IRAN-PAKISTAN GAS PIPELINE

SEQUENCESEQUENCEHistory of ProjectSolution of Energy Crisis.Prospects and ConstraintsGeo Politics of the Region and PipelineBackground of SanctionsRecent ProgressRecommendations

BRIEF HISTORYBRIEF HISTORY

Idea was first conceived by young Pakistani Engineer Malik Aftab Khan in 1950 where he proposed the current route and stationing of troops along the proposed line and also termed it as peace pipe line.

Idea was conceptualized in 1989 and Iranian Government responded positively.

ProjectProject ProfileProfile Length. Total length is 2775 Km. 1172 km of

length is in iran and known as Iran 7th Cross

Country gas pipeline and remaining length in

Pakistan.

Route. Starts from Asalouyeh, Bandar Abbas,

khusdar, sui and Multan.

Diameter 56 in (1,422 mm)

TECHNICAL DETAILSTECHNICAL DETAILS

Capacity. Initial capacity would be 8.7 billion

cubic meter which is expected to be raised

to 40 billion cubic meter

Cost. Expected cost incurred on completion

would be around 8 billion US Dollor.

TimelineTimeline Discussion started in 1994 and agreement

signed in 1995 and it was agreed to construct pipeline from South Pars Gas field in Iran to Karachi.

No progress till 2004 and project revived after UNDP report peace and prosperity Gas pipeline.

In February 2007, India and Pak agreed to pay Iran US 4.93 Dollar per Million British Thermal unit.

In April 2008, China shown interest in project and in 2010 Bangladesh also join the project

In 2009 India withdrew from project over pricing and security issue after signing nuclear deal with US.

On 30th January 2013, Pak approved deal with Iran for laying Pakistani segment of pipeline and on 11th March 2013 project was inaugurated by President Asif Ali Zardari

PM Nawaz Sharif Assured that Pak is committed to Project.

Solution of Energy CrisisSolution of Energy Crisis

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Due to energy crisis Annual Loss to industrial Sector is more than 240 Billion

Supply and Demand gap is as under

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Pakistan will import 750 mcft of natural gas daily for generation of approximately 4000 MW of electricity. Replacement of imported furnace oil by Iranian gas in our industries will result in estimated saving of billions of rupees

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Prospective reality – Never ending dream

Prospects and ConstraintsProspects and Constraints

Drivers◦ Energy Security◦ Peace Dividends◦ Strategic Return

Constraints◦ Iran Pak Hostility◦ Iran Under Sanction◦ Strategic Constraints

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Geo Politic of the IP PipelineGeo Politic of the IP Pipeline

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Phases of IP PipelinePhases of IP PipelineIP passed through three phases:Phase One: Energy security & Pak Iran

differences.Phase Two: Energy Security and Peace

dividend. Phase Three: Strategic

returns/constraints and energy security.

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IP: In the Strategic chess boardIP: In the Strategic chess boardBoth regional players factor IP 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.USA sees it detrimental to its policy objectives

in the region.

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Viewed From Tehran 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 Strength The rich volume.The strategic location.The New Geopolitics of Gas: the rise of

Gas opec

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

engagement.

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Scenario One: Grand BargainScenario Two: ConfrontationScenario Three: Stalemate

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Trajectory Three ScenarioTrajectory Three Scenario

The Grand BargainThe Grand BargainIranian 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: ConfrontationScenario Two: ConfrontationIran 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 StalemateScenario Three: The StalemateEnergy 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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CONTROVERSIESCONTROVERSIES

United States. Asked Pakistan to abandon the project and in return US will fund construction of liquefied natural gas terminal and importing electricity from Tajikistan through Afghanistan Wakhan Corridor.

29th January US Consulate General Michael Dodman threatened with Economic Sanction

Saudi Arabia. Offering Alternative Package of cash loan and oil facility

Sanctions and Pipeline

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Iran Pre-1979Iran Pre-1979

Ruled by the Shah, Mohammad Raza Pahlavi

Allies with U.S. during the Cold War

Regime fell in the Iranian revolution of 1979

Source: http://encarta.msn.com/encyclopedia_761567300/Iran.html

Iranian RevolutionIranian Revolution

After the overthrow of the Shah, Aytollah Ruhollah Khomeini came to power◦ Known as the Supreme Leader of Iran

Established Islamic Republic of Iran

Source: http://encarta.msn.com/encyclopedia_761567300/Iran.html

Iran Hostage CrisisIran Hostage Crisis

U.S. Embassy in Tehran seized on 11/4/1979

63 American citizens taken hostage

50 hostages held prisoner for 444 days

Supported by Khomeini under the slogan “America can’t do a damn thing”

Source: http://encarta.msn.com/encyclopedia_761567300/Iran.html

Overview of sanctions against IranOverview of sanctions against Iran

Began after 1979 Iran Hostage Crisis◦ Iranian Transactions Regulations - 31 C.F.R. § 560◦ Import embargo on Iranian-origin goods and services

No direct trade with the U.S. since 1995, when the U.S. government banned all commercial and financial transactions between U.S. companies and Iranian public and private entities

Iran-Libya Sanctions Act of 1996Current Nuclear Standoff with Iran◦ Could lead to additional sanctions by U.N.

Source: http://www.treas.gov/offices/enforcement/ofac/programs/iran/iran.pdfSource: http://www.treas.gov/offices/enforcement/ofac/programs/iran/iran.pdf

How Much Energy Does Iran Have?How Much Energy Does Iran Have?Possesses world’s 2nd largest natural gas reserves~10% of world’s known oil reserves (4th largest)◦ 2nd largest oil producer in OPEC

Source: http://www.eia.doe.gov/emeu/cabs/Iran/Background.html

Iran-Libya Sanctions Act of 1996 (ILSA)Iran-Libya Sanctions Act of 1996 (ILSA)

Allows the President to impose sanctions if a person has made an investment of more than $20 million “that directly and significantly contributes to the enhancement of Iran’s ability to develop petroleum resources of Iran.”

Controversial because it allows the President to impose unilateral sanctions on foreign companies or entities

Source: Iran-Libya Sanctions Act, 50 U.S.C. § 1701 note (1996)

ILSA ContinuedILSA Continued“Investment" defined as the entry into a contract

that includes responsibility for the development of petroleum resources in Iran or Libya

Statute silent as to whether the construction of energy transit routes from Iran might be considered an investment

However, Clinton Administration position was that, under certain conditions, the construction of such routes could be a sanctionable investment

Source: Kenneth Katzman, The Iran-Libya Sanctions Act (ILSA), Congressional Research Service Report for Congress, updated Apr. 26, 2006.

ILSA’s First TestILSA’s First TestThe French oil company, Total

SA, struck a $2 billion deal with Iran in September 1997, to develop natural gas reserves in Iran’s South Pars field

This was the largest single foreign investment in Iran since the U.S. Embassy in Tehran was sacked in 1979

Clinton Adm. found that deal violated ILSA, but ultimately decided to waive sanctions

Source: Kenneth Katzman, The Iran-Libya Sanctions Act (ILSA), Congressional Research Service Report for Congress, updated Apr. 26, 2006.

Would the Pipeline be an Would the Pipeline be an “investment” under ILSA?“investment” under ILSA?

◦ The Iranian side of the project will be financed entirely by Iran and a group of multi-national investors Iran will be required to put together◦ Pakistan's investment in the project will start only after the

pipeline reaches Pakistani territory Applying a plain-meaning interpretation of ILSA,

Pakistan’s involvement could be interpreted as one that does not directly contribute “to the enhancement of Iran’s ability to develop petroleum resources of Iran.”

Comparing Total’s case with Pakistan’sComparing Total’s case with Pakistan’s

◦ $2 billion investment◦ Direct development

of oil fields within Iran

$7-10 billion proposed project$7-10 billion proposed project Natural gas transit route Natural gas transit route No direct development by No direct development by

Pakistan Pakistan Pakistani ownership of the Pakistani ownership of the

pipeline would begin at its pipeline would begin at its borderborder

However, deal would provide However, deal would provide incentive and funding for Iran to incentive and funding for Iran to develop its gas resourcesdevelop its gas resources

Effects of Sanctions ContinuedEffects of Sanctions ContinuedSince the Total waiver, ~ $11.5b in foreign investments

in Iran’s energy sector have been agreed upon.

Iran’s natural gas sector, non-existent prior to the late 1990’s, is becoming an increasingly important factor in Iran’s energy future as a result of foreign investment.

E.U. threatened formal counter-action over ILSA in the WTO, and in April 1997, the U.S. and E.U. formally agreed to try to avoid a trade confrontation.

Source: Kenneth Katzman, The Iran-Libya Sanctions Act (ILSA), Congressional Research Service Report for Congress, updated Apr. 26, 2006.

Recent ProgressRecent ProgressPakistan needs gas very badly," said Mr.

Sharif." We have to run our power plants. We need gas for them. There is an acute shortage of gas in Pakistan, so we have to import gas from somewhere.“

He said that Pakistan would proceed "unless you give us the gas, or the $3 million a day."

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RecommendationsRecommendationsPipeline does not bring peace but peace

brings projects such as cross-border gas pipelines. Pakistan needs to move ahead, play its due role to complete the project.

constructive engagement and diplomatic reconciliation with US rather than confrontation should be our focus. The completion of IP Pipeline will be a test case of our diplomatic and political triumph in future.

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This IP pipeline presents Pakistan with an opportunity to establish itself as a reliable energy corridor or energy transit hub thereby not only achieving energy security for itself but also earn substantial amount of foreign exchange in terms of transit fees and royalties from pipeline by luring India and China into the project.

it is imperative to address the Baluchistan problem properly and justifiably as to removing this major bottle neck hindering this enormously vital project.

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Keeping in view the projected increase in energy demand and expected short fall of around 10 bcf by 2025 (2500 MMSCFD by 2015), the above pipeline would be vital to meet the shortfall and trigger economic growth in Pakistan.

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ThanksThanks