Pakistan’s gas pipeline project with Iran in spotlight amid geopolitics: analysts

The prospect of a revived Iran-Pakistan gas pipeline has attracted renewed attention following the de-escalation of tensions in the Middle East, with the project likely to substantially reduce Pakistan's energy import bill, improve the economics of the power sector, and strengthen long-term energy security, according to energy economists and market analysts.

According to them, the project could come to fruition if geopolitical barriers are removed and both countries can renegotiate commercial terms.

The project, first conceived more than two decades ago, has remained stalled largely because of international sanctions on Iran and Pakistan's inability to complete its section of the pipeline.

An improvement in regional stability and a potential easing of sanctions could reopen discussions on this project, once expected to deliver up to 750-850 million cubic feet/day of natural gas to Pakistan, analysts said on June 22.

Changing dynamics

Ali Salman, CEO of Prime Institute, said the economic case for pipeline gas remains compelling despite the project's prolonged delay.

"There are three layers," Salman said, pointing to pricing, deliverability and changing demand dynamics.

On pricing, he noted that pipeline gas avoids liquefaction, shipping and regasification expenses associated with LNG imports, potentially saving between $3.5/MMBtu and $6/MMBtu.

Pakistan's recent experience during disruptions around the Strait of Hormuz highlighted the importance of those savings.

Spot LNG cargo prices surged to $18-$19/MMBtu, compared with long-term contracted LNG supplies from Qatar priced at around $7-$9/MMBtu, Salman said.

According to estimates cited by Salman, Pakistan may have forgone about $3.3 billion annually in savings between 2013 and 2019 because the pipeline was never completed.

However, Salman cautioned that the commercial framework underpinning the project is outdated.

The Gas Sales Purchase Agreement signed in 2009 no longer reflects current market realities, and both sides have acknowledged the need for renegotiation.

Salman said Pakistan's gas market today differs significantly from the assumptions used when the pipeline was originally designed.

National gas consumption has fallen below 4,000 MMcf/d, compared with earlier projections of around 6,000 MMcf/d, reflecting slower economic growth, higher energy prices, and a rapid expansion of solar power generation.

"The 750 MMcf/d pipeline intended for the 2009 demand profile would join a fundamentally different market today," he said.

The observation raises questions about whether Pakistan will require the full contracted volumes if renewable energy continues to gain market share and electricity demand growth remains subdued.

Potential power sector savings

Bazif Memon, research analyst at Optimus Capital Management, said the pipeline could still generate substantial savings for Pakistan's power sector if gas prices remain competitive.

Pakistan currently uses around 400-500 MMcf/d of RLNG for electricity generation, while the proposed pipeline could supply about 750-850 MMcf/d.

Memon said Pakistan's dependence on RLNG-fired power generation is expected to gradually decline as renewable energy penetration increases. Nevertheless, pipeline gas could replace a large portion of imported LNG volumes if delivered at competitive rates.

"Currently, Pakistan imports RLNG from Qatar at an average price of $12-$13/MMBtu," Memon said. "If pipeline gas arrives at $8-$9/MMBtu, which is likely because transportation and regasification costs are avoided, it would create meaningful savings."

He estimated that about 15% of Pakistan's electricity generation currently relies on RLNG. At prevailing LNG prices, electricity generated from RLNG costs roughly Pakistan Rupees 23/kWh.

If Iranian gas were supplied at $7-$8/MMBtu, generation costs could decline to between Rupees 14/kWh and Rupees 17/kWh, potentially saving around Rupees 7/kWh, he forecast.

Despite the economic appeal, Memon highlighted practical challenges.

Pakistan remains committed to long-term LNG supply agreements with Qatar extending until 2031. If the pipeline becomes operational before those contracts expire, Islamabad may need to resell surplus LNG cargoes in international markets, potentially at lower prices, creating financial losses.

The analyst also warned of legal risks associated with further delays.

Iran has already completed its portion of the pipeline infrastructure and retains the option of pursuing international arbitration against Pakistan for non-compliance with contractual obligations.

According to Memon, the potential penalty exposure could reach about $18 billion.

Energy security, llower electricity tariffs

Abdul Azeem, head of research at Al-Habib Capital Markets, described the project as potentially transformational for Pakistan's energy sector.

Pakistan currently imports LNG from Qatar under a Brent-linked pricing formula equivalent to about 13.37% of Brent crude oil prices. LNG import volumes declined sharply to around 695 MMcf/d during the first 11 months of the 2026 fiscal year from 920 MMcf/d a year earlier amid disruptions linked to tensions around the Strait of Hormuz, Azeem said.

With total RLNG demand estimated at 1,000-1,200 MMcf/d, the decline in imports has widened supply shortages and forced greater reliance on furnace oil and imported coal for power generation.

RLNG's share in Pakistan's electricity generation fell to 13.6% in FY26 from 17.6% a year earlier.

Azeem estimated that Iranian gas could be supplied at $8-$10/MMBtu, representing a discount of about 20%-37% compared with prevailing LNG costs.

At full utilization, the pipeline could save Pakistan in excess of about $1 billion annually and reduce electricity generation costs to around Rupees 15-18/kWh.

Lower fuel costs would likely ease inflationary pressures and provide relief to electricity consumers, he said.

Iran possesses the world's second-largest natural gas reserves, offering long-term supply security that could reduce Pakistan's exposure to volatile spot LNG markets.

Nasheed Malik, head of research at Growth Investments, said a pipeline agreement would become realistic only if broader diplomatic conditions improve, particularly between Iran and the US.

"The main uncertainty surrounding the project is geopolitical rather than economic," Malik said.

He added that any revival would likely require at least tacit acceptance from major stakeholders, including the US, China and Saudi Arabia.

Pipeline gas from Iran could provide a lower-cost alternative while reducing exposure to LNG shipping disruptions and maritime chokepoints.

Malik also noted potential benefits for Pakistan's fertilizer industry. Several fertilizer plants currently depend on RLNG, and access to cheaper pipeline gas could improve profitability and support higher domestic urea production, he said.