IRAN GAS PIPELINE PROJECT "PUT ON ICE" BY GOP

C O N F I D E N T I A L ISLAMABAD 003737 SENSITIVE SIPDIS E.O. 12958: DECL: 12/01/2018 TAGS: ECON ETRD EAID EFIN ENGY EPET ELTN PK IN SUBJECT: IRAN GAS PIPELINE PROJECT "PUT ON ICE" BY GOP Classified by: Ambassador PATTERSON for reasons 1.4 (b) and (d) ¶1. (C) Summary: Local media reports that Iran has increased the proposed price for natural gas under the Iran pipeline which makes the project unfeasible for the Government of Pakistan. Officials at the Ministry of Petroleum and Natural Resources confirm that unless directed to pursue the Iran pipeline by the political leadership, the functional officers at the Ministry are shelving the Iran pipeline proposal due to the new Iranian price proposal of USD 7-8 and will pursue exploration of domestic natural gas resources instead. End Summary. ¶2. (U) On November 29, local media reported that the multi-billion dollars Iran-Pakistan-India (IPI) gas pipeline line project is "likely to be put on ice" as Iran has doubled the gas price, linking it with 80 percent of the global crude oil price. According to media reports, Iran's new asking price is USD 7-8 per Million British Thermal Unit (MBTU),based on USD 50 per barrel of crude, and USD 14-16 per MBTU if crude oil prices go up to USD 100 per barrel. ¶3. (C) Taimur Asmat Osman, Joint Secretary for Development, Ministry of Petroleum and Natural Resources told EconOff on December 1, that based on internal discussions within the Ministry, officials are now convinced that Iran is not serious in signing a gas deal with Pakistan. Osman confided that on a recent trip to India, he spoke with his Indian government counterpart tasked with the IPI portfolio who also shares the same views. Osman further maintained that at the functional levels of the Ministry, they will not waste any more time on this project unless the political leadership decides to push it further. ¶4. (SBU) Progress was made on the pipeline during the reign of the caretaker government when Iran and Pakistan agreed to link the pipeline gas tariff with a formula for 40 percent price of global crude oil. However, at the time, crude price in the international market was USD 100 per barrel. Per the new demands, Iran now wants to link the pipeline gas price with a formula for 80 percent of global crude oil price which makes the project economically unfeasible for Pakistan. According to domestic gas sources, the locally produced natural gas price is USD 3.5 per MBTU. ¶5. (SBU) The Ministry of Petroleum and Natural Resources is expected to seek further political instruction and guidelines before resuming dialogue with Iran on the gas pricing issue. The Government is expected to accelerate exploration of indigenous natural gas resources which could be potentially vast. PATTERSON