This record is a partial extract of the original cable. The full text of the original cable is not available.

C O N F I D E N T I A L SECTION 01 OF 03 NEW DELHI 000300 
 
SIPDIS 
 
SENSITIVE 
 
STATE PASS EPA, EXIM, OPIC 
USDOC FOR 4530/MAC/ANESA/OSA/DROCKER/STERN 
USDOC FOR 3131/USFCS/OIO/ANESA/RMARRO/CSHARKEY 
USDOC FOR 6000/TD/AC/BLOPP 
DOE FOR TOM CUTLER 
TREASURY FOR INTERNATIONAL-SOUTH ASIA/MACDONALD 
 
E.O. 12958: DECL: 11/05/2014 
TAGS: ENRG EPET ECON PREL IR IN
SUBJECT: INDIA STRENGTHENS OIL AND GAS TIES WITH IRAN 
 
REF: A. 2004 NEW DELHI 7089 
 
     ¶B. 2004 STATE 177574 
     ¶C. 2004 NEW DELHI 4871 
     ¶D. 2004 NEW DELHI 4590 
     ¶E. 2004 NEW DELHI 1770 
     ¶F. 2004 STATE 166919 
     ¶G. 2004 STATE 108728 
 
Classified By: Ambassador David C. Mulford, Reasons 1.4 (b) and (d) 
 
¶1.  (C) Summary: On January 7, India and Iran strengthened 
significantly their oil and gas relationship when they 
reached an agreement in which India will purchase a total of 
7.5 million tons per year (MMTA) of LNG for 25 years 
beginning in 2009.  Iran will reportedly  allow Indian 
state-controlled companies to participate in at least three 
upstream oil and gas projects (South Pars, Yadavaran, and 
Jufeyr).  Although the deal has not been formalized and the 
contracts have not been signed, the LNG and upstream 
investment elements of the deal appear to be quite firm.  If 
the deal goes through, it could have ILSA implications.  We 
will continue to raise our concerns with both the Ministry of 
Foreign Affairs and with the oil companies, all of which are 
aware of our ILSA concerns.  The deal also included proposals 
for an Indian and Iran state-controlled companies to 
cooperate in petrochemical manufacturing and CNG development. 
The package represents still further evidence that the Indian 
oil companies, cheered on by the GOI, are vigorously seeking 
properties abroad.  The two governments also decided to 
discuss in February issues relating to an Iran-Pakistan-India 
gas pipeline.  With the GOI's decision to enter into large 
and long-term LNG purchase agreements, Embassy believes that 
the commerical prospects of an Iran-Pakistan-India gas 
pipeline recede further even as the idea remains a topic of 
Iran-India diplomacy.  End Summary. 
 
¶2.  (C) India took some significant steps in intensifying its 
oil and gas relationship with Iran and strengthening its 
energy security during the first weekend of January.  After 
more than a year of negotiations, the two countries reached a 
wide-ranging oil and gas package agreement on the sidelines 
of January 6-7 Asian Oil Ministers meeting in New Delhi.  The 
announcement was made on January 7 by India Petroleum and 
Natural Gas Minister Mani Shanker Aiyar and Iranian Oil 
Minister Bijan Namdar Zanghneh.  The deal has not been 
formally signed and has some ways to go before the various 
elements are concluded.  Some parts of the deal such as 
proposed participation by Indian state-controlled companies 
in Iran's oil and gas sector could be ILSA-sanctionable 
depending on the nature of the participation and how the 
contracts are structured.  The GOI and the Indian oil 
companies, none of which have any significant U.S. interests 
or presence, are well aware of our ILSA concerns.  We will 
continue to raise our concerns with both the Ministry of 
External Affairs and with the oil companies. 
 
Large LNG Deal 
-------------- 
 
¶3.  (U) For India, the most significant and firm element of 
the package deal is the commitment to buy 7.5 million metric 
tons of LNG per year for 25 years beginning in 2009.  The 
state-controlled Indian companies Indian Oil Corporation 
(IOC) and GAIL India Limited will purchase the LNG from the 
National Iranian Gas Export Corporation (NIGEC).  It is not 
clear which Iranian field will supply this gas. 
 
¶4.  (SBU) Much of the delay in reaching the LNG agreement was 
over pricing.  An official of GAIL told Econoff that the 
Indian companies will buy the gas at a price that is capped 
at $3.21 per million british thermal unit (MBTU).  The price 
will be fixed at $2.97 per unit for three years, after which 
it will be allowed to float at a formula that comprises a 
fixed price of $1.2 per unit plus 6.25 percent of the Brent 
crude price.  The Indian companies had resisted the link to 
crude prices but conceded after the maximum allowable Brent 
crude price was fixed at $31 per barrel. 
 
¶5.  (SBU) The India companies are not getting as good a price 
as they have in place for ExxonMobil's RasGas from Qatar. 
The price for this gas is fixed at $2.53 per unit until 2008, 
after which it will be linked to crude in the $16-24 range. 
Nonetheless, GAIL Chairman Proshonto Banerjee said "In the 
present circumstances, it is a good deal." 
A Second LNG Deal 
----------------- 
 
¶6.  (SBU) The two government's also endorsed a December 
agreement between IOC and the Iranian oil company Petropars 
for a 40 percent IOC share in the development of one of the 
blocks in South Pars gas field (Ref A).  IOC would also get 
60 percent stake in a 9 MMTPA LNG liquefaction plant related 
to this development.  The 25-year agreement would provide IOC 
about 4.5 MMTPA of LNG.  Total development costs of this 
project are estimated at $3.2 billion.  GAIL had loudly 
complained about being left out of the deal in December, 
claiming that GOI policy has been to allow Indian 
state-controlled energy companies to invest overseas only in 
a consortium.  GAIL removed its opposition after it was 
brought into the overall package.  The LNG imported in the 
two deals -- the 4.5 MMPTA from South Pars and the 7.5 MMPTA 
(para 2) will be marketed in India by GAIL, IOC, ONGC, and 
Oil India Limited in the 40:25:25:10 proportions. 
 
Other Parts of the Package 
-------------------------- 
 
¶7.  (U) Yadavaran: ONGC Videsh Limited (OVL), the overseas 
arm of the Indian state-run oil exploration company Oil and 
Natural Gas Corporation, will get a 20 percent share in the 
development of Iran's on-shore Yadavaran oil field.  This 
equity stake is equivalent to about 60,000 barrels per day. 
 
¶8.  (U) Jufeyr:  OVL will get a 100 percent stake in the 
Iran's Jufeyr field.  This field is expected to yield 30,000 
per day when developed. 
 
¶9.  (U) Bandar Assaluyeh:  Iran offered IOC participation in 
a petrochemical complex under development at Bandar 
Assaluyeh.  The proposed terms for taking part in the project 
were not disclosed. 
 
¶10.  (U) CNG: GAIL proposed investing in development of CNG 
for Teheran and Esfahan and signed an agreement with the Iran 
Fuel Conservation Organization for cooperation on CNG 
development. 
 
¶11. (SBU) Pipeline:  An Iranian team will visit India in 
February to discuss issues relating to trans-Pakistan gas 
pipeline.  The Indian official who backgrounded the overall 
agreement for the media downplayed the importance of these 
discussions by emphasizing that security of gas supplies 
remained a key issue. 
 
Comment 
------- 
 
¶12.  (C) Although some parts of the deal are merely 
commitments for further discussion, India's agreement to buy 
Iranian gas and invest in Iranian upstream oil and gas 
developments appear to be quite firm.  The deal is huge for 
India -- its 12 MMTPA of LNG represents about half of India's 
current natural gas production.  Together with the 5 MMTPA 
imported from ExxonMobil's RasGas development, India is 
becoming a major player in the Asian LNG markets.  The deal 
represents still further evidence that the Indian oil 
companies, cheered on by the GOI, are vigorously seeking 
properties abroad.  The GOI's goal is to enhance Indian 
energy security.  The oil companies, especially IOC, aspire 
to become international players who can compete with the 
majors. 
 
¶13.  (C) With the GOI's decision to enter into such large and 
long-term LNG purchase agreements, Embassy believes that the 
commerical prospects of an Iran-Pakistan-India gas pipeline 
recede further.  Mani Shanker Aiyar stirred up a flurry of 
excitement about such a project soon after he assumed office 
last summer.  The excitement appears to have abated now as 
conditions -- first MFN, then transit rights through Pakistan 
-- have been appended at the insistence of MEA's Pakistan 
hands.  MEA Joint Secretary Jaishanker told Ambassador that 
he believes, despite Aiyar's enthusiasm, the obstacles to a 
trans-Pakistan pipeline are enormous.  He characterized 
Aiyar's public statements in support of a pipeline as "more 
smoke than fire." 
 
¶14.  (C) Embassy notes that large and expensive projects such 
as a 3,000 kilometer pipeline generally require a private 
sector backer and promoter.  We are not aware that any 
international oil and gas company has shown an interest in 
becoming involved.  Our contacts in the Indian oil and gas 
industry are not enthusiastic, saying that the pipeline is 
probably not economically viable given the extra risk 
management costs involved and the projections of alternative 
sources of supply.  In any case, to our knowledge no serious 
cost-benefit analysis has been done. 
MULFORD