By Tamsin Carlisle

Source:

June 13, 2010

Iran has signed a long-awaited deal committing it to start exporting gas to Pakistan within five years.

The agreement covers the export of about 750 million cubic feet per day (cfd) of gas from Iran’s biggest gasfield to Pakistan through an international pipeline it has started to build.

“This is a happy day,” Javad Oji, the Iranian deputy oil minister, told reporters at the contract signing ceremony yesterday. “After decades of negotiations, we are witnessing today the execution of the agreement.”

The gas exports will start in 2014, he said.

Iran’s state TV also reported the agreement, but said the exports would start in 2015.

Many sceptics, however, doubt the gas will flow in the foreseeable future.

The pipeline will have to cross a border region populated by restive Baluch tribes that are locked in protracted disputes with both Tehran and Islamabad over poverty and minority rights. The Taliban and their al Qa’eda backers have reportedly been strengthening their presence in Baluchistan province of Pakistan, and may be seeking to forge alliances with the Baluchs based on common grievances.

“One can rest assured that the Baluch Liberation Army, which for years has conducted sporadic attacks against water pipelines, power transmission lines and gas installations, and al Qa’eda members who perfected the art of pipeline sabotage in Iraq would not spare the Iran-Pakistan pipeline, causing delays in construction and perhaps even termination of the project altogether,” said Gal Luft, the executive director of the Institute for the Analysis of Global Security, a think tank based in Washington.

The US$7 billion (Dh25.71bn) “Peace Pipeline” was first proposed in 1993 as a conduit for Iranian gas exports to Pakistan and India. The plan was vigorously opposed by Washington over fears it would give Iran too much influence in the affairs of the two nuclear-armed south Asian states and disrupt a delicate balance of interests in the region.

In 2008, the US effectively blocked Iranian gas exports to India by refusing to sign a nuclear co-operation agreement with New Delhi unless it ended the discussions with Tehran. Still, the project was revived in bilateral form last year after Iran and Pakistan reached an agreement on gas pricing.

Politically, the US cannot afford to give even tacit support to the toned-down project. That could lead to a new round of diplomatic pressure on Islamabad and delays in the construction of Pakistani sections of the pipeline. Still, Pakistan is desperately short of gas to fuel electricity generation, while Tehran is both financially and politically motivated to prove it can establish an export stream from the vast resources of its South Pars gasfield in the Gulf.

Yesterday, Mr Oji said Iran would start building a 300km section of the pipeline from the south-eastern Iranian city of Iranshahr to the Pakistan border. The country has already laid 907km of pipe from its southern ports of Asaluyeh to Iranshahr.

Kamran Lashari, the Pakistani deputy energy minister, said Islamabad would conduct a one-year study of the feasibility of building its section of the pipeline.

Iran recently became a net gas importer, despite sitting on the world’s second biggest proved gas reserves and sharing the planet’s largest known gasfield with Qatar. That strains the state treasury as Tehran struggles with four rounds of UN economic sanctions over its nuclear programme. The latest of those, imposed last week, included further restrictions on the international operations of Iranian banks.

Accelerating the development of South Pars has been part of Tehran’s strategy of defiance as it has become increasingly isolated in the international arena.

Last month, Masoud Mir-Kazemi, the Iranian oil minister, said output from the gasfield would be raised by a third to 9.4 billion cfd from 7 billion cfd.

Mr Oji suggested yesterday that developing South Pars could increase Iran’s gas production capacity to nearly 32 billion cfd from about 21 billion cfd within three years and to nearly 39 billion cfd by the end of 2015.

The country pumped an average of 12.7 billion cfd of gas last year, according to the BP Statistical Review of World Energy. It consumed slightly more than that.

Early this month, the foreign branches of Bank Mellat of Iran began issuing $1.2bn of bonds to finance South Pars development. The buyers of the bonds risk reprisals from the US and its allies.

Western oil companies that had signed agreements with Tehran to develop the gas have delayed investment due to the sanctions. Tehran has recently brought in Chinese and local companies, including concerns controlled by the Iranian Revolutionary Guard Corps.

Analysts have cast doubt on whether those companies have the technical capabilities or human resources to implement Tehran’s ambitious development plans.