Pakistan may decide to import LNG from Qatar and not build the 2,700-km Iran-Pakistan-India (IPI) natural gas pipeline if Pakistan and Iran fail to reach an agreement on gas pricing under the IPI project. The two countries have been negotiating the price for months (OGJ Online, Dec. 17, 2008).

Pakistan has asked Iran to link the gas price to 70% of the price of crude oil against Iran’s demand of 78%. According to Pakistan’s ministry of petroleum, LNG imports from Qatar may ultimately be cheaper, as the construction and maintenance of the $7.4 billion pipeline would not be required.

The petroleum ministry said a presentation to the prime minister last month informed him that there was little difference between the price of Qatar’s LNG and proposed gas imports from Iran under the Iranian gas pricing formula.

Petroleum ministry officials sent the prime minister a proposal for importing LNG from Qatar, which would cost $12/MMbtu tied to an oil price of $100/bbl, while the price of Iranian imported pipeline gas would be $11/MMbtu.

Pakistan has issued a letter to Royal Dutch Shell PLC and a consortium including Dutch firm 4Gas authorizing it to initiate a deal with Qatar for the importation of LNG.

The petroleum ministry said the government would not be a party to this deal until June. Shell and the consortium have an agreement with Sui Southern Gas Co. Ltd. regarding the import of Qatar LNG.

According to the petroleum ministry, Iranian gas would be feasible only for power generation; it would be too costly for domestic and commercial gas consumers. According to a comparison based on a $40/bbl oil price, the cost of nuclear-based power generation is 4.1¢/kwh; imported gas would cost 8.8¢/kwh; Thar coal, 8.8¢/kwh; imported coal 9¢/kwh; oil 10¢/kwh; and wind-sourced power 12¢/kwh.

In the new gas pricing formula, Iran has sought gas price revision after a year from commencement of the project and subsequent revision in the gas price every 3 years. Iran also wants a correlation between the contract price and the weighted average price of gas exports.

Earlier, the two sides had agreed on a correlation between Japan Cocktail Crude and LNG. Iran also wants to replace the clause, “acts of war” with “war between states” in force majeure cases.

The petroleum ministry has projected a Pakistan gas shortfall of 10.34 bcfd of gas by the year 2015, as indigenous gas supply would decline to 2.16 bcfd against the current gas supply of 4.3 bcfd due to depletion of domestic reserves. Gas demand, however, is projected to remain at 12.5 bcfd by 2015.

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