Commodities, Emerging Markets, Energy, Frontier Markets

China To Build $2 Billion Natural Gas Pipeline From Iran To Pakistan, WSJ Says

Iran-Pakistan PipelineChina will build a natural gas pipeline from Iran to Pakistan to help address Pakistan’s severe energy shortage, The Wall Street Journal (WSJ) reported on Thursday.

The natural gas pipeline, dubbed the “Peace Pipeline”, will provide much needed natural gas from Iran, home to the world’s second largest reserves, to energy-deprived Pakistan.

“We’re building it. The process has started,” Pakistani Petroleum Minister Shahid Khaqan Abbasi told the WSJ.

According to the report, Pakistan has been negotiating for months “behind the scenes” for China to build the Pakistani portion of the pipeline, in a deal which will cost up to $2 billion.

Tehran reports that its 560-mile (900-kilometer) portion of the pipeline from an Iranian gas field has already been completed and that it has long pressed Pakistan to build its part of the pipeline, the WSJ said.

The U.S. had previously threatened Pakistan with sanctions if it went ahead with the project, the WSJ said.

Pakistan hasn’t begun construction, however, in light of threatened U.S. sanctions for trading with Iran. Islamabad had sought to work around the sanctions by asking the Chinese to build the pipeline but not yet connect it to the Iranian portion. The prospect of an Iran nuclear agreement, which would ease sanctions in stages once the deal is completed, has given Islamabad further impetus to clear the project. Among the first sanctions to be lifted, according to the framework accord, would be the ban on Iran energy exports.

“This [Iran nuclear agreement] will help us in getting a few things which were coming into the way of the Iran-Pakistan gas pipeline to be cleared and we will move forward,” Pakistan’s ambassador to Iran, Noor Muhammad Jadmani, said Sunday in Tehran, according a report on IRNA, the official Iranian news agency.

Pakistan is negotiating with the China Petroleum Pipeline Bureau, a branch of Chinese energy giant China National Petroleum Corporation (CNPC), to construct the 435 mile (700 kilometers) portion of the pipeline from the western Pakistani port of Gwadar to Nawabshah in the southern province of Sindh, where it will be connected to Pakistan’s already existing gas-distribution pipeline network, the WSJ reports.

The WSJ says that idea for the 1,045 mile (1,682km) pipeline was first proposed over 20 years ago with the original plan envisioning the pipeline continuing on to India, however Delhi dropped out due to U.S. pressure in 2009, Tehran claims.

Image courtesy of the WSJ

Image courtesy of the WSJ

Pakistan and China have held a close strategic alliance for decades, which have been primarily aimed against its foe of India, now Beijing is looking to add an economic dimension to the relationship, the WSJ said.

Pakistan has had a close strategic alliance with China for decades—aimed mostly against common foe India—but now Beijing is seeking to add an economic dimension to the relationship. Islamabad and Beijing plan an “economic corridor” linking the Pakistani port of Gwadar, which is under Chinese management, to southwestern China with road and rail connections. The highly ambitious program, which also includes power-generation projects, carries a price tag of some $40 billion. Unveiling agreements and details for the economic corridor will form a center piece of Mr. Xi’s visit.

Pakistani officials told the WSJ that the Iran pipeline was not part of the economic corridor, but it will be separately fast-tracked.

Iran has 33.7 trillion cubic meters of gas reserves according to the June 2014 BP Statistical Review of World Energy. According to estimates from BP, it has the world’s fourth-largest oil reserves at 157 billion barrels.

U.S.-led sanctions against Iran over its nuclear program have crippled Iran’s oil and gas industry.

Iran’s oil exports have fallen from 2.5 million barrels a day in 2011 to around one million barrels in 2014, according to the U.S. Energy Information Administration (EIA).

In March, Iran produced 2.85 million barrels of oil per day, according to data complied by Bloomberg.

The final pipeline deal is to be signed during the long-sought visit of Chinese President Xi Jinping to Islamabad in April, the WSJ said.

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