European pricing for India

Tehran invites Delhi to forget about cheap gas

Two weeks before the next meeting of the trilateral working group of Iran, Pakistan and India on the implementation of the gas pipeline project, Tehran publicly refused the price at which it wanted to buy gas from Delhi. As IRNA reported yesterday, Iranian Oil Minister Kazem Vaziri-Khamane said that Indian partners proposed calculating supply conditions based on “subsidized domestic prices.” And he harshly said that India and Pakistan should forget about buying Iranian raw materials at low prices. And the price formula that Iran offers is very similar to the one that Gazprom uses in Europe. It cannot be ruled out that these are the first fruits of coordination between Moscow and Tehran on the global gas market, which the leaders of the two countries, Vladimir Putin and Mahmoud Ahmadinejad, agreed upon in Shanghai in mid-June.

As reported, at the latest summit of the Shanghai Cooperation Organization, the presidents of Russia and Iran said that they could get more tangible results from cooperation. “Like, for example, in the field of gas,” the leader of the Islamic republic said in front of television cameras. -- We can cooperate closely both in terms of determining the price of gas and the main flows in the interests of global stability. But we are still only at the beginning of the journey.” And the Russian president complemented his words, talking about the prospects of creating a joint venture for hydrocarbon production in the territories of the two countries, and noted that Gazprom may well participate in the construction of a main gas pipeline to India.

The Iran-Pakistan-India gas pipeline project, with a length of about 2,100 km and a capital investment of more than $7 billion, has a long history. It emerged against the backdrop of an unresolved territorial and religious conflict between the two potential buyers and until recently seemed completely unfeasible for political reasons. Adding to the Kashmir difficulties is the US's intransigent position on Iran. Washington loudly declared that it was categorically against any large-scale business projects with disgraced Tehran. However, the need for energy resources turned out to be higher than politics. Iran, Pakistan and India created a viable working group that agreed on the route and volumes of supplies. Buyers confirmed their intention to purchase 32 billion cubic meters per year with the prospect of increasing to 55 billion cubic meters. That is, the characteristics of this pipeline are comparable in capacity to the North European Gas Pipeline. However, the negotiation process stumbled over a banal economic obstacle - the price of gas.

According to Indian newspapers, Delhi was ready to pay Tehran $4.2 per million Btu (British thermal units), which corresponds to approximately $151 per thousand cubic meters. It was this proposal that provoked the Iranian minister to make harsh statements. “If the Indian side is not ready to buy our gas at a realistic price, we have no obligation to sell it at a price below the market price,” Mr. Khamane said.

Iran offers its eastern partners to set prices according to European standards. The formula sent to Islamabad and Delhi pegs the price of gas that will flow through the new pipeline to Brent oil with a fixed multiplying factor (Gazprom prices are tied to a basket of petroleum products in end-use markets, but on average also change with oil prices). According to this formula, the gas price would now be $7.2 per million Btu ($259 per thousand cubic meters). That is, the same amount as Russian gas now costs in Europe.

The next round of negotiations is scheduled for August 3-4, when the third meeting of the high-level working group, headed by the energy ministers of the countries participating in the project, will take place in Tehran.

Alexey GRIVACHS