Pakistan agrees June deadline to wrap up Iran gas deal

Vol 10, PW 20 (08 Feb 07) People & Policy

Iran is telling Pakistan it wants the gas pipeline deal between both countries to be signed fast.

During talks with India and Pakistan in Tehran on 24th and 25th January, Iran pointedly insisted on this after Islamabad agreed to buy gas at the Iranian border at $4.93 per mmbtu for 25 years. “The Iranian and Pakistan sides also agreed, at the insistence of the Iranian side, that all contractual arrangements, including the Framework Agreement and Gas Sales and Purchase Agreement, would be concluded latest by end-June 2007,â€‌ we learn.

During the meeting, India agreed to begin separate talks with Pakistan over transit fees and transportation costs to the Indian border. Iran agreed to be an observer at these talks.

On the table was a formula prepared by Gaffney, Cline & Associates, based on the â€کnetback’ from LNG sales to Japan, and derived from the following benchmarks: LNG shipping costs from the Persian Gulf to Japan (to be deducted); average cost of gas liquefaction in Iran (to be deducted); average cost of gas processing for LNG (to be deducted); average cost of gas processing for pipeline use (to be added); and the estimated pipeline transportation cost from Assaluyeh (Iran) to the Pakistan border (to be added). After calculations GCA reached a price of $5.44 per mmbtu for Iranian gas at the Pakistan border based on delivery of 60m cm/d on the monthly average price of $68.07 per barrel for the Japanese Crude Cocktail price in June 2006.

Both India and Pakistan said this price was too high and wanted it reduced by taking an average of more than a month for the Japan LNG price; lower LNG shipping costs; lower project capital costs for liquefaction, pipeline and compression. For instance, grade X-70 steel could be used instead of grade X-65 steel and a corrosion allowance of 3 millimetres could be excluded.

India also strongly pressed for a reduction of the pipeline diameter and a proportionate cut in costs for use of gas from the pipeline within Iran.