Tacit FoDP, US support for Iran gas pipeline

[Hyde]

Tacit FoDP, US support for Iran gas pipeline​

By Khaleeq Kiani
Monday, 25 Oct, 2010

US Special Representative for Afghanistan and Pakistan Richard Holbrooke talks with Pakistani Foreign Minister Shah Mahmood Qureshi. – Photo by AFP (File)

ISLAMABAD: The FoDP (Friends of Democratic Pakistan) has supported Pakistan’s plan to import natural gas from Iran to meet its increasing energy needs and the United States, which is an active component of the forum, is also reported to have tacitly agreed not to oppose the pipeline.

This was stated here on Sunday by official sources who cited a report prepared by a task force on Pakistan’s grim energy situation and steps needed to cope with the situation. The Pak-Iran gas pipeline featured prominently in the report, the sources said.

“Gas imports via the cross-border pipeline must start in the medium term (2014-15) then increase to cover the long-term gap,” says the report of the Energy Sector Task Force of the Friends of Democratic Pakistan, prepared jointly by the Asian Development Bank (ADB) and the Ministry of Water Power after detailed discussions with FoDP delegations. Some of these discussions were presided over by President Barack Obama’s Special Envoy for Pakistan and Afghanistan Richard Holbrooke.

The task force recommended “fast-track cross-border pipelines” since Pakistan’s geographical location makes it a potential market for some neighbouring countries with large gas reserves.

According to the report, gas import through the Iran-Pakistan pipeline should materialise by 2014-15. The task force agreed that the years 2010 and 2011 were critical with gas gap exceeding 1.3 BCFD (billion cubic feet per day).

The task force has strongly recommended implementation of plans for importing liquefied natural gas (LNG) and drilling of tight gas (gas difficult to access) reserves to ensure that the gas gap decreases in the medium term.

The report said that with the current average production of about 4 BCFD, Pakistan’s gas reserves of 33 trillion cubic feet (TCF) were equal to 24 years of current production.

FoDP experts have estimated that there are additional reserves of 35 TCF in tight gas, which is difficult to be produced through normal exploration and development techniques. It said the rapid medium-term decline in gas production from the existing seven large fields producing 65 per cent of total production and their huge long-term decline (by 2019-20) was the result of the failure of recent development strategy.

If the tight gas, LNG and pipeline import projects do not materialise, the gas shortfall would increase to more than 2 BCFD in 2013-14 and 5.08 BCFD by 2019-20. The FoDP task force has advised the government to offer lucrative incentives through massively higher gas prices so that tight gas starts supplying about 500 MMCFD of gas to the system by 2013-14.

Officials said the total known reserves of tight gas were about 4 TCF and a comprehensive study would have to be undertaken to determine whether or not the 35 TCF tight gas reserves estimates were dependable.

The task force has objected to huge guaranteed rates of returns to gas utilities and heavy gas losses – unaccounted for gas (UFG) – in transmission and distribution system, saying ‘the problem is becoming worse each year’. Against a target of reducing the UFG to less than 4.5 per cent, these losses remain in excess of 8-9 per cent for the two main gas utilities.

It said the Oil & Gas Regulatory Authority (Ogra) was applying a return on assets with a guaranteed rate of 17 per cent for SSGCL and 17.5 per cent for SNGPL. “With such high returns, there is an over-investment in system expansion instead of an investment in reducing UFG”. As a result, the two utilities continue to expand network even though existing consumers do not have sufficient supplies of gas.

“Moreover, it is not optimal to continue extending network to reach even more residential consumers who pay less than a third of the average revenue requirement.”

The FoDP has strongly recommended to “rationalise and restructure gas tariff” to recover supply and distribution costs (including imported energy to meet gas deficits) and to minimise cross subsidies across various sectors.

The government has agreed to implement measures to reduce UFG as ‘current levels are in the high range of 7-9 per cent’. One per cent of UFG, according to the report, means a loss of Rs3.5 billion a year at the current gas price.