Pakistan is jubilant over Iran’s willingness to revise price of gas
aimed at materialising the troubled Iran- Pakistan (IP) gas pipeline
project which is being opposed by the United States. This happened after
two-week hectic debate on the report ‘rethinking Pakistan’s energy
equation: Iran-Pakistan Gas Pipeline’, launched by SDPI, renegotiating
gas price factor came up.

Recent announcement was made by Hamid Raza, Managing Director of
Iran’s state-owned gas company, National Iranian Gas Company (NIGC),
signatory of Gas Sale Purchase Agreement (GSPA) with Pakistan, hinting
at Iran’s willingness to revise gas price.

Sustainable Development Policy Institute (SDPI), industrialists,
CNG sector, and common people of Pakistan hail the decision. Yet, all
the credit goes to Iran as this step will help Pakistan to finally
materialise the project. "The objective of SDPI was to convince Iran to
revise the gas price" said Arshad Abbasi of SDPI.

He said the report, which was technically reviewed by imminent
experts, presents a comprehensive analysis of Pakistan’s energy sector.
The focus of the report was on evaluation of the Iran Pakistan gas
pipeline agreement and its eventual impact on Pakistan’s power sector.
The report emphasises the fact that the gas price determining formula,
revised and signed in GSPA (Gas Sales and Purchase Agreement) 2013, will
severely burden Pakistan’s economy.

"If we continue to import gas at the rate of $15.38/MMBtu, while
crude oil price is $110 per barrel, as per the formula, the price will
only increase with time as the oil prices increase," he added.

The negotiating team in 2009, in-fact, had changed the crude oil
parity of 45 but this saw a dramatic increase to 85 percent crude oil
parity under the 2009 GSPA with Iran, according to the report.

Economic Co-ordination Committee (ECC) on April 10 2007,
approved gas purchase formula, indexed with Japan Customs Cleared Crude
(JCC), a crude oil price index. In year 2007, the average gas production
price in Pakistan was $2.6 MMBTU.

Pakistan has been importing electricity from Iran since October
2002 and the main reason for which Pakistan signed the agreement was to
import Iranian gas for running power generation plants. Considering the
high gas prices, importing electricity directly from Iran appears to be a
much better option

SDPI is grateful to Iranian government’s announcement of
revisiting the gas pricing formula. The two countries need efforts like
these to strengthen their brotherly ties and to ensure progress on both
sides of the border.

Shale gas revolution has tremendously changed the world’s
natural gas trade. At the moment there are a total 6688 Tcf of in-place
shale gas reserves discovered in 41 countries of the world. Effective
exploitation of shale gas reserves in the US has totally changed the
natural gas and LNG trade scenario and the Henry Hub (which is
associated with US natural gas prices) offers one of the lowest gas
prices in the world.

Due to shale gas revolution, the trend of de-linking oil and gas
prices has been actively taken up by many countries in the world which
are now revising their long term contracts to avail natural gas at lower
prices. Pakistan also has 105 Tcf of shale gas reserves which, if
utilised, can considerably take out the country from the present endemic
energy crisis.

Now realising the global trend, when the Russian giant Gazporm
offered 15 percent discount to Italy, Germany and other Baltic States
Estonia, Latvia and Lithuania. While RWE, the German electric utilities
company annually importing 285 billion cubic feet gas, had sued the
Gazporm at the International Court of Arbitration of the International
Chamber of Commerce in Paris. The court penalised Gazporm with $500
million.

The step of Iran to renegotiate price will open avenues for
China and India as well to import gas from Iran though pipeline via
Pakistan to phase-out coal-fired electricity generation.