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After Total pulls out of Iran gas, eyes on India
SINGAPORE/NEW DELHI |
SINGAPORE/NEW DELHI (Reuters) - Oil major Total's move this month to effectively withdraw from Iran's last major LNG project brought cheer to India, which now seems to be Tehran's best hope for exporting its huge natural gas reserves.
The trouble is, Delhi's additional negotiating advantage in a $7.6 billion project nearly two decades old may ultimately do little to help overcome much bigger political hurdles.
U.S. success in deterring investors from entering Iran's upstream oil and gas sector may prove an even bigger impediment than it has in the past, especially with India's even more important nuclear energy deal on the line, while relations with Pakistan, the other partner in the pipeline, remain fraught.
France's Total (TOTF.PA) said recently it would spend no more money on Iranian gas projects for now, just days after Iran tested long-range missiles, making it the latest in a slew of foreign companies to have backed away from Iranian gas.
The move also put on hold any immediate Iranian plans to export liquefied natural gas (LNG), which Iran would have been able to sell flexibly and internationally to the highest bidder, rather than to a fixed buyer through a pipeline.
"This leaves Iran with only one remaining large-scale gas export venture that has not yet been scrapped...the Iran-Pakistan-India gas pipeline," Samuel Ciszuk, Middle East energy analyst at Global Insight in London, said.
The OPEC member has the world's second largest gas reserves but has been slow to export to a world that is desperate for cleaner burning fuels, partly because of U.S. sanctions.
STRONGER IN TALKS
That isolation could give India more muscle in prolonged price negotiations, analysts say.
The three parties have agreed a pricing formula for transportation charges but not the key issue of how much the gas will cost and how much Pakistan may charge as a transit fee.
"The removal of medium-term LNG options would weaken Iran's negotiating position in piped export discussions," said Noel Tomnay, an energy analyst at consultants Wood MacKenzie.
Major domestic gas discoveries in recent years have given India an even stronger hand, although analyst say it still needs to fill huge demand of of some of 115 to 135 billion cubic meters (bcm) of natural gas a year by 2020, up from up 70 to 90 bcm now.
But proven gas reserves at the beginning of the year of 37 trillion cubic feet, or just under 1,050 bcm, mean India will be able to meet more domestic demand from its own supplies, easing the urgency to import gas across tough terrain and hostile regions.
PROJECT STILL HAS LIFE
In recent months the project has gained some momentum. Officials from all three countries are due to discuss the pipeline in Tehran.
Iran has signaled it would be willing to move the delivery point of the gas to the India-Pakistan frontier -- something India had pushed for to reduce the risk of supplies being cut during times of Indian-Pakistani tension.
That step signaled how keen Iran was to push ahead, especially in the light of failing LNG projects, analysts said.
If given the go ahead, work on the pipeline could begin next year and is due to finish by 2012, Indian officials have said.
It would initially transport 60 million cubic metres of gas to Pakistan and India a day, half for each country -- effectively boosting India's current supply by almost half. The pipeline's capacity would later rise to 150 million cubic metres.
But it still faces daunting political hurdles.
The United States, which has in the past tried to pressure India and Pakistan into backing away from any deal with Iran, may well sharpen its rhetoric, analysts say.
For India, a nuclear deal with the United States -- mulled since 2005 -- could be on the line. Under the agreement, India would gain access to U.S. nuclear resources and technology for energy, but the deal has not yet been inked.
"The pipeline will become a single focal point in the U.S.-led efforts to isolate Iran, with a great deal of added political pressure on India and Pakistan to sever ties to be expected," Global Insight's Ciszuk said.
The United States has sanctions imposed on Iran because it suspects Tehran has ambitions to build nuclear arms. Iran denies any such ambitions.
And India shows few signs of bowing to outside pressure.
"I don't think India would give up the project only because of U.S. pressure," said Pran Chopra, a political analyst in India.
Closer to home, political tension between nuclear-armed rivals India and Pakistan seems unlikely to change any time soon.
"Even if they get to the altar, you could still see something going wrong and even in the honeymoon, things could still fall apart," Tomnay said.
(Additional reporting by Simon Webb in Dubai; Editing by Michael Urquhart)
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