IPI project: Iran reluctant to scale down gas price

[LahoreEstate]

RECORDER REPORT
ISLAMABAD (March 05 2009): Iran is reluctant to scale down the gas price from 78 to 70 percent of the crude oil price in the international market under Iran-Pakistan-India (IPI) gas pipeline project. Sources told Business Recorder that Pakistan in a letter addressed to Iran had requested a reduction in its offered gas price from 78 percent of crude oil price to 70 percent to make it economically feasible for Pakistan.

But Iran has shown no flexibility in its stance on the price and now the Petroleum Ministry has moved a summary to the Prime Minister for holding dialogue with Iran on the price. The dates of dialogue and venue are still to be determined, sources said.

The Advisor to Prime Minister on Petroleum and Natural Resources, Dr Asim Hussain on Wednesday informed the Prime Minister about the current status of IPI saying that the project was being delayed due to gas price issue. He informed the Premier that Iran had not shown flexibility on the gas price issue.

The advisor informed the Prime Minister that gas imported from Iran would be cheaper than furnace oil. He said that Pakistan could generate 5000 MW electricity from one billion cubic feet gas per day that could help overcome the power shortfall. However, this price will be expensive for domestic and commercial consumers of gas.

According to an analysis of pricing carried out by the Petroleum Ministry, thermal power would cost 3.51 cents/kWh generated by Iranian gas at $40 per barrel crude oil price. Whereas the furnace based power generation would cost 4.24 cents/kWh, LNG 3.51 cents/kWh, coal 4.3 cents/kWh and solar 11 cents/kWh.

The Steering Committee of the Economic Co-ordination Committee (ECC) of the Cabinet on IPI gas pipeline project has already given mandate to the Petroleum Ministry to negotiate a formula linking price to 70 percent of global crude oil. Sources said that some members of the Steering Committee on IPI have even recommended signing a deal on the proposed gas price of 78 percent of crude oil as the country would be in dire need of energy in coming years.

The advisor also briefed the Prime Minister on matters relating to his ministry particularly the projects being undertaken for oil and gas exploration in various parts of the country. He said that Petroleum Ministry was taking measures to explore the indigenous oil and gas reserves to meet the rising demand of energy in coming years.

In the national grid system, the country is facing 3500 MW power shortage. The power shortfall will rise to 10,000 MW per day by 2020 if no addition is made to the grid. The country is currently facing 700 million cubic feet per day gas shortfall that would shoot up to two billion cubic feet per day by 2010.

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