Dont forget the Iran-Pakistan-India pipeline project

The on going diplomatic war with Pakistan on the backdrop of the Mumbai terrorist attack (26.11.2008) has put the spotlight on the proposed Iran-Pakistan-India gas pipeline.

Many of my friends here actually have no clue what I am talking about . So let me put things in perspective .

So, what is the IPI pipeline all about ?

• The IPI pipeline is a 2,800 km overland pipeline carrying natural gas from Iran to India via Pakistan.
• The total cost involved is $7.5b , which would carry 22 bmc gas per annum , which would later be increased to 55 bmc per annum
• Currently India need 50 bmc per annum and would need 125 bmc per annum by 2025.

Now, what seems to be the problem? .... a lot actually

• Dispute in pricing - Iran wants $8 per million BTU . but India says "No go". India will not negotiate beyond $4 per million BTU.

• No Trade Treaty - There is no trilateral agreement between the countries like the Energy Charter Treaty (ECT) which binds 51 European countries. A legal treaty will hold each country accountable in delivery and receiving of gas under a accepter framework.

• Uncle Sam is not ok - America as we know is completely against Iran and hence scorns at any bi-lateral trade between India and Iran.So any trade agreement, that too as high cost as this, will definitely under mine US strategic value in sub continent .

• Geo politics unrest - 1.The pipeline has to go through Baluchistan which is now caught in a civil war on its own. 2. The transit country ,Pakistan can cut supply to India in case there is conflict of war. And there is no legal bonding to stop Pakistan from doing so . why ? because while India recognizes Pak as one of its Most Favored Nation (MFN) in trade, it is not been reciprocated. 3. The gas transits charges with Pakistan has not been finalized yet. which means , Pak can squeeze the maximum out of the bargain and it can be changed anytime. Imagine what would happen if Pak demands higher transits fee after the pipeline is built and running for 6 months. India wont be in a position to negotiate . Because India is a energy hungry nation and oil/gas plays a big role .

what are the alternatives ?

Instead of the the proposed pipeline , India and Iran can go for a LNG delivery deal using sea route. It is of course expensive but it would be relatively safe and stable as both the parties are bound to each other. Since LNG market is more mature , there will be some sort of competition and hence pricing can be regulated to an acceptable number. Since LNG ships would go via transits routes( import and export ports) the transit money will be stable and accountable by the host countries.

India currently has one port in Dhaej and another one coming up in Kochi. A long term trade via sea will also help India develop its own supply route, logistics and technology.