Commodities, Energy, Frontier Markets

Hopes High In Pakistan To Solve Energy Crisis With Iran-Pakistan Pipeline, Following Landmark Nuclear Deal

Iran-Pakistan PipelinePakistan is hoping to benefit from a historic nuclear deal that Iran and six major world powers (P5+1) reached on Tuesday, following over a decade of negotiations with an agreement that could transform the Middle East.

Pakistan has been struggling with an energy crisis as rolling blackouts for several hours a day are common in its urban and rural areas as demand for electricity surges amid high temperatures. And the situation is getting worse.

Pakistan relies on gas for around 50 percent of its energy needs, so the solution to the energy crisis seems rather simple: import more natural gas.

Well, it has not been so simple for Pakistan. For years, the nation has been planning to build a pipeline to import natural gas from Iran, however work on the proposed Iran-Pakistan pipeline had been stalled amid international economic sanctions on Iran due to its nuclear development program.

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

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

Now, as the landmark nuclear deal was reached with Iran, things are looking up for Pakistan to finally complete the Iran-Pakistan pipeline.

But funding for the pipeline project is expensive, with a $2 billion price-tag, which is another problem for the cash-strapped nation.

This is why Pakistan is turning to its rich neighbor, China.

In April we reported that Pakistan had been negotiating “behind the scenes” with China to construct the 435 mile (700 kilometers) portion of the pipeline.

It is reported that China will provide 85 percent of the $2 billion in financing. The project is expected to start sometime in October and will take approximately 30 months to build.

Pakistan’s relations with China have been continuing to strengthen — following Chinese President Xi Jinping’s visit to Islamabad in April — as we reported that the two countries signed a total of 51 agreements to boost economic cooperation in addition to launching a $46 billion economic corridor that will link China’s autonomous Xinjiang region to Pakistan’s Gwadar port on the Arabian Sea with a network of highways, railways, and pipelines.

The connection to the seaport will also drastically reduce shipping times and costs from China to the Middle East and Europe.

Pakistani officials have said that once sanctions on Iranian imports are lifted that trade with their neighbor would significantly improve, with crude oil, petrol, and diesel expected to be some of the hot commodities.

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).

Last week, the Shanghai Cooperation Organization (SCO) upgraded Pakistan to a full member of its regional security bloc led by China and Russia.


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