How ‘America First’ could jump start Iran-Pakistan pipeline project

Al-Monitor | : Iran is cheerful with Imran Khan in office next door. Even before his inauguration as Pakistan’s new prime minister, President Hassan Rouhani picked up the phone to congratulate Khan and invite him to Tehran. There are two main reasons, among others, for Iran’s cheerfulness. As discussed in an Aug. 4 conversation between Iran’s ambassador to Pakistan, Mehdi Honardoost, and the Pakistani prime minister, there is the prospect of Islamabad playing a role in helping to improve relations between Tehran and Riyadh. There is also the matter of the future of the long-stalled Iran-Pakistan (IP) natural gas pipeline. Honardoust asserted the Islamic Republic’s desire to see this project, which could “change the future of Pakistan,” finally come to fruition. But does Iran have the capacity to operationalize the project, and does it really hold the potential to change the future of Pakistan?

One key issue is the matter of Iran’s natural gas reserves and its ability to extract it. According to British Petroleum’s 2017 report, Iran has the largest proven natural gas reserves in the world at 1,183 trillion cubic feet (tcf), ahead of Russia’s 1,139 tcf. With this vast resource in hand, Iran in 2016 produced 202.4 billion cubic meters (bcm) of natural gas — the third highest in the world, accounting for 5.7% of global output. Even though consumption stood at 200.8 bcm in the same year, the 1.6% difference between the growth rate of consumption and production in 2016 implies that Iran already has surplus production capacity, which is projected to increase.

Pakistan — and also India, the once-envisioned terminus of the pipeline — has experienced a very low rate of growth in consumption, annually standing at 2.5% and 2.1% respectively during 2005-2015. Over the same period, the average annual growth rate of production and consumption in Iran both stood at 6.4%. In other words, even at a time of severe international sanctions during which foreign investment in Iran’s energy industry decreased dramatically, high growth in consumption was satisfied by equally high growth in production. In this vein, it is predicted that even if production does not rise as planned — as a result of renewed US sanctions or any other circumstance under which investment in the gas industry may decrease — Iran’s ability to produce surplus natural gas will increase.

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