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IRAN/SOUTH ASIA: US Frown Turns Gas Pipeline Into Pipe Dream

Analysis by Paranjoy Guha Thakurta

NEW DELHI, Mar 22 2007 (IPS) - A grandiose project to construct a pipeline to transport natural gas from Iran to India through Pakistan at a cost of seven billion US dollars is in jeopardy on account of stiff opposition from Washington and wrangling among the three regional partners.

Days after visiting U.S. energy secretary Samuel Bodman conveyed to Indian Prime Minister Manmohan Singh his country&#39s opposition to the project officials in India&#39s ministry of petroleum and natural gas showed new toughness in negotiations over the project.

Mukhtar Ahmad, energy advisor to Pakistan Prime Minister Shaukat Aziz, was told on Thursday that India would quit the pipeline project unless Pakistan reduced the fees it proposed to charge for allowing the gas to flow through its territory.

Independent analysts told IPS that the chances of the multinational pipeline being expeditiously built – with support from Russia – had diminished considerably. The U.S. government&#39s warning that sanctions would be imposed on organisations that did business with Iran, coupled with financial wrangling among the project&#39s partners, had all but negated progress made during a series of complex negotiations lasting more than a year.

Though it was known that Washington was not in favour of the pipeline, Bodman was categorical. He was quoted by Dow Jones newswires on Wednesday saying: "During my trip, I have made it clear at the highest levels of the Indian government that the U.S. opposes the development of the Iranian pipeline to IndiaàWe believe that Iran is seeking to develop nuclear weapons and anything that will support that endeavour is something that we oppose."

A day later, at the start of a two-day technical discussion on the project between representatives of the governments of India and Pakistan in New Delhi, an unnamed top Indian bureaucrat was quoted by the semi-official Press Trust of India (PTI) news agency saying that unless Islamabad brought down the transportation tariff and transit fees for the 1,036-km section of the pipeline running through Pakistan, New Delhi would not be able to continue participating in the project.

But after a meeting with India&#39s Petroleum Minister Murli Deora and the secretary for petroleum M. S. Srinivasan, Ahmad struck a conciliatory note. He remarked: "We are very hopeful that we will converge on all issues."

"Going beyond the American threat of sanctions against those involved in the project, the fact is that the negotiations among the three countries are extremely complicated and require transparency and contractual obligations that are legally justiciable," says Subir Raha, former chairman of the Oil and Natural Gas Corporation, one of India&#39s largest government-owned corporate bodies. Raha told IPS in an interview that negotiations would not be completed unless there was "good faith on all sides to ensure neutrality of interests".

In February, after an Indian team of officials visited Pakistan, Srinivasan had assured Iran&#39s deputy minister for international affairs in its oil ministry Mohammed Hadi Nejad-Hosseinian that New Delhi would be prepared to sign a framework agreement for building the pipeline as well as a gas sales and purchase agreement by the end of June. It seems doubtful now whether this deadline would be met.

"Despite the rhetoric that is meant for public consumption, I don&#39t think the pipeline is going to be constructed in a hurry," says energy expert Soma Banerjee, chief of the news bureau of the "Economic Times", India&#39s largest-circulated financial daily. She told IPS that over and above political and diplomatic considerations, there were "solid economic reasons" preventing the gas pipeline from being built quickly.

"First, there is the question of funding the project even if the Russians are keen on participating in building the pipeline," Banerjee said, adding: "Iran is saying that it will not be able to supply the quantity of gas that it had originally said it would be able to. The quantum of gas to be supplied through the pipeline has come down drastically from 150 MMSCMD (million metric standard cubic metres a day) to around 60 MMSCMD."

Moreover, while Iran has brought down considerably the price it has been asking for its gas from around eight dollars per MBTU (million British thermal units) to under 5 dollars per MBTU, this price was still higher than the prices of natural gas prevailing in India&#39s domestic market. Banerjee says new discoveries have, in addition, reduced India&#39s future requirements of imported gas.

Early last year, India&#39s Petroleum Minister Murli Deora – perceived to be belonging to a pro-U.S. lobby in India&#39s ruling Congress party – had replaced Mani Shankar Aiyar, who is part of the socialist group in the party that heads the centre-left United Progressive Alliance coalition government in New Delhi. The change of guard fuelled speculation that India was having second thoughts about going ahead with the ambitious pipeline project after voting against Iran at the International Atomic Energy Agency (IAEA) then considering that country&#39s controversial nuclear programme.

"Aiyar was not only determined to push ahead with the Iran-Pakistan-India gas pipeline, to which the U.S. had voiced strong objection on the ground that it would impede its efforts to isolate Iran, but he was actively putting in place an Asian gas grid that would link India with Iran, Turkmenistan, Kazakhstan, China and Myanmar," columnist Prem Shankar Jha had written in the "Outlook" weekly, a leading Indian news magazine.

India&#39s hopes of importing gas piped across Pakistan gained ground after the nuclear-armed neighbours, that have fought three wars, started a peace process in 2004. The pipeline project was seen to be crucial to India&#39s efforts at attaining "energy security" since the country imports three-fourths of its requirements of crude oil.

After India took a position against Iran during the February 2006 meeting of the IAEA, Tehran retaliated by refusing to ratify a deal to supply five million tonnes of LNG to India from 2009. That month, Deora said the pipeline project was on. He was quoted saying: "There are a lot of hurdles but we hope to make things work. We need the gas from Iran to meet energy needs of India and we are committed to make the project happen. Iran is a friendly nation and we will continue the efforts of following the policy of my predecessor."

On Jun. 18, 2006, at a media conference in Karachi, replying to a question raised by IPS, Prime Minister Shaukat Aziz denied that U.S. pressure was delaying the building of a gas pipeline between Iran and India. Describing it as a "peace pipeline", Aziz said such an "energy corridor" made economic sense. He added that funding the pipeline project would not be a problem and that security was not an issue.

Aziz also said countries in South Asia were fortunate because "we are located near one of the world&#39s largest reserves of hydrocarbons". He reasoned that if Siberian gas could heat European homes situated thousands of km away and if electricity from Tajikistan could light up buildings in Moscow, there was no reason why the Iran-Pakistan-India gas pipeline could not come up in enlightened "pursuance of national interests" .

For India, the project makes eminent economic sense. The cheapest way to transport gas is to pump it through pipelines laid on the ground, not liquefy it and ship it in tankers. The most economical manner in which gas could come to India from Iran is through a pipeline that runs through Pakistan.

As the owner of the world&#39s second-largest proven natural gas reserves, Iran is keen to exploit its resources and earn revenue from where it may.