Pakistan disagrees on Iran gas pricing system

New Delhi, February 20:

Pakistan disfavours linking the Iran gas price with the spot market price for liquefied natural gas (LNG), a leading official said here today.

“LNG spot price is not the realistic yardstick for determining the price of gas for a project that is going to extend to 25-30 years and would involve huge investments by the buyer countries,” Mukhtar Ahmed, advisor to Pakistan prime minister Shuakat Aziz, said, “There has to be a degree of comfort for the investors LNG prices in the global spot market are currently scaling to levels of $10-12 million British thermal unit (mBTU).

Ahmed shared the views of Indian experts that price is clearly a determining factor that “would validate the project and should clearly take the priority.” He disclosed that considering Pakistan’s production price of gas is less than $3 mBTU “it should be a fairly good reference point for negotiating the gas from Iran.”

Expecting a sizeable gap in the gas demand and supply position in five years, Pakistan hopes to finalize a LNG policy within the next few weeks.

Indian petroleum secretary M S Srinivasan also indicated that price negotiations would take precedence over other matters in the trilateral discussions ahead on the Iran gas project.

According to his estimate, the Iran gas project would involve around $50 billion investment inclusive of the cost of pipeline construction, exploration and production of gas in Iran and supply through the pipeline and the added cost at Indian end for storage of gas as provision for any possible disruption in supplies. In addition there would be the investment required in setting up power plants and other infrastructure for absorption of the gas supplied.

“The business models available today may not fully address these issues. While pipeline projects offer early monetisation of gas, they have their own vulnerability to terrorist attack,” said Srinivasan, “Arrive at the right price early and the project is on. Without clearly understanding the limitations of price there can be no forward movement in the project.”

He shared the views of Ahmed that gas price should be pegged to prices of alternate fuels as that would determine the affordability of the buyers. On the transit fee, Ahmed said it is a standard charge that is applied for passage of gas through another country.

“There are several formulations available. We are looking at these and will seek the help of our consultants (PricewaterhouseCoopers). It has to be reasonable and market based,” he said.