IP gas pipeline: OPIC seeks to divert Pakistan''s attention

RECORDER REPORT

Business Recorder Logo ISLAMABAD (October 26, 2010) : The United States (US) is pressing Pakistan to opt for importing liquefied natural gas (LNG), instead of importing natural gas through the proposed Iran-Pakistan (IP) gas pipeline, it is learnt. When contacted, US Embassy spokesman stated that there was "no statement at this time."

However, officials requesting anonymity said: "Overseas Private Investment Corporation (OPIC), a US Government agency that sells investment services to assist US companies invest in a large number of emerging economies, has offered support for LNG projects to divert Pakistan from IP gas pipeline project," officials said. Sources in the Ministry of Water and Power said that there were discussions on US support for Pakistan's energy plan during the strategic dialogue recently held in Washington.

Sources close to Petroleum Minister Naveed Qamar expressed concern over the distinct possibility that if the US-led sanctions were imposed by the United Nations, Pakistan would be unable to proceed with the IP project. "We are moving ahead, hoping that US and Iran (would) mend fences and pave the way for implementation of this project," sources said. Pakistan and Iran have finalised the gas pipeline project, which is expected to start natural gas supply to Pakistan in 2014. The pipeline will connect Iran's South Fars gas field with Balochistan and Sindh provinces.

The government of Pakistan had extended the sovereign guarantee against the performance guarantee and liabilities of the Inter-State Gas System (ISGS), which is responsible for the IP gas line project on behalf of Pakistan. National Iranian Oil Company has issued a letter acknowledging that Pakistan has completed all Conditions Precedents (CPs).

Pakistan will construct about 700 km pipeline from the border, via Makran Coastal Highway, to connect with its existing gas transmission network at Nawabshah. A 42-inch diameter pipeline will be built at an estimated cost of $1.65 billion. Pakistan is facing severe electricity shortages and this project is targeted to generate about 5,000 megawatts electricity. Under the Gas Sales Purchase Agreement (GSPA), Pakistan will import about 750 million cubic feet per day (mmcfd) with a plan to increase it to 1 billion cubic feet per day (bcfd).

The import volume would be about 20 percent of current gas production of Pakistan and the agreement is for a period of 25 years, renewable for another five years. There would be an annual saving of $735 million for Pakistan, if the equivalent quantity of LNG was imported for power generation, and the saving will increase depending on the global crude oil price.