Moscow and Islamabad signed an agreement on the construction of the Pakistan Stream gas pipeline
Pipe laying will start shortly. According to experts, such an agreement opens up new opportunities for Russia in South Asia. What opportunities are we talking about and how will India, which is at war with Pakistan, react to the implementation of this project?
Recently, Russia and Pakistan have signed an agreement on the construction of the Pakistan Stream gas pipeline (formerly North-South, was renamed in March). It is reported that the project will begin shortly. Energy Minister Nikolai Shulginov said Russian companies will help Pakistan “strengthen its own energy security and increase the use of natural gas as an environmentally friendly source of energy”.
The countries signed an intergovernmental agreement on the construction of the North-South gas pipeline with a length of 1.1 thousand kilometers (carrying capacity up to 12.4 billion cubic meters per year) back in 2015. The cost of the project will be $2-2.5 billion. It will connect terminals for receiving liquefied natural gas (LNG) in the port cities of Karachi and Gwadar in the south of Pakistan with the city of Lahore in the north of the country. LNG power plants are to be built there.
At the same time, in early spring, it became known that RT Global Resources (part of the Rostec group) was terminating its participation in the project. In December 2019, the Pakistani state-owned company ISGSL, which specializes in strategic infrastructure projects in the gas industry, asked Russia to replace this company due to the sanctions risks. Zarubezhneft was named the new likely participant in the project. The company will be selected by the competent authority of the Russian side, which will establish the FSUE Center for Operational Services of the Ministry of Energy of the Russian Federation, Eurasian Pipeline Consortium LLC and the Pipe Metallurgical Company of businessman Dmitry Pumpyansky. Russian investors will receive at least 26% of the pipeline’s shares, while Pakistan will have a controlling stake – 74%.
According to experts, the name of the new project “was chosen more from a PR point of view.”
“This is an established brand – Russian gas pipelines should be called flows. Russia participates there not even by the forces of Gazprom, but by other companies and is acting de facto as a contractor”, – said Igor Yushkov, a leading analyst at the National Energy Security Fund, an expert at the Financial University under the government.
For Russian companies, Pakistani Stream benefits from construction profits. And the more Pakistan consumes gas, “the better for Russia, even if we ourselves do not supply fuel there.” “This gas pipeline presupposes the construction of an LNG receiving terminal, which means that other suppliers, primarily Qatar, which dominates the region, will be drawn here. Accordingly, this will reduce the competition between Russian companies and Qatari companies in the European and Asian LNG markets, and in the Chinese market with our Power of Siberia pipeline, Yushkov said.
In the future, swap deliveries of Russian gas to Pakistan cannot be ruled out either. Under the same scheme, Gazprom sells gas to Great Britain, which it receives via a pipeline from Norway. Thus, companies do not spend money on delivery, but fulfill their obligations under the contract.
“Swap transactions are carried out if they are beneficial to both companies. It does not seem economically feasible to simply drive gas from Yamal or even Sakhalin to Pakistan. But such operations are possible with Qatar, which will start supplying gas to Novatek in Pakistan, and Novatek will transfer its gas to Qatar in Europe or Asia”, – the source suggested.
He also explained why Pakistan chose Russian contractors who do not yet know how to build LNG receiving terminals, as well as large-scale LNG plants with tens of million tons.
“New technologies with “growing pains” are just emerging in Russia. But with gas pipelines, we have been doing well since Soviet times. We produce the entire range of pipes, we build and install ourselves. I am sure that Russian companies offered Pakistan a good price, so this contract was given to us, Yushkov explained. In addition, this project is of great geopolitical importance”.
According to Boris Volkhonsky, associate professor at the Institute of Asian and African Countries at Moscow State University, the signed agreement fits into the general direction of Russia’s policy in South Asia.
“In Soviet times, we had a one-sided orientation towards India, but this strategy carries many negative aspects. You shouldn’t look at all the problems of the region through the prism of the Indian view”, – Volkhonsky said.
Therefore, the development of ties with Islamabad is a positive moment, especially given the fact that Pakistan is turning into an important link in the Chinese “New Silk Road”, a section of which involves passing through Pakistani territory.
“Now trade and economic relations between Russia and Pakistan are at a low level (last year the trade turnover amounted to only USD 539 million). The signing of the agreement is a step forward, ”the expert noted.
“Moreover, Pakistan today is an important link in the global security system. Now that the withdrawal of American troops from Afghanistan is planned, Islamabad will begin to play a huge role in maintaining stability in this region. And for Russia, any destabilization in Afghanistan is fraught with the transfer of tension to the Central Asian countries, which are directly adjacent to our borders, ”the expert noted.
Volkhonsky is confident that the emergence of the Pakistani Stream will open up new opportunities for Russia in Asia.
“Economic ties will entail the development of related moments. After the collapse of the USSR, we still have not restored direct flights to either Islamabad or Karachi – simply because there is no demand. And the construction of the gas pipeline will give an impetus to the development of public diplomacy, the revitalization of relations in other areas”, – predicts an associate professor at the Institute of Asian and African Countries at Moscow State University.
As for India’s reaction to the development of Russian-Pakistani relations, it is possible only at the level of “discordant media”, because we are not talking about the development of military-technical cooperation. Moreover, the construction project does not involve laying a pipe through the disputed territory of Kashmir.
“India is sensitive to any projects that are carried out in the Pakistani-controlled territory of Kashmir. In this case, Indian interests are not affected in any way, so Moscow should not worry”, – Volkhonsky summed up.
Andrey Rezchikov, VZGLYAD