IPI gas pipeline price to be determined: Iran

New Delhi, July 11: Iran has said that the contract for building the seven billion dollars Iran - Pakistan - India (IPI) gas pipeline will be concluded according to a price formula based on the price of natural gas in Japan and will be introduced only at the time of gas transfer to the pipeline.

Special representative of the Iranian minister of Petroleum on IPI and Director of International Affairs Department of the Ministry of Petroleum Hojjatollah Ghanimifardhe has said that the formula used for setting price of Iran's gas will be based on the price of natural gas in Japan because that country currently accounts for 50 per cent of natural gas consumption of the world.

Mr Ghanimifard said price of Iran's exported gas has not been fixed and only a price formula has been finalised, which determines price of Iran's gas on the basis of price of Japan's imported crude oil.

''It is not clear what would be gas price when the contract becomes effective and it depends on the price of the crude oil that is imported by Japan,''he added.

''When the contract is signed, no set figure would be mentioned and price will be calculated according to the said formula. For example, if gas is to be transferred four years later, at that time, we would introduce price of Japan's imported crude oil, not when the contract is signed,'' he explained.

Mr Ghanimifard further added that the Japanese energy market has not been as fluctuating as corresponding markets of Britain and the United States and price have been relatively stable there.

''Information on prices show that the Japanese market will be among the main markets consuming liquefied natural gas in the near future and although consumption of liquefied natural gas will be higher in the United States, China, Korea, and some other European countries, Japan has been a source of great demand for liquefied natural gas and due to proximity of Japan to the Indian market, it has been taken as a base to determine price of the Iranian gas,'' he said.

Explaining about price formula, Mr Ghanimifard said ''According to mathematical calculations, a model has been worked out which shows the relation between price of liquefied natural gas and crude oil in Japan with a correlation coefficient of 95 per cent.'' Instead of selling gas directly to India and Pakistan, Iran can carry it from Assaluyeh to Japan, he said.

''Therefore, by reverse calculation from price of liquefied natural gas in Japan, we reached a formula for setting price of dry gas at border crossing between Iran and Pakistan, he added. Mr Ghanimifard noted that to convert liquefied natural gas price in Japan to its price in Assaluyeh, transportation costs should be deducted.

Also, to determine price of liquefied natural gas in Assaluyeh, ''we calculated the cost of a plant converting gas to liquefied natural gas at daily capacity of 60 million cum to find out about the costs of converging dry gas to liquefied natural gas.'' He added, ''In this way, we must deduct cost of investment as well as operational costs from liquefied natural gas price so as to convert price of liquefied natural gas in Assaluyeh on the basis of the price of dry gas delivered to liquefied natural gas plant.'' Mr Ghanimifard said since introduction of gas into the pipeline needs slight operations, the relevant costs should be added to cost of transferring gas to Pakistan border.

Since in addition to 60 million cum gas, which will be exported, 50 million cu. m. will be used for domestic consumption in southeast Iran, a 56-inch pipeline as well as needed compressors have been considered.

As a result, the cost of gas transfer to Pakistan border on the basis of the price of dry gas entering pipeline in Assaluyeh and price of Iran's dry natural gas in million BTUs at Pakistan border were determined, he said.

The official noted that price formula for the Iranian gas sometimes is to a straight line and turns into a curve, which changes according to changes in price of crude oil imported by Japan.

Japan's imported oil comprises of 80 per cent Persian Gulf crude oil and 20 per cent ultra-light crude varieties which are much more expensive. As a result changes in crude oil price will affect price of exported gas to India and Pakistan.

In view of an article included for review of price by three countries, the formula can be changed and, therefore, no judgement has been made for a long-term 20-year period, he said.

Comparing Iran's contract for selling gas to India and Pakistan to the contract that was signed with Turkey, Ghanimifard stated that price of various energy carriers including coal, oil, and even electricity is different in various markets.

Referring to different gas prices in Europe and southern states of the United States, the official said gas is priced differently in various parts of Europe and the United States.

''The structure of energy market is such that if Saudi Arabia sets the same price for its crude oil exports to Europe that it considers for the Asian market, it will certainly lose the European market,'' he said.

He stated that Russia sells gas to different customers at different prices and opined that information should be given to people so that they would not think that gas should be sold at the same price to all countries.

''Economically speaking, if we were only present in a single area, such as the Asian market, we could not expect our oil price to rise by one or two dollars per barrel. Therefore, we must diversify our markets to increase security of oil supply,'' he added.

He said all Iranian neighbours are potentially users of the gas and Iran could provide enough gas to meet various demands as domestic consumption, injection into oil wells and seeding petrochemical plants while setting aside enough gas for exports. ''In this way, Iran can become a regional center for determining gas price.'' Mr Ghanimifard said Iran may be able to charge a customer with an irrational price for a short period, but in the long run, you are sure to lose the market to rivals,'' he noted.

He said Iran is not afraid of revealing the gas prices but stated stated that the contents of the contract are secret, ''We, as the Iranian side, are not concerned about revealing the price formula because it has already been done about price formula for the country's exported crude oil.'' All parties that have or have not signed oil purchase contracts with us are aware of price formulas and various international institutes can assess those formulas to see how much we are careful about our national interests when signing international contracts, he said.

He expressed hope that the amount of Iran's exported gas to various destinations will reach a level through pipeline, liquefied natural gas and compressed natural gas exports that the country would be able to reveal its price formulas for various destinations.

''If the Indian and Pakistani officials did not insist on secrecy about the price formula, we would have no concerns about making it public,'' he said.

Ghanimifard stressed that contracts are usually kept secret, but their texts can be made available to third parties through permission of signing parties.

''If a newspaper in a country reveals anything about the contents of such contracts, the State can sue that paper. However, if we could to prove that the information has been leaked through an official source, we cannot charge anybody or take legal action against a local paper,'' he said.

Ghanimifard rejected allegations of some Indian sources that that Iran has presented a draft memorandum of understanding and noted that it was a contract which was exchanged between officials of three countries.

''We welcome all comments that aim to improve the contract and have told the Indian officials that Iran seeks to comply with international standards in this regard,'' he said.

UNI