Pakistan looks to Iran to help ease gas crisis

“My tandoor business shut down because there was no gas for the oven,” says the father of 10 from a village near Islamabad, who also struggled to heat his home during the recent harsh winter.

Without an income from his bread enterprise, the 50-year-old had to take on back-breaking manual work to make ends meet. “In the past three months I’ve had to lift bricks and chop firewood as a daily wage labourer,” he says.

He is not alone. Gas shortages hampered daily life across Pakistan, with people — even in prosperous areas — often forced to cook after midnight because this is the only time when gas pressure is sufficient to run their stoves. Others bathe with buckets of water as it is impossible to heat enough water for a bath.

Pakistan’s daily gas output of 4bn cu ft meets only two-thirds of its domestic demand, according to officials at the ministry of petroleum and natural resources. Even this figure is suppressed by controls such as restrictions on new connections — the ministry estimates that underlying demand could be as high as 8bn cu ft.

The government of prime minister Nawaz Sharif has sought to ease the crisis. The first tanker carrying liquefied natural gas from Qatar arrived this month after a contact was signed to import up to 500m cu ft per day from the Gulf county.

Islamabad, which has looked to similar agreements with Malaysia, Russia, Abu Dhabi and Oman, has optimistically proclaimed such deals as a solution to its energy woes — although it will be some time before consumers feel the difference.

So a visit late last month to Pakistan by Hassan Rouhani, president of Iran, has revived hopes for an ambitious project to build a gas pipeline to deliver gas from the Islamic Republic. As one petroleum ministry official in Islamabad says: “There will be many elements in the two-day visit, but if you ask me the gas pipeline will be central.”

The deal for Pakistan to import gas from Iran’s giant South Pars gasfield was hatched in the early 1990s. But plans to build the pipeline had to be put on ice because of international sanctions.

Now sanctions have been lifting as part of Tehran’s nuclear deal with world powers, Shahid Khaqan Abbasi, Pakistan’s petroleum minister, is keen to push ahead with a pipeline that could bring 750m cu ft of gas per day.

“We have to build the pipeline. It’s a contractual requirement,” he told the Financial Times, referring to a clause in Pakistan’s deal with Iran that requires Islamabad to pay up to $3m a day if it fails to import Iranian gas.

Now that Iran has come in from the cold, Pakistan will be able to take bank loans to finance the pipeline, Mr Abbasi adds, the Pakistani portion of which could cost up to $2bn. The Iranian section is almost complete at a $5bn cost.

In the past, according to western officials, Saudi Arabia pressed its ally Pakistan to step back from importing Iranian gas to deny additional revenue for the beleaguered economy of its foe Iran.

But Mr Abbasi’s commitment to push ahead with the plan suggests that Mr Sharif has decided to pursue the project in spite of Saudi pressure, they say.

“The prime minister probably realises that the political cost of not doing this project will be unbearable” says one western official. “Even if the Saudis gave a lot of money to Pakistan, they can’t give gas. Iran is Pakistan’s neighbour and the most viable source for gas”.

Mr Abbasi says Pakistan plans to begin importing at least 250m cu ft of Iranian gas by 2017, rising to 750m by 2019 — meaning Iranian gas could provide more than a third of the current shortfall.

Analysts say the desire to push ahead with the Iran gas project by 2017 in part reflects the country’s complicated domestic politics.

“Sharif wants this [the gas shortages] to begin being rectified before 2018 — which will be the election year. That is the calculus behind going for Iranian gas,” says Sakib Sherani, a former economic adviser to the finance ministry.

“Unless Pakistan moves quickly, the gas shortages will only grow.”

A senior government official who works with Mr Sharif admits Iranian gas “is central to our gas formula in the future”.

He adds that the Iranian gas will be used to meet the needs of Pakistan’s domestic consumers in the big cities where “dissent against the government will peak when elections are held in 2018 if there is no gas”.

Pakistan has also been eyeing other projects such as the proposed gas pipeline from Turkmenistan via Afghanistan.

But continued Taliban attacks and evidence Isis is seeking a foothold in Afghanistan have fed doubts over that project. “Even if someone can convincingly argue that Afghanistan will settle down one day, Iran seems to be the one project that will deliver gas ahead of the others,” says the western official.

For the tandoor owner Mr Gul and other Pakistanis, an end to the gas crisis cannot come soon enough. “Getting sufficient gas will begin to save lives in our country,” Mr Gul says. “I learnt to value gas when I lost my livelihood.”

By FT