ISLAMABAD:
Pakistan has conveyed to Iran its intention to shelve the Iran-Pakistan (IP) gas pipeline project under an out-of-court settlement framework, while offering to revive the project if a waiver from US sanctions can be secured, sources said on Monday.
The IP gas pipeline project has been stalled since 2014 due to US sanctions against Iran, despite Tehran granting extensions of more than a decade. Iran has also initiated legal proceedings over Pakistan’s failure to complete the project within the stipulated time frame.
According to the sources, Iran has agreed to extend the gas sales agreement for another 10 years in an attempt to bring the IP gas pipeline project back on track. However, Pakistan conveyed an alternative option of implementing the project only if relief from US sanctions is obtained.
“Pakistan wants the deal extended if the US provides a sanctions waiver along with reduced gas volumes and lower prices from Iran,” a source close to the development told The Express Pakinomist. Both sides have been engaged in backdoor diplomacy and the issue was also raised with high-profile dignitaries visiting Islamabad.
Discussions with various government officials indicated that Pakistan had already informed Iran of its desire to scrap the project due to Washington’s sanctions against Tehran. Officials said Pakistan also faces lower domestic gas demand, while Qatar is scheduled to deliver 24 LNG cargoes by 2026.
“Currently, Pakistan does not need additional gas due to low demand,” an official said, adding that the IP gas prices were also higher than the prevailing LNG prices in the country. “Pakistan is also under pressure from the US regarding the IP gas pipeline project.”
Pakistan had earlier sought a waiver from the US to carry out the IP gas pipeline project, which Washington refused to grant. Matthew Miller, a State Department spokesman under the previous administration, had warned that the United States would continue to enforce sanctions against Iran.
“And as a matter of course, we also advise anyone considering business deals with Iran to be aware of the potential consequences of those deals,” said Miller, who served in then-President Joe Biden’s administration.
Iran maintains that it has completed its part of the pipeline, while Pakistan has yet to begin construction on its side. Officials said Iran remains willing to extend the gas sales deal for another decade, but Pakistan wants to shelve the project due to US sanctions and weak domestic demand.
Over the years, Pakistan has explored alternative options to implement the pipeline project. Under one plan, Islamabad proposed to build an LNG pipeline to Gwadar with an 80 kilometer extension to the Iranian border. A Chinese company had also expressed interest in building the pipeline, but the project was shelved due to US sanctions.
Currently, Pakistan is dependent on imports of liquefied natural gas from Qatar. “This gas is meant to meet the requirements of consumers in the power sector,” an official said. However, the electricity sector has not been able to lift the full volume of LNG imports from Qatar, resulting in a gas glut.
To address the surplus, the government has recently announced two initiatives to increase LNG consumption. Incentives have been introduced under an incremental power supply package to provide cheaper power to the agriculture and industrial sectors over a three-year period, enabling greater LNG utilization in the power sector.
The government has also lifted a decade-long ban on new gas connections to private and commercial consumers. New consumers will receive gas priced at LNG prices to “increase LNG consumption and solve the problem of excess gas”.
