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India on Wednesday threatened to pull out of the proposed $4.16 billion Iran-India pipeline project over price of natural gas saying Tehran has to price the fuel at rates affordable to industry in India.
"We will not buy gas from Iran if we cannot sell it in India. If they say they have alternate markets in the United States, China and Japan (who are willing to pay higher price) than I might as well ask them to tap them," Petroleum Minister Mani Shankar Aiyar said at book release function in New Delhi.
Iran wants a price equivalent to that of liquefied natural gas for the natural gas it plans to sell to India by the pipeline which would pass through Pakistan.
"In our country, paying capacity of (key consumers) power and fertiliser sector has kept in mind for pricing of the feedstock (gas). We can buy the energy provided we can afford the price," he said.
LNG is twice as costlier than domestically produced natural gas.
Aiyar said India and Pakistan together need some 200 million standard cubic meter per day (mmscmd) of Iranian gas and Tehran has to offer special price to such large consumers.
The power and fertiliser industry in India are not willing to pay a doorstep price of more than $3 per million British thermal unit (mBtu). In comparison, Iranian demand of a price equivalent to the price of regassified LNG came to about $4 per mBtu. Adding transportation and transit charges (to be paid to Pakistan for the length of pipeline that would pass through its territory), the delivered price would come to over $4.50 per mBtu.
Aiyar warned that euphoria on the pipeline diplomacy was over and said: "The road ahead is rocky."
"There is the cost of (natural gas) production, than the cost of transmission and cost of transit and over that profit to be made. If these add up to a sum we can afford to buy, we will buy," he said.
"Our affordable price may be lower than available elsewhere but Iran has to be sensitive to our market," he said.
International consultant BHP Billiton of Australia had pegged cost of Iranian gas through a pipeline at $2.40-2.49 per mBtu.
Besides the high price of the 'lean gas' (natural gas stripped of petrochemicals), Iran was also not willing to sign 'supply-or-pay' contract, which would make it liable to deliver the gas at Indian borders or else pay for the assured quantity.
Tehran, however, wants New Delhi to commit to a stringent 'take-or-pay' clause where India will have to pay the price even if it does not take delivery of gas.
The 2600-km long pipeline would originate at the Persian Gulf port city of Assaluyeh (the landfall point of gas produced in South Pars gas fields) and travel 1100-km in Iran to reach Pakistan border. In Pakistan, the pipeline will traverse 760-km to reach Indian border. Another 700-km line would be laid from Rajasthan border to Delhi to stream the gas into the trunk HBJ (Hazira-Bijapur-Jagdishpur) pipeline.