Revisit call on Iran’s gas

Revisit call on Iran’s gas

The petroleum minister yesterday said India would close the proposed Iran-Pakistan gas pipeline deal by June. The foreign minister too has energy security high on his agenda for his current visit to Iran. But with Islamabad saying yes to Iran’s $4.93 per mbtu revised offer late last month, though earlier it was in sync with India’s quote for $4.25, we need to question the very basics of the talks. Have we done a reality check on the domestic demand-supply equation?

Power and fertilizers, the two big buyers, face strongly price sensitive consumers. Iran’s offer means $6.5-7 per mbtu at Indian borders, after paying a transport fee to Pakistan.

For power producers, domestic coal, given the regulated prices at almost half the global level, and fast growing domestic gas are more attractive. For fertilizers, as we said yesterday, it is more competitive to produce abroad near the source of gas, and ship it back here. The economics makes no sense. Will geopolitics determine our response?

We have a month to think.