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In retrospect:

•  IPI passed through three phases: •  Phase One: Energy security & Indo Pak

differences. •  Phase Two: Energy Security and Peace

dividend. •  Phase Three: Strategic returns/constraints

and energy security.

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IPI Gains Strategic Salience

•  US West Asia Policy: Focus Iran. •  All the three regional players have

defined relations with America •  Iran and USA –Hostile •  Pak-USA—Restoration of parity. •  India– USA ---Buoyant.

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IPI: In the Strategic chess board

•  All the three regional players factor IPI in their relations with USA.

•  Iran promotes it to undermine US objective in the region.

•  Pakistan finds in opportunity to underline its significance in the region.

•  India of late realized its potential in its emerging relationship with USA.

•  USA sees it detrimental to its policy objectives in the region.

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The Story Line:

Idea was first tossed in1989. India –Iran MOU in 1993. Indian Cabinet approved the of the project in

2005.

Technically feasible & economically win-win with huge Confidence Building dividend.

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Recap: India Iran to IPI Pipeline:

•  Bilateral Project with three options: •  Land route : High Security Risk •  The sea route: Highly Expensive •  Shallow water of Pakistan.

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The Bumpy road: 1989-2003

•  Indian Concerns: Pak hostility.

•  Pakistan Concern : Indian hegemony.

•  Iranian Concern: search for market. And busting sanctions.

•  Breakthrough : The BHP Billiton Report in 2003

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The BHP Billiton Report in 2003 Summary

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Project: Profile •  The 2775-km land pipeline will connect Asslauyah fields

in Iran via Balochistan. •  In Indian border it will reach to Barmer, Rajasthan. •  Initial cost was $4 billion . In 2007- it is approx $ 7.4

billion. •  Total quantity of gas shall be 150 MMSCMD, of which 60

MMSCMD shall be supplied in the initial phase which will be equally divided as 30 MMSCMD to each Pakistan and India.

•  The year 2011 is the timeline for commencement of supply.

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Some Vital Parameters •  India and Pakistan are to sign separate gas purchase

agreements with Iran and take deliveries of gas at Iran-Pakistan border.

•  India will separately enter into an agreement with Pakistan for transporting gas through its territory.

•  The pipeline would be laid in the three nations separately. Iran would lay a 1,100-km pipeline to the Iran-Pakistan border.

•  Pakistan would lay a 1,035 km from its border with Iran to the Indian border.

•  India would then pipe the gas to consumption centers.

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The negotiations.

•  Seven tripartite meetings have held. •  India participated in six trilateral meetings. •  Skipped last meeting held in Tehran in Sept

2007.

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Issues on table Security Price & Transit fee,

•  Security: Pakistani Assurance.

•  Out of total 1000 km of pipeline, the 750 km portion will carry gas for both Pakistan and India and only 240 km pipeline shall carry the gas required by India.

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Pricing Question

•  In 2005 Iranian proposal was agreed upon to fix price at $4.93 per mbtu (million British thermal unit) at oil price $60 per barrel and to remain the basis of pricing of gas for the entire 25-years of contract.

•  Iran seeking modification : envisaging revision in the formula every three years, based on international fuel prices and energy mix.

•  Pakistan wants to add a transit fee (10% of the gas price) and a transportation tariff, making the delivered price of gas at the India-Pakistan border $7 per mBtu.

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Transport & Transit fee

•  Pakistan position transit fee (10% of the gas price) •  Indian position: transit fees of 15 cents per mBtu.

No transport as the pipeline is a joint project and about half of it will be common to both countries.

•  Pakistan has revised demand is $1.57 perm Btu to $0.70-$0.75 per mBtu as transportation tariff.

•  India ready to pay not more than $0.55 per mBtu ($220 million annually).

•  On transit fee, Islamabad is seeking $0.493 per mBtu while New Delhi has offered $0.20 per mBtu.

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Progress : some mile stones

•  Differences are narrowing down extending to China as Pan Asia Pipeline.

•  Pakistan offered to buy 60 mmscmd from Iran, use half of it in Pakistan and sell the rest to India at the India-Pakistan border. To circumvent India's need to deal with Iran.

•  Pakistan said that it will initiate bilaterally. •  On the Iranian part, 18 percent of the physical job

has been completed •  Tehran voices impatience with Delhi over

pipeline delays.

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Prospective reality – Never ending dream

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Viewed From Tehran

•  Triple win economic, political, and strategic Project

•  Energy is vital component of Iranian foreign policy.

•  Iranian regime intends to make maximalist gains. •  Iranian East ward energy moves are largely driven

by difficulties in western market. •  Europe is Iran’s preferred option: Turkey Route.

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The Strength

•  The rich volume. •  The strategic location. •  The New Geopolitics of Gas: the rise of Gas

opec

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The Weakness

•  Gas industry yet to develop. •  Foreign investment. •  Impact of sanctions on prospective

engagement.

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•  Scenario One: Grand Bargain •  Scenario Two: Confrontation •  Scenario Three: Stalemate

The Trajectory: three Scenarios

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the Grand Bargain

•  Iranian Gas would be moving to Europe. •  In short run Iranian gas export to Asia

would be not significant though in medium term prospects are better..

•  IPI would loose its strategic salience and would be dictated more by market economics.

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Scenario Two: Confrontation

•  Iran pursues more aggressive Energy diplomacy, better terms to Asia.

•  Asia cannot make much gains due to Sanctions.

•  IPI would remain in limbo.

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Scenario Three: The Stalemate

•  Energy will be high on Iran foreign policy agenda.

•  Asia will be offered carrot and stick options. •  IPI will be kept alive project but the

progress will be determined by foreign policy matrix of all the three stake holders.

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IPI in Indian Energy Matrix

•  The three leading questions:

1.  How much gas India needs from Iran and how much Iran can offer and how reliable it would be?

2.  At What price? 3.  What is the time schedule of the project?

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Significance of Iranian gas!

•  Indian Domestic Supply: 170 mmscmd •  Import : 80.00mmscmd •  Total supply: 250mmscmd •  Adding:18(Iran)LNG)+9(EnnoreMysore)+60(IPI)

+40(TAPI)=127mmscd. •  Grand Supply =250+127=377mmscd •  Estimated Demand=263 to 314mmscd •  Surplus:377-314=63 Iran supply is 60+18=78 or

30+18=48 •  Iran IPI gas:15.9 of supply.

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Iranian Capacity to Supply IPI & Nabucco pipelines

•  “Iran does not have the gas available to meet demand from two of its major export initiatives, the IPI pipeline to India and the Nabucco pipeline to Europe, unless buyers reduce the volumes demanded.”

•  Hadi Nejad Hosseinian, Iran's Deputy Oil Minister and long-standing gas negotiator.

•  Europe is asking for 100mn cu m of gas a day, while India and Pakistan need 150mn cu m of Iranian gas,

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Demand-Supply Gap Source: DGHC, GOI

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Anticipated Production Profile source DGHC

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Demand -Supply long term

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Demand-Supply long term

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New Findings: India Under explored not Under endowed

•  Domestic gas consumption, to go up from 115 mmscmd in 2007 to 309 mmscmd by 2012.

•  Supply of gas from Reliance, ONGC and GSPC alone will be more than 200 mmscmd.

•  Add to this the new LNG capacity of Petronet at Dahej and Kochi, and supply is likely to outstrip demand.

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IPI in Indian Foreign Policy matrix

Emerging India is revisiting its global and regional engagement.

The new economy is redefining its global and regional stakes.

The disjuncture between new economy and the polity however is a restraining factor.

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IPI in Ambivalence Indian Foreign Policy

•  GOI’s preference would be keep IPI as low profile energy question kept in abeyance.

•  Foreign policy is mediating its policy posture.e.g Indian vote in IAEA

•  US concerns do impinge on it. •  Progress on Indo-US Nuclear deal will bearing on

the Indian ambivalence.

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Essar abandons Iranian refinery plans

2 November 2007 The Essar Group has abandoned plans to develop a

new oil refinery in Iran that would violate US sanctions on Tehran, Minnesota governor Tim Pawlenty said.

The move came after Pawlenty flew to India to discuss Essar's Iran work and potential conflicts with US law.

•  Essar, which recently bought a Minnesota steel company.

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Indian Apprehensions

Economic decision making in Iran is highly politicized.

Indian Democratic Polity too has bearing.

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India bitter on LNG Deal

•  Iran is not willing to supply the LNG at the contracted price of $3.215 per million British thermal units.

•  In June 2005, when the LNG deal was inked, the price of crude oil was $31 a barrel. Iran now is pressing for a price of $4.78 per mBtu.

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The Prognosis

•  India will not kill the project but is neither desperate.

•  Given the emerging geopolitics of energy, in particular the hydrocarbons, India has wider stakes than country specific.

•  It is augmenting sourcing from other suppliers like Qatar, Bangladesh, Vietnam, Yemen possibly Saudi Arabia and Russia.

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