Date:30/03/2006 URL: http://www.thehindubusinessline.com/2006/03/30/stories/2006033001890300.htm

Back Iran pipeline: Security issues worry oil cos

C. Shivkumar

Say disputes may parallel one between Russia and Ukraine

Worries over Pak
The proposed route passed through some of the volatile regions in Pakistan that could lead to supply disruptions.
Pakistan would also be in a position for altering the right of way charges leading to a considerably escalated cost of the gas to users in India, mostly power utilities and fertiliser companies.

Bangalore , March 29

Public sector oil companies have raised energy security issues over transportation of gas from Iran through pipelines traversing Pakistan.

High-level sources who declined to be identified said that all the public sector oil/gas companies have cited the dispute between Russia and Ukraine as an instance, in raising energy security concerns with the Government. Russia's Gazprom, early this year, had cut gas supplies to Ukraine over a pricing dispute. Ukraine, in turn, had removed gas meant for Europe for its own consumption. This resulted in supply shortfalls in large parts of Europe.

The sources said a similar situation could not be ruled out with Pakistan, especially in view of the tense bilateral relations. Therefore, the sources said, constructing a pipeline through that country was likely to compromise energy security. Besides, the sources said, the proposed route passed through some of the volatile regions in Pakistan that could lead to supply disruptions.

Project proposal

The current proposal envisages pipelining of gas from Iran's Pars gas fields to India with the supply point at either Barmer or Jaisalmer in Rajasthan, through a 2,775-km-long pipeline via Pakistan.

The project estimated to cost at least $7 billion and is targeted to begin supply of 5 million tonnes of gas per year for the country's power and fertiliser plants from 2010 onwards.

Besides Pakistan, the sources said, would also be in a position for altering the right of way charges leading to a considerably escalated cost of the gas to users in India, mostly power utilities and fertiliser companies.

These issues came to the forefront in the Russia-Ukraine dispute and had resulted in making such transnational pipelines redundant, unless it was between two neighbouring States.

The sources said the preference was through sea-based transportation, through specialised ships. Petronet LNG already imports gas to its terminal Dahej from Qatar by ship. A similar operation is expected for gas imports to Kochi. The sources said that transportation by sea would ensure that the supplies were secured.

However, sea transportation would also entail setting up a liquefaction terminal at the point of loading in Iran and a regasification terminal at the receiving point.

Pricing issue

But the sources said that cost loading for these stages would be only about 0.5 US cents per million British thermal units (MBTU).

The sources said that pricing was an issue that has still under negotiations. Pricing though is estimated at around $6 per MBTU. Accordingly the c.i.f. (cost, insurance and freight) of tariff of gas from Iran is estimated at $6.5 per MBTU. Despite this slight escalation, the costs would be considerably cheaper than using the pipeline route, they said. At the same time it would obviate the need to pay right of way charges to third countries and also remove the risks of supply uncertainties, they added. Oil companies reservations on the project come close on the heels of financiers raising bankability issues.

Besides, global insurers have also emphasised that the pipeline project was not insurable, in view of the high risks involved.