Re: $15 billion LNG deal with Qatar finalized
Since you asked, I hope you will read the details and would ponder too:
I have reference about IPI pipeline and price of Gas India would have got. Obviously, price of gas from Iran to Pakistan would have been same what India would have got, with difference that, India would be paying Pakistan also as transit fee (making Pakistani gas cheaper for Pakistan). You can read the article at the end of the post, but for ease, here is how you can calculate the price:
In 2005, the negotiated price was: $1.15 + 6.3 percent of average crude price (over previous 10 months). It means … if average price of oil was $ 40 per barrel during previous 10 months, than:
Iranian gas price would have been $ 1.15 + $ (40 x 0.063) = $ 1.15 + $ 2.52 = $ 3.67 per MMBTU
Since Gas project was not completed and negotiation was open to revision, in 2009, Iran asked to revise the agreement and proposed: $1.1 + 12 percent of average crude price (over previous 10 months). It means … if average price of oil was $ 40 per barrel during previous 10 months, than using revised pricing if approved:
Gas price would have been $1.1 + $ (40 x 0.12) = $ 1.1 + $ 4.8 = $ 5.9 per MMBTU
Presently oil price is ~ $ 30 per barrel. Now, if average oil price over 10 months stays at ~ $ 30 per barrel than, Price of Iranian gas:
Using old Iranian gas pricing formula, gas price would have been … $ 3.04 per MMBTU
If Pakistan had accepted new formula than Iranian gas price would have been … $ 4.7 MMBTU … still, cheaper than Qatar LNG.
Deal with Qatar is 13.7 percent of average of Brent crude price over previous 3 months. Thus, with an average price of $ 40 a barrel, LNG price would be $5. 48 per MMBTU.
Thus, one can say that: Iranian Gas was much cheaper that Qatar LNG using old agreed formula unless average oil price over 10 months goes below $ 15.5 per barrel.
Anyhow, using formula Iran wanted to re-negotiate. Iranian Gas was still cheaper unless average oil price over 10 months goes above $ 64.5 per barrel.
[That is, without taking into account extra cost of Qatar LNG’s due to infrastructure, transport, storage and insurance, and without taking into account Qatar’s LNG security of supply due to its getting to Pakistan by ship].
Apart of price, other disadvantage about Qatar LNG is that:
1: It would cost Pakistan to transport Qatar LNG (as price is on board in Qatar), and Pakistan has to pay Qatar regardless of LNG reaches Pakistan or get lost in transport.
2: During war time, sea transport could become almost impossible for Pakistan, but nevertheless, Pakistan would be paying Qatar and also loosing out due to shortage of energy (as India, with huge navy, could block Pakistan sea ports).
3: Even within country, transportation of LNG would be more hazardous and costly than gas coming through gas pipes.
4: Pakistan has to spend huge facility and infrastructure to receive LNG from Qatar and transport them to required destinations (storage and transportation cost could be huge), while gas could get connected to already installed gas pipes in Pakistan.
In my opinion, it would have been much better if Pakistan had imported Iranian gas rather going for more expensive and insecure option of Qatar’s LNG, though, should have insisted with Iran to follow old agreed formula of 2005 (considering present world energy supply condition, I believe Iran would have agreed).
I also believe that, average oil price would not go below $15.5 per barrel in foreseeable future, and there is good chances that it might rebound even above $ 65 a barrel. With time and especially due to inflation, chances are that oil price would rise, and in rising oil price, Iranian gas would become more and more attractive.
At present, using old negotiated 2005 formula with Iran, Iranian gas would have saved Pakistan over $2.5 per MMBTU, or around $500 million a year.
Further, if IP would have got extended to India or China (that can only happen once Pakistan starts getting gas from Iran), than Pakistan would have started earning over $1 per MMBTU as transit fee, and since India and China together could have started buying at least 10 times Pakistani requirement, than Pakistan would have got several times more as transit fee what Pakistan would have paid Iran for gas.
[Note: India is now thinking to lay a pipeline undersea to get Iranian gas. Article also gives detail of ‘IPI’ pricing … and India expectation to pay same price what they would have paid buying gas through IPI, plus saving on transit fee]