IRAN - Proposed Iran Gas P/L Project On Track, Says Indian Official.

A proposed natural gas pipeline project connecting Iran and India via Pakistan is on track and is targeted to come on stream in 2010, a senior Indian government official said on Dec. 9. The comment came in the wake of a US State Department official's statement in the media recently that any plans by the Indian and Pakistani governments to sign energy deals with Iran were "years away" and existed only in the hypothetical realm.

Dow Jones on Dec. 9 quoted the senior Indian government official, who it did not name, as saying: "India's best interests are served by being part of the [Iranian gas pipeline] project. All the three countries involved are committed to realizing the pipeline". The official added: "An India-Pakistan joint working group on the gas pipeline is scheduled to meet in New Delhi on Dec. 16 and Dec. 17, while another joint working group with Iran will meet on Dec. 28 and Dec. 29 to discuss the project's structure".

The proposed 2,600-kilometre pipeline is expected to be designed to handle a capacity of 150 MCM/day. The construction cost is estimated at around $8 bn. If the project is realised, India could initially buy up to 60 MCF/day from Iran, while Pakistan could buy up to 30 MCM/day.

Russia-Ukraine Dispute Won't Impact On EU Gas Supply: European Energy Commissioner Andris Piebalgs last week said he did not expect a row between Russia and Ukraine over natural gas to disrupt supplies to the European Union. There will be "no difficultly with gas transit from Russia to the European Union...I do not know of any case [in the past] where Ukraine has not fulfilled its obligations", Piebalgs told journalists after a meeting with Ukraine's Energy Minister Ivan Plachkov.

Russia has insisted that Ukraine pay $160 per thousand cubic metres of Russian gas, in cash. This is more than three times the price Kiev has been paying to the Russian gas monopoly, Gazprom. Currently, Ukraine receives most of its Russian gas at $50/000 CM and provides transit of Russian gas deliveries to Europe. Most of Russia's natural gas exports pass through Ukraine to European markets and the standoff has raised the possibility that those supplies could be interrupted. Russian gas monopoly Gazprom supplies around 25% of Europe's gas.

Relations between Russia and Ukraine remain highly charged since the collapse of the Soviet Union in late 1991. Natural gas is an important source of revenue for both states. They are trying to set aside their differences to get a deal. President Vladimir Putin on Dec. 7 held talks over the telephone with his Ukrainian counterpart Viktor Yushchenko in a bid to break the deadlock. The Kremlin press office said Putin was "pleased" with Yushchenko's "readiness to liberalise prices for Russian gas".

However, the statement stopped short of saying an agreement had been reached. Plachkov on Dec. 8 said he saw a possible deal with Russia by the end of December.

Addressing journalists after meeting with senior members of his government, Putin claimed the Russian budget was losing $1 bn a year due to the barter structure under which Ukraine receives most of its gas from Russia. He added that Gazprom was losing another $3.6 bn a year for the same reason.

"We should not push our Ukrainian friends into a difficult situation", Putin said. He was referring to the political difficulties of rapidly raising artificially low gas prices for households in Ukraine and to his own personal war with Yushchenko.

Putin noted that Ukrainian subsidies to retail consumers were still so extensive that Ukrainians paid less for their gas than Russians. However, in an oblique reference to a windfall received by Yushchenko's government from the privatisation of Kryvorizhstal last month, Putin said: "they have enough money to buy gas at market prices".

Gazprom sends over 100 BCM/year of natural gas through Ukraine to Western and Central Europe. It sends a much smaller amount through Belarus.

Russia says it is eager for the EU to help mediate the dispute with Ukraine. Russia's Prime Minister Mikhail Fradkov on Dec. 7 held talks with European Commission President Jose Manuel Barroso. Fradkov said he hoped the EU could find arguments to "convince Ukraine" and avoid any interruptions in supply.

Energy relations are extremely important to all concerned. But there is a serious political conflict between Presidents Putin and Yushchenko over the latter's US-backed Western policies and plans for Ukraine to join both the EU and NATO, as well as Yushchenko's repeated promises to democratise his country. Yushchenko believes Russia's demand for a higher price for the natural gas is one of Putin's subtle punishments to the new Ukrainian regime.

Europe is heavily reliant on oil and gas supplies from Russia. Russia depends on Europe for a large portion of its export revenues. Barroso said the EU was interested in bolstering energy ties with both Ukraine and Russia. Recently Barroso and UK Prime Minister Tony Blair travelled to Kiev for an EU-Ukraine summit.

The EU's relationship with Russia is longer standing. The EU and Russia already have an established energy dialogue which brings the two sides together several times a year. But keeping both sides happy is a difficult political tightrope to walk for the EU.

Ukraine on Dec. 8 said it was willing to offer Europe access to its underground gas storage facilities, according to Plachkov. Electricity grids, oil stocks and nuclear safety also were discussed at Plachkov's meeting with Piebalgs. In 1986 the world's worst nuclear power accident took place at Chernobyl in Ukraine. More than 30 people were killed in the initial explosion.