Pakistan moves to shelve IP pipeline, seeks settlement with Iran

Sources revealed that Iran has offered to extend the gas sale agreement for another 10 years in hopes of reviving the project.

ISLAMABAD: Pakistan has informed Iran of its intention to abandon the stalled Iran-Pakistan (IP) gas pipeline project through an out-of-court settlement, while leaving open the possibility of reviving the venture if a waiver from United States sanctions can be secured, officials said Monday.

The project has been on hold since 2014 due to Washington’s sanctions on Tehran, despite Iran granting repeated extensions over more than a decade. Tehran has also initiated legal proceedings against Pakistan for failing to begin construction on its side of the pipeline within the agreed timeframe.

Sources revealed that Iran has offered to extend the gas sale agreement for another 10 years in hopes of reviving the project. Pakistan, however, has proposed that any implementation would depend on a US sanctions waiver, along with reduced gas volumes and lower prices.

Officials noted that Pakistan’s domestic gas demand has declined, with Qatar scheduled to supply 24 LNG cargoes in 2026. “For now, Pakistan does not need additional gas because of low demand,” one official said, adding that IP gas prices remain higher than prevailing LNG rates. Pressure from Washington has further complicated Islamabad’s position.

The United States previously rejected Pakistan’s request for a waiver, with State Department spokesperson Matthew Miller warning that sanctions against Iran would continue to be enforced. “We advise anyone considering business deals with Iran to be aware of the potential ramifications,” Miller said during the Biden administration.

Iran maintains that it has completed its portion of the pipeline, while Pakistan has yet to begin construction. Despite Tehran’s willingness to extend the agreement, Islamabad is leaning toward shelving the project due to sanctions and weak demand.

Alternative proposals have been explored over the years, including an LNG pipeline to Gwadar with an extension to the Iran border. A Chinese company had expressed interest in building the pipeline, but the plan was abandoned under US pressure.

Currently, Pakistan relies heavily on LNG imports from Qatar, primarily for the power sector. However, the sector has struggled to absorb the full supply, creating a surplus. To address this, the government has introduced incentives under an incremental electricity package to boost LNG consumption in agriculture and industry. It has also lifted a decade-long ban on new gas connections for domestic and commercial consumers, with new connections priced at LNG rates.