Regulation of the Natural Gas Sector in India Prospects & - - PowerPoint PPT Presentation

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

• f 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

Number

Capacity

(mmscmd)

Length

(KM)

a Pipelines prior to

PNGRB

22 431.3 14,790 b New Pipelines

authorised by PNGRB since 2009-10

8 432.0 9, 924 c

Pipelines under EOI route

4 42.4 2,718

T

• tal (a + b + c)

34 905.7 27,432

Size of the Natural Gas Pipeline sector

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%

46.89 29.83 14.81 5.97 0.970.82 0.49 0.23

Gujarat Maharashtra Delhi Uttar Pradesh Assam 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
• tal 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
• vershooting 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

Pipeline connectivity

• Stagnant Domestic gas production
• concentrated gas production
• Lack of adequate demand

Fuel competition

• High Installation Cost vis-à-vis Domestic LPG
• Low oil prices attractive for industrial

consumers

Policy

• Guidelines for setting up CNG stations
• Taxation
• 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 received

5 8 14

GAs with One bid received

1 3 2 6

GAs with Multiple bids received

5 4 7 9 10 14

TOTAL GAs

• ffered

6 7 7 14 20 34

GAs awarded 6 3 6 9 8

Not yet

5 8 14

1 3 2 6

5 4 7 9 10 14

• 10
• 5

5 10 15 20 25 30 35 40 RD 1 RD 2 RD 3 RD 4 RD 5 RD 6

Progress of CGD Bidding since 2008

GAs awarded GAs with Multiple bids received GAs with One bid received GAs with No bid received

How have

• ther

countries done

USA CHINA INDIA

High Pressure pipeline (kilometre) 5,00.000 50, 000 (2012) 15,000 approx.

• No. of Residential

Units accessing gas from CGD network 70

million (95%)

73

million (est) (18%)

0.3

million Residential PNG as %age

• f domestic Demand

35 % 20 % 0.8 % Price of residential PNG vs. industrial

Higher 30 % lower

NA

Some basic Natural Gas facts: USA, China & India

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

How has China Achieved such Growth in PNG ?

 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

National Gas Grid &

Associated

Developments

Growth of Residential gas consumption POLICY –

Government & Regulatory framework

Think about the issues

Than hank you k you