Friday, August 17, 2007

IPI Pipeline's Uncertain Future

Asia Times reported today that that the trip of Indian premier Manmohan Singh and Pakistani president Pervez Musharraf to Tehran to sign Iran-Pakistan-India (IPI) gas pipeline has been put on hold. The $7.5 billion IPI pipeline was to export natural gas from Iran to Pakistan and India.

There are growing speculations that the ousting last week of Iranian oil minister Kazem Vaziri Mahaneh was due to strong internal opposition to his handling of the IPI project. Mahaneh had offered India and Pakistan a deep discount on gas exports, reportedly at 30% discount rate.

Iran oil analysts believe such major discount was misplaced as Iran would need most of its natural gas export quota to be pumped into the existing oil wells to stop their rapidly diminishing rate of production, considered to be as high as 8% annually. In the absence of any foreign investment to bring new oil fields online, such diminishing rate of production would wipe out all Iran’s oil exports in less than a decade.

Iran submitted a new market-based variable pricing proposal that has been rejected by India. Washington was also unhappy about any strategic partnership between Iran and India on energy. The future of IPI pipeline project now looks uncertain.

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