The Iran Pakistan India Pipeline

Money – as it so often does – Talks

According to the Energy International Agency (EIA) the demand for gas in India shall continue to grow in the medium term. This shall increase from 7.9 trillion cubic feet (tcf) in 2012 to 17.2 tcf by 2040. Gas is used in three main sectors, for power generation, for heating and cooking in homes, and in industry as a feedstock for fertiliser and chemicals as well as for furnaces and boilers particularly in industries such as casting and forging.

As the country prospers so the demand will increase, particularly in the power sector as India needs to replace its reliance on polluting coal power with relatively cleaner gas fired power plants. Currently coal provides almost 70 percent of India’s power requirements. But given the alarming levels of smog and its damaging effect on environment, as well as the agreement to limit CO2 emission levels this is forecast to decrease to less than 40 percent. Whereas India has embarked on a massive solar power initiative to install approx. 100,000 MW of solar power, for base power load, particularly in the winter months there will be a demand for gas.

Similarly for domestic cooking particularly in the rural areas a large percent of the population rely on firewood for cooking, this requires rural men and women is spending several hours per day in foraging and searching for fire wood which could be used in other productive income generating activities. The soot emitted from the burning wood damages the respiratory system of women who cook particularly as they blow into the fire to make it burn. Studies have shown where affordable gas cylinders have been introduced, the level of forestation have also increased leading to an overall improvement in the environment.

It is therefore not surprising that India has embarked on a major gas acquisition program including ratcheting up its search for domestic gas. However given the geology it appears that India will have to continue relying on imported gas. In that it has two options, either Liquefied Natural Gas (LNG) from a number of sources or piped gas from major suppliers like Iran and Turkmenistan.

India has installed a number of LNG terminals and is currently importing almost 10 mtpa of LNG, it is buying LNG from Qatar, the US and Australia. Based on published reports India will install LNG terminals sufficient to import almost 24 mtpa of LNG by 2025 – almost 3.5 billion cubic foot per day of gas over the next ten years.

The LNG process is an expensive one, whereby gas is liquefied by chilling to – 180°C by chilling and compressing, this liquid is pumped into double hulled LNG carriers that transport the gas to its destination port, during the voyage 1-3 percent of the gas is lost due to boil off from the increased temperature during the voyage. At the receiving terminal the LNG is re-gassified into gas and transported through pipelines to its ultimate destination. The liquefaction and re-gassification process requires complicated infrastructure (or trains as they are called) and consumes energy and cost. Conservatively the entire process adds approx. $ 3.5/mmbtu to the price of gas. Engineers calculate that unless the underground pipeline distance is more 5,000 km, piped gas will always be cheaper than LNG.

India lies within pipeline distance of two gas producing countries namely Iran and Turkmenistan. Iran has the second largest gas reserves in the world after Russia estimated at 1,200 tcf while Turkmenistan has the world’s fourth largest reserves estimated at 620 tcf. Both countries are eager to export their gas to India given the limited options they have to export their gas to the west due to the quasi monopoly Russia has on pipelines to the west. Iran does have an export pipeline to Turkey and Turkmenistan to Russia, but growth options are limited.

Given the advances in solar and other renewable energy demand for fossil fuel is expected to fall drastically within 25 years. If the global warming is to be kept at 1.5°C then eighty percent of all fossil fuels will never be extracted from the ground.

For India and indeed Pakistan it would be much more economical to import gas from Iran or Turkmenistan because as explained above, this gas even after adding the cost of pipeline and transit fee it would still be almost $ 3-2.5/mmbtu cheaper than LNG. In the case of India by 2020 on an additional demand of 2 bn cfd the country would save close to U $ 2 billion per year, or over 25 years almost $ 50 billion.

So it isn’t as bizarre as it sounds when the Iranian foreign minister offered to mediate between India and Pakistan because at the end of the day – money talks.