Piped gas

January 10, 2020


IT is perhaps one of this country’s most cherished dreams, to pipe gas from its west where it is available in abundance, and transit it onward to the east where it is in deficit. Iran and Turkmenistan have surplus supplies of natural gas, while India has always been reliant on imports to meet its requirements. If somehow Pakistan could be the transit country and collect fees accordingly, a significant bonanza may be possible. In later years as Pakistan’s own gas deficit grew once the country’s largest fields went into decline, the impetus behind the dream of piped gas increased accordingly. But geopolitics was always the stumbling bloc. Iran for years has been behind an ever tightening curtain of sanctions which makes it difficult to advance the Iran-Pakistan gas pipeline project, even when India was willing to participate in it. And any pipeline from Turkmenistan would have to transit through Afghanistan, raising serious security risks. As a result, finding financial support for both projects was always a challenge, and even when that financial support was available as in the case of the Turkmenistan-Afghanistan-Pakistan-India — or Tapi — gas pipeline, locating dependable partners in each of the countries as well as a stable security environment was always going to be a massive undertaking.

To these uncertainties, we now add pricing as another source of instability in the equation that underlies this dream. Piped gas has an advantage over imported LNG since it should be cheaper, and far more reliable as a source of supply once the pipeline infrastructure is laid down. But the government has now decided to renegotiate the price with Turkmenistan, prompting India to do the same. This is the big issue with piped gas: there is no market based pricing for it as there is for LNG. Since the pipeline only connects a small number of buyers with one supplier, the price has to be negotiated between them. And because the project has a long gestation period, and the countries involved have a weak commitment to the project, regular pricing disputes are likely to mar the outlook. For the moment, the Turkmen authorities seem to be willing to make another price review and will be sending a team to Islamabad shortly. But it would be a good idea to not activate this option too often since it reduces the credibility of Pakistan as a buyer.

Published in Dawn, January 10th, 2020