Pakistan prepares to proceed with Iran pipeline project

The removal of economic sanctions on Iran will clear the way for Pakistan to pursue an ambitious gas pipeline for eventually importing up to $2.5bn worth of Iranian gas annually, says Pakistan’s petroleum minister.

Pakistan’s energy-starved economy currently has a deficit of 2bn cubic feet of gas per day, rising to 2.5bn cubic feet per day during the winter months, according to Shahid Khaqan Abbasi.

Gas shortages across the country have become crippling over the past seven years, at times prompting angry protests from consumers. Stations providing compressed natural gas (CNG) for automobiles have all but shut down due to the shortages.

“We need gas. Iran has the world’s second-largest gas reserves,” said Mr Abbasi. He said the Iranian pipeline will eventually provide a peak of 750m cubic feet of gas per day once it is fully operational by 2020 — amounting to $2.5bn annually at current prices.

Following a deal last week with world powers to curb its nuclear programme Iran is preparing for the unwinding of sanctions, expected within the next six months.

Mr Abbasi expects at least 250m cubic feet, or a third of the pipeline’s capacity, to begin flowing before the end of 2017 following the construction of two gas pipelines — one from Pakistan’s southwestern port of Gwadar to the city of Nawabshah, and a second from Gwadar to the Iranian border.

Pakistani officials have previously told their Iranian counterparts that the country was forced to delay the project in view of international sanctions banning trade with Iran. This won them time to avoid paying a penalty from this year onwards.

“We don’t have a choice; we have to undertake this project. We are looking at penalties of up to $3m dollars a day,” said Mr Abbasi. “Once the sanctions go there is no excuse.”

However, analysts say Pakistan may face fresh pressure over the project from allies in the Saudi-led Arab world.

Saudi Arabia’s rulers and most of their Sunni Muslim-dominated Gulf neighbours have a longstanding rivalry with Shia Muslim Iran, and are nervous both about its nuclear ambitions and any moves that will make its economy stronger.

“Pakistan’s gas shortages have become increasingly alarming. But the Saudis and others will try to force a delay just to discourage new sources of revenue [for Iran],” said one senior western official in Islamabad.

Hasan Askari Rizvi, a commentator on security and diplomatic affairs, said the Iran pipeline project “will be a major test of prime minister Nawaz Sharif’s ability to . . . resist pressure from his allies in the Arab world”.

Mr Sharif, who in 2013 became prime minister of Pakistan for the third time, spent more than six years in exile in Saudi Arabia after being removed in a 1999 military coup led by General Pervez Musharraf. “He [Mr Sharif] feels beholden to the Saudis, so it would be interesting to see how far he will go with this [Iranian gas pipeline] project,” added Mr Rizvi.

The US and India have been pushing for a separate project, the Tapi pipeline, running from Turkmenistan through Afghanistan and Pakistan to India, but it has been stonewalled for years by security concerns and financing difficulties.

FT