Regulation of the Natural Gas Sector in India Prospects & Challenges Dr Basudev Mohanty Member, PNGRB
What are the Economic Principles of Regulation ? Stability Predictability Accountability Focus Coherence Adaptability Efficiency Source: “principles of Economic Regulation”: Dept. for Business Innovation & Skills (BIS) Govt. of U.K.
Globally, Government & independent Energy Regulator have distinct supervisory roles. Govt. a key stakeholder in the sector – managing conflict of interest Regulatory Authority provides an independent and transparent process of regulation.
The Petroleum and Natural Gas Regulatory Board Act , 2006: Preamble (i) Regulate downstream oil and gas sector (ii) Protect the interests of consumers and entities (iii) Ensure uninterrupted and adequate supply of petroleum and natural gas in all parts of the country. (iv) Promote competitive markets. (v) Safety
Can the Natural Gas Sector Justify Regulation ? Competitive segments ( 1 ) (Prodn. & Marketing) and Non- competitive segments (2 ) (Pipeline and CGD ) co-exist in the Gas Supply Chain . Both (1) and (2) to be regulated differently Two most important aspects to be regulated: Determination of transportation rates/tariff Access to pipeline/CGD infrastructure
Natural Gas Pipelines Development Challenges
Size of the Natural Gas Pipeline sector Number Capacity Length (mmscmd) (KM) a Pipelines prior to 22 431.3 14,790 PNGRB b New Pipelines 8 432.0 9, 924 authorised by PNGRB since 2009-10 Pipelines under EOI 4 42.4 2,718 route c T otal (a + b + c) 34 905.7 27,432
Insignificant Growth in Laying pipeline due to multiplicity of factors Stagnant/declining domestic gas production High LNG price not afforded by Fertiliser and Power sectors. Lack of threshold demand. ROU (right of Use) problems in States
City Gas Distribution (CGD) in India Development Challenges
Profile of CGD in the country (June 2015) 26 companies in 64 Geographical areas in 16 states . Around 30 lakh households connected with PNG against a target of 41 lakh – But, the distribution is very skewed – Gujarat, Maharashtra and Delhi account for 92% 5.97 0.970.82 0.49 0.23 Gujarat 14.81 Maharashtra Delhi 46.89 Uttar Pradesh Assam 29.83 Haryana Tripura Others
Profile of CGD in the country contd …… Residential PNG is just 6.5% of CGD sales in Quarter ending March 2015 (transport = 42%, industrial = 49%) ◦ Pipeline infrastructure of nearly 40,000 Inch-Kms laid against a target of 43000. T otal gas sold by CGD in 2014-15 was 16.6 Mmscmd
PNG Landscape looks bumpy, uneven and, in some places, barren Laying of pipelines by and large good, sometimes overshooting the targets In contrast, PNG connections as % of population falling far short of targets, which themselves are kept reasonably low Even the two oldest and the most experienced CGD operators have not been able to register the desired growth. Between 2006-2009, PNG connections was only 4% of populations. No recognisable progress since 2010
Reasons for slow and differentiated growth of CGD in the country • Stagnant Domestic gas production • concentrated gas production Pipeline • Lack of adequate demand connectivity • High Installation Cost vis-à-vis Domestic LPG • Low oil prices attractive for industrial Fuel consumers competition • Guidelines for setting up CNG stations • Taxation Policy • Regulatory uncertainty
GAs offered for bidding and awarded in different Rounds since 2008 RD 1 RD 2 RD 3 RD 4 RD 5 RD 6 GAs with No bid 0 0 0 5 8 14 received GAs with One bid 1 3 0 0 2 6 received GAs with Multiple 5 4 7 9 10 14 bids received TOTAL GAs 6 7 7 14 20 34 offered Not GAs awarded 6 3 6 9 8 yet
Progress of CGD Bidding since 2008 40 GAs awarded 35 30 14 25 GAs with Multiple bids 20 received 6 10 15 10 9 GAs with One 2 14 bid received 4 5 8 5 7 5 3 1 0 RD 1 RD 2 RD 3 RD 4 RD 5 RD 6 GAs with No -5 bid received -10
How have other countries done
Some basic Natural Gas facts: USA, China & India USA CHINA INDIA High Pressure 5,00.000 50, 000 15,000 pipeline (kilometre) (2012) approx. No. of Residential 70 73 0.3 Units accessing gas million million (est) million (95%) (18%) from CGD network Residential PNG as %age 35 % 20 % 0.8 % of domestic Demand Price of residential Higher 30 % lower NA PNG vs. industrial
How has China Achieved such Growth in PNG ? According to the Government policy in China , there are (i) subsidy on LNG trucks (ii) Zero VAT on gas used in transport (iii) Favorable oil-gas price differential, and (iv) Rapid growth of NG refuelling stations. PNG price is 30% lower than industrial gas price, which is 9% lower than transport CNG price
India’s Natural gas sector development as of now can be compared with that in USA in 1980s and Europe in late1990s. The period from 1980s to 1992 in USA are similar to the problems being faced by PNGRB. Similar regulatory challenges exist in South East Asian Countries, viz. Indonesia Malaysia, Thailand and Philippines. There is general agreement on the following : Gas pipelines and CGD are non-competitive whereas others are competitive .
When there is no pipeline-to-pipeline competition, Transportation Tariff and Access to Third Parties must be regulated . Third party Access (TPA) is key to ushering in Competition and Growth. What ever be the approach to determination of pipeline tariff, it must relate to costs.
The CGD Market with Bundled & unbundled Services, but with Third Party Access Experience of USA Gas Merchant services vs. Transportation services . In the past, LDCs offered bundled gas and distribution services. But, this changed after the FERC Rules on unbundling of pipeline services came in 1992 . More and more CGD unbundling taking place to compete against pipelines. Pipeline and CGD operators compete for large volume industrial customers In 2012, bundled gas services accounted for: 88% of all residential customers 56 % commercial customers 17% industrial customers
Issues and Challenges Growth of National Gas POLICY – Residential Grid & Government & Associated gas Regulatory framework Developments consumption
Think about the issues Than hank you k you
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