The latest set of measures by the Petroleum and Natural Gas Regulatory Board (PNGRB) to liberalise the natural gas market may be a step in the right direction but its growth will hinge on cost competitiveness and an adequate pipeline network, experts believe.
A high-level expert committee set up by the PNGRB has proposed structural reforms to build a free and competitive domestic gas market, including market-driven pricing and open access.
What did Prashant Vasisht say?
“These reforms have been talked about for many years now that pipeline capacity and marketing should be separate. Marketing should not be done by the owner of the pipeline. Part of this is important but India being price sensitive and due to volatility in prices of LNG, overall growth has been impacted,” said Prashant Vasisht, Senior Vice President and Co-Group Head, Corporate Ratings at Icra.
He highlighted that while these reforms are a welcome step, its growth will ultimately depend on consumers’ buying capacity.
Panel on India’s present gas pricing framework
The country’s present pricing framework is a combination of government-regulated gas, market-linked domestic production and LNG imports, which creates inefficiencies, the panel said in its report.
It also pointed out resale restrictions in regasified LNG (RLNG) contracts, lack of an Independent System Operator (ISO), limited open access to infrastructure, and the absence of contract-path transmission tariffs and location-based taxation as major challenges.
The expert panel also recommended allowing third party open access for such dedicated pipelines laid by CGD entities after the end of exclusivity period. A cost-plus model may be adopted for third-party access, ensuring that the investing entity is adequately compensated for its capital and operational costs, while keeping access charges reasonable, transparent, and nondiscriminatory, the panel said.
“We are ready for a liberalized gas market, gas to gas competition should be there. It will help in more uniform, non discriminatory access,” Vasisht said, however adding that these kinds of reforms take a long time to actually show and growth will happen with time only.
The establishment of a neutral gas pipeline ISO is essential to ensure transparent, efficient, and nondiscriminatory access to India’s gas transmission network, as per the recommendations. It also proposed a unified online platform for real-time pipeline capacity booking, along with a real-time bulletin board integrating SCADA data to publish capacity, flows, maintenance schedules and outages.
“Other monitorable is the lack of network as of now. There are 91 geographical areas that are still not connected to the pipeline network. We also need a single window clearance for actual pipeline laying. There are so many approvals required for laying pipelines which delay the whole process,” Vasisht said.
Natural gas is used in various sectors including power generation, production of fertilizer,converted into compressed natural gas and piped natural gas among others. The government now aims to raise the share of natural gas in the country’s energy basket to 15% by 2030, up from the current 6.2%.
In its report, Vision 2040 – Natural Gas Infrastructure in India, the PNGRB panel led by former chairperson D K Sarraf stressed that a liberalised gas market would improve transparency, encourage private investment, and result in efficient resource allocation.
Such a regime is also expected to address market distortions and attract new investments in exploration, pipelines, LNG terminals and city gas distribution.