Petrostrategies - The World Energy Weekly

Petrostrategies - The World Energy Weekly

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Russia is exploiting friction between the USA and Pakistan to strengthen its foothold in the latter country

Petrostrategies, February 1st, 2018

The more Pakistan moves away from the United States politically, the closer it gets to Russia. The widening schism between Washington and Islamabad, already noted during Barack Obama’s term of office, has accelerated under Donald Trump, who intends to cut $2 billion in aid to Pakistan. As a result, Islamabad is becoming closer to Moscow, from which it is now buying Mi-35M combat helicopters, and will perhaps purchase Su-35 fighters and S-400 missiles as well. The good relations between the two countries are also developing in the energy sector. The Russians have agreed to build a gasline, qualified as “strategic” by Islamabad, between the port of Karachi in southern Pakistan and Lahore in the north, and finalization of the contract is pending. In parallel, Russia may agree to sell LNG to Pakistan and invest in the country’s power-plants. For the more distant future, Russians and Pakistanis are examining the idea of an offshore gasline transporting Iranian gas, running from a site near Gwadar to India. However, the Pakistanis will first have to honor their contract with Tehran and start importing Iranian gas. Iran has built its gasline as far as the border, but Islamabad has not yet built the corresponding connection to the Pakistani network, using US sanctions as an excuse not to fulfill its side of the contract. An offshore gasline to India would avoid crossing risky areas in Pakistan. Moreover, Russian involvement would counterbalance distrust between the three countries concerned.

The proposed Karachi-Lahore gasline, known as the North-South Gas Pipeline, is being developed by Russia’s Rostec group via its subsidiary RT Global Resources. It was the subject of an intergovernmental agreement between Russia and Pakistan (the first of its kind for decades) on October 16, 2015. Rostec is a conglomerate of more than 600 companies employing more than 900,000 people. It is involved in both the civilian and military sectors. After the Ukrainian crisis, US sanctions hit both Rostec and its management. Russians and Pakistanis took some time to find a solution: Rostec is now to set up a Special-Purpose Vehicle (SPV) in Pakistan which will build and operate the Pakistani North-South Gas Pipeline under the terms of a 25-year BOOT (Build, Own, Operate, Transfer) contract. This model was approved by the Pakistani authorities in 2016. In December 2016, they also agreed that the Russians will apply a transportation charge of $0.85/MMBtu on the future gasline. The Pakistanis will sign a ship-or-pay contract with the line’s Russian operator.

If it is actually built, the planned pipeline will be 1,122 km long and will have a diameter of 42”. It will reach its full capacity of 12.3 bcm/annum when it has been equipped with five compressors, some three years after it first enters service. At a point 200 km away from Karachi, the North-South line will be joined by a 700 km gasline (which the Pakistanis hope to persuade the Chinese to build) between Gwadar and the city of Nawabshah. Further north, near the Pakistani town of Multan, some 800 km from Karachi, the North-South could cross the Turkmenistan-Afghanistan-Pakistan-India (TAPI) gasline that Ashgabat hopes to build, and for which it has requested help from … Russia. “We must take a look, of course, at how feasible projects of this kind will be”, said Vladimir Putin on December 25, 2017, regarding the TAPI, a 1,800 km gasline with a capacity of 33 bcm/annum.

The Pakistani North-South Gas Pipeline project will be “100% Russian”, according to former Pakistani Energy Minister, Shahid Khaqan Abbasi, who became the country’s Prime Minister on August 1, 2017. In reality, ISGSL (a Pakistani state-owned corporation) may hold a 15% stake in the gasline alongside a subsidiary of Rostec (85%). ISGSL will also use the gasline and pay the transportation fee. The company will also import LNG to Karachi and transport it to Lahore. Some of the LNG may come from Russia, but that has not yet been finalized. The gasline will cost about $3 billion, and it is possible that China may help to finance it.