There are strong rumors that Kingdom of Saudi Arabia has joined the United States to oppose Iran-Pakistan gas pipeline project for which Pakistan is trying to arrange financing in the face of tightening US sanction on Iran.
The Chinese have already pulled out of the project after the US imposed sanctions on banks and other entities dealing with projects and transactions involving Iran. Russia's Gazprom is reportedly interested in financing and constructing the Pakistan section of the pipeline, but only on the condition that the project be awarded to it without any competitive bidding.
The question now is how should Pakistan deal with the situation? Can Pakistan satisfy its growing energy needs without alienating the Saudis and avoiding crippling US sanctions which could be more damaging than its current energy crisis?
To answer these questions, let's first examine the following facts:
1. Pakistan has at least 50 trillion cubic feet of recoverable domestic shale gas reserves, according to US Energy Information Administration.
2. US oil and gas companies are pioneers and leaders in shale gas development. In fact, these firms have been so successful that there is now a gas glut in the United States and gas prices have plummeted to less than $2 per mmBTU (approx 1000 cubic feet).
3. Iran-Pakistan deal requires Pakistan to pay $11-12 per mmBTU for its gas, six times the current price in the United States. Since the pricing formula for Iranian gas is based on the price of oil, it's almost certain that Pakistan will end up paying more than $12 per mmBTU with rising oil prices in the future.
4. Pakistan needs investment and technical know-how to develop its shale gas reserves to assure cheap and abundant energy supply.
Considering the above-mentioned facts, I think the best option for Pakistan is to go with its own domestic shale gas at a fraction of the price Iran is demanding.
Pakistan's best interest is not in defying Saudis and Americans to buy expensive Iranian gas and end up with crippling sanctions which could be much worse than its current energy crisis. Its best interests will be served by developing its own cheap domestic shale gas on an accelerated schedule with Saudi investment and US tech know-how. If the Americans and the Saudis refuse to help, then Pakistan will have a stronger case to go with the Iran gas option.