Unified tariff structure

Unified tariff structure

Subject: Economy

Context:Petroleum and Natural Gas Regulatory Board (PNGRB) has brought out amendments in its three regulations namely Natural Gas Pipeline Tariff, Authorisation and Capacity Regulations.

Details:

• To simplify the implementation of unified tariff, entity level Integrated natural gas pipeline tariff has been introduced -which will act as a building block for unified tariff at national level.
•  Further to protect the overall interest of consumers in different regions, the number of unified tariff zones have been increased from two to three.
• In addition, other amendments like allowing unaccounted gas, moratorium period, ramp up in capacity, etc., have been incorporated.
• The objective of these changes is to provide access of natural gas in the far-flung areas at the competitive and affordable rates to achieve the long-cherished objective of one nation one grid and one tariff.

Concept:

Unified tariff structure:

• The Petroleum and Natural Gas Regulatory Board (PNGRB) has notified a new tariff structure for 14 natural gas pipelines
• It aims to reduce the cost of natural gas for users further away from sources of natural gas and LNG terminals on the west coast of the country.
• Under the new unified tariff structure, buyers will be charged a fixed tariff for the transport of gas within 300 kms of a source and a fixed tariff for the transport of gas beyond 300 kms on a single pipeline network.
• Multiple pipeline operators   now have to settle dues among themselves as the consumers will pay the transport tariff to the operator at the exit point of gas and the operators will then have to settle dues with the operators of other pipelines used for the delivery of the natural gas.

Natural gas:

• During the April-October period in FY23, India’s natural gas production rose marginally by 1 per cent Y-o-Y to 19,600 million standard cubic meters (MSCM), while imports declined by 11 per cent Y-o-Y to 16,876 MSCM.
• The major consumers were fertiliser (37 per cent), CGD (20 per cent), power (13 per cent), refinery (5 per cent) and petrochemicals (2 per cent).
• Around half of the country’s gas demand is sourced from KG-D6, Mumbai offshore, Cambay Basin, Ravva Offshore, KG Basin, Cauvery basin, while the remaining is imported as liquefied natural gas (LNG).
  • India, the world’s fourth-largest LNG importer last year, accounting for 7 per cent of global trade.
  • Qatar was the primary source for imports with 42 per cent share, followed by the US (16 per cent) and the UAE (13 per cent).
• The natural gas across the country is supplied through three major pipelines by Gas Authority of India (GAIL), Reliance Gas Transportation Infrastructure (RGTIL)/ Reliance Gas Pipelines (RGPL) and Gujarat State Petronet (GSPL).GAIL  accounts for 70 per cent of the country’s network.

Current Gas Pricing in India :

• Multiple pricing regimes are existing in the country for Natural gas supplies. This could be broadly divided into three categories:
  • Administrative Price Mechanism (APM) Gas
  • Non-APM Gas
  • LNG
• Further, there is differential pricing existing for different sectors.
  • Subsidized sectors such as power and fertilizer get relatively fewer prices as compared to other sectors.
• Also, region-specific pricing exists in the country with North Eastern states getting gas at relatively cheaper prices as compared to other parts of the country.
• Currently, tariffs for transportation of gas are set by the Petroleum and Natural Gas Regulatory Board (PNGRB) separately for each pipeline based on the assumptions of the volume of gas transported on the pipeline and its operating life aimed at providing the operator a pre-tax return of 18%.
• Tariffs for pipeline usage are divided into zones of 300km, with the tariff increasing for zones further away from the point where gas is injected.
• Further, if a buyer needs multiple pipelines even from the same operator, that transport tariff would increase. These tariffs increase the cost for buyers of gas further away from the point of injection of natural gas.
• All of India’s imported natural gas arrives at terminals on the west coast leading to costs for buyers increasing, the further east they are located.