First major gas sector reform to bring much-needed relief to consumers from high natural gas prices

In a significant reform in the country’s energy sector that will help in reducing the prices of compressed natural gas (CNG) and piped natural gas (PNG) for consumers, the Petroleum and Natural Gas Regulatory Board (PNGRB) has amended regulations governing the tariff mechanism for natural gas transmission pipelines.

Under the new regulations, a uniform tariff of Rs 73.93 per metric million British thermal units (MMBtu) has been announced and the number of tariff zones has been increased to three from two.

The move is expected to boost prime minister Narendra Modi-led-National Democratic Alliance (NDA) government’s plans to increase the share of gas in the energy mix of the world’s third-largest consumer of hydrocarbons to 15 per cent from 6.2 per cent currently by 2030.

Under the three zones created under ‘One Nation, One Grid One Tariff’, the first zone would be up to a distance of 300 km from the gas source, the second zone would be between 300-1200 km and the third zone beyond 1,200 km.

The revised tariff would take effect from April 1.

In a series of tweets shared from his official handle, the minister of petroleum and natural gas, Hardeep Singh Puri said the decision would not only help in achieving a unified gas grid but also help in making gas available to consumers in the country’s northeast and east at substantially reduced tariffs by up to 25 and 50 per cent, respectively. 

 

Responding to his cabinet colleague on the microblogging site, the prime minister termed it a “Noteworthy reform in the energy and natural gas sector.” 

Research firm Morgan Stanley has called it a major reform of the country’s $1.9 billion gas transportation market, covering 21,171km of gas pipelines across the country.

“The move will expand India’s gas penetration, especially in east India, which is far from gas sources, as part of the tariff, transportation costs will reduce by up to one-third. However, it will likely raise the cost of gas transportation for consumers in the west of India,” Morgan Stanley said in a note Friday.

A positive development

India’s national gas grid covers all the interconnected pipeline networks owned and operated by entities, viz. the Indian Oil Corp. Ltd (IOCL), Oil and Natural Gas Corp. (ONGC), GAIL India Ltd, Pipeline Infrastructure Ltd, Gujarat State Petronet Limited (GSPL), Gujarat Gas Ltd (GGL), Reliance Gas Pipelines Ltd, GSPL India Gasnet Ltd and GSPL India Transco Ltd. The national gas grid will keep expanding for a unified tariff as the interconnected network of pipelines grows over time.

These entities would avail tariff as per their entitlement, while customers will pay a unified tariff. The difference between the same will be settled between the pipeline entities for which a settlement mechanism has been notified.

Describing the move as a positive step that was in line with the industry’s expectations, the managing director & CEO of the country’s largest gas exchange, Indian Gas Exchange (IGX), Rajesh Kumar Mediratta, told Business Today, “As a market operator we believe that in the next phase of reforms, we should move to entry-exit tariff, which would further simplify the tariff for end consumers.”

Under the entry-exit mechanism, the tariff is delinked from several physical points of delivery to create a single national market comprising one virtual hub. Most developed economies have moved to the entry-exit tariff mode to provide seamless gas flows across national borders.

Meanwhile, the Cabinet Committee on Economic Affairs (CCEA) is shortly expected to approve the recommendations made by the Kirit Parikh Committee on capping the price for locally produced gas at $6.50 MMBtu.

 

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