Pakistan is seeking a cut of up to 50 per cent in the price of Iranian gas and lower supply volumes under the long-stalled Iran-Pakistan pipeline, as Islamabad looks to revive the project despite U.S. sanctions risks.
The move could breathe new life into one of the region’s most contentious energy projects, but any revival still depends on securing a U.S. sanctions waiver.
The current price under the pipeline agreement is estimated at $10.60 per million British thermal units (mmBtu), with transportation from Hub to Nawabshah adding a further $1.25 per mmBtu.
Pakistan is proposing a new formula linked to Brent crude at 6.11 per cent of the benchmark price, plus $1.
At Brent prices of $60, $70 and $80 a barrel, the proposed formula would put Iranian gas at $4.67, $5.28 and $5.89 per mmBtu, respectively.
Those prices would also be below comparable liquefied natural gas (LNG) costs under Pakistan State Oil’s second sale and purchase agreement, estimated at $7.14, $8.16 and $9.18 per mmBtu at the same Brent price levels.
Pakistan is also seeking to cut the volume of gas it would receive under the project.
The pipeline was designed to supply around 750 million cubic feet of gas per day, with an estimated project cost of $2.5 billion.
But the issue is not simply one of gas supply. Pakistan is also grappling with weak demand for costly imported energy. Islamabad remains committed to LNG imports from Qatar and has previously agreed to divert 24 LNG cargoes because of weak domestic demand.
That puts the price of Iranian gas at the heart of whether the long-delayed pipeline can become commercially viable.
Pakistan and Iran signed the Inter-Governmental Framework Declaration on 24 May 2009, followed by a gas sale and purchase agreement on 5 June 2009.
Iran has completed its section of the pipeline, while Pakistan’s section remains unfinished. The project has been stalled for years amid the threat of U.S. sanctions, and Iran has taken Pakistan to international arbitration over the delay.
Islamabad has said it could move ahead with the project if Washington grants it a sanctions waiver.
The stakes extend beyond Pakistan’s domestic gas market. A breakthrough could give Islamabad a new pipeline-based energy source, strengthen economic ties with Iran and reduce its reliance on seaborne LNG.
But it would also test how far Washington is prepared to ease sanctions restrictions on a project connecting a major U.S. partner with one of the countries most heavily targeted by U.S. sanctions.
For Pakistan, the pipeline is no longer simply about building a new gas route. The question is whether Islamabad can secure cheaper energy without reviving the sanctions risk that has kept the project frozen for more than a decade.
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