October 16, 2008

Pakistan and Iran may sign gas agreement next month

Business Recorder reported that Pakistan and Iran have agreed to sign gas sales and purchase agreement for cross border pipeline project in the third week of January 2008.

Informed sources said that due to Iran's increasing international commitments and compulsions, the signing of GSPA has been delayed for some time. Iran has communicated to Pakistan that GSPA, which was earlier to be signed in the second week of January 2008, could now be inked in the second or third week of February 2008.

Mr Ahsanullah Khan minister for petroleum & natural resources of Pakistan said that that GSPA with Iran will be signed next week. He added that "But we have in principle agreed on all the documents to be finalized about the GSPA transaction. Now it is only a matter of time."

Originally, Pakistan was to get a total of 2.1 billion cubic feet per day of gas from 2600 kilometer IPI project and India was to receive 3.2 billion cubic feet per day, making a total of 5.3 billion cubic feet per day. The pipeline length will come down to about 1600 kilometer resultantly reducing the project cost in case India does not join the project. The delivered price of Iranian gas in Pakistan would be around USD 8 per million British thermal unit at the current crude oil price of about 100 per barrel a day under the JCC based gas pricing mechanism already agreed to by the 2 countries.

Current gas prices in Pakistan are less than USD 2.6 per million British thermal unit, which means the imported gas would be about 200% higher than domestic prices. The government, however, estimates that it would still be 40% lower than furnace oil.