Experts at a prestigious think tank in Pakistan recommended late Wednesday the government renegotiate the natural gas import price with Iran under a Pakistan-Iran gas pipeline project due for commissioning by the end of next year.
"It is imperative for Pakistan to renegotiate the import price of natural gas at earliest," Arshad Abbasi, who headed the Energy Team at Sustainable Development Policy Institute, said at the launching of the report "Rethinking Pakistan Energy Equation: Iran-Pakistan Gas Pipeline."
The timing of the report is significant as it coincided with Prime Minister Nawaz Sharif meeting with U.S. President Barack Obama in Washington.
The United States has made it known more than once recently that if Pakistan goes ahead with the project it would invite sanctions under the U.S. laws and U.N. resolutions.
Pakistan has, for more than a decade, examined importing natural gas from either Iran or Turkmenistan because of its own dwindling reserves as experts have warned that at the current rate of consumption Pakistan could run out of gas by 2020.
Under the Gas Supply Purchase Agreement signed in June 2009, the Iran project is scheduled for commissioning in 2014.
The contract calls for Iran to lay a pipeline from its Paras gas field to the border with Pakistan and Pakistan would complete the pipeline to Nawabshah in Sindh Province.
But the project is already behind schedule as Pakistan has failed to start work on its pipeline, reportedly because of financial problems.
The line in Pakistan alone is estimated to cost $1.8 billion, and local reports have suggested Pakistan wants Iran to finance and build the Pakistani portion as well.
The gas purchase agreement links the gas price from Iran to the "Japan Crude Cocktail," which is determined by price of crude oil when cleared by Japan Customs.
But Abbasi said that formula does not take into consideration the global trend of delinking gas prices from oil prices.
"In Asia, Japan has already asked Qatar to consider a pricing mechanism different from oil-linked contracts," Abbasi said. "The energy landscape has transformed and gas prices have fallen during 2007 to 2011 in all gas hubs. In the current scenario, the liquefied natural gas import price after incurring the shipping and re-gasification cost for 2012 show that the price of the pipeline's gas might be even costlier than LNG import prices," Abbasi said.
A strong lobby has emerged in Pakistan that wants to import LNG under long-term contracts rather than importing piped gas from Iran.
Pakistan's Ministry of Petroleum and Natural Resources has already called for an expression of interest for construction of an LNG terminal at Port Bin Qasim near Karachi.
The pipeline agreement signed with Iran has provided that if Pakistan failed to take the gas it would be required to pay a penalty, but a clause in the agreement does provide for renegotiation of prices.
Shafqat Kakakhel, president of the think tank, said in comments at a ceremony for the report's release that its purpose was not to find fault with those who negotiated the gas prices, but he added the skills of the Pakistani negotiators "were not up to the mark."
A member of the study team said later that by linking the gas price with the Japan Crude Cocktail, the Pakistani negotiators had inflated prices by $2 per barrel.
He said the price should have been linked to the import price of crude oil at the factory gate in Pakistan.
==Kyodo
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http://www.globalpost.com/dispatch/news/kyodo-news-international/131024/pakistan-advised-renegotiate-gas-price-iran
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