The Re-Beginnan | Vol.2 | Issue 31
New ‘Unified’ Tariff Structure for Natural Gas Introduced By PNGRB
What's the deal
Petroleum and Natural Gas Regulatory Board (PNGRB) has introduced a new ‘unified’ tariff structure for 14 natural gas pipelines. The aim of the new tariff structure is to bring down the cost of natural gas for users afar from sources of natural gas and LNG terminals on the west coast of the country.
The new tariff structure is being introduced to reduce the ‘transport’ cost of natural gas from the source to its users, not to reduce the cost of natural gas itself.
What has Changed?
Previously, different amounts were charged for different pipelines if gas had be to transported to a location that involved the usage of multiple pipelines. Under the new unified tariff structure, a fixed tariff will be charged to transport gas within 300 km of distance from a source and a fixed tariff for the transport of gas beyond 300 km on a single pipeline network.
Therefore, buyers using multiple pipelines in GAIL’s network will significantly benefit from this change.
What is the Importance of this Change to the Government?
This showed the government’s intent to boost the consumption of natural gas in the country. Currently, natural gas accounts for 6.2% of India’s energy basket which the government intends to take to 15% by 2030.
Benefits from the Tariff Change
- As natural gas becomes more affordable for users around the country, it will lead to greater investment into gas transmission infrastructure.
- Hinterland entities especially in the northeast will benefit substantially from the new tariff structure, where before transport tariff prices were almost the same as the price of natural gas itself.
Who will be on the Losing End?
- Companies who’ve set up fertilizer units and power plants close to LNG terminals on the west coast with an aim to cut costs. For them, the price of natural gas may rise noticeably. Industry bodies even criticized the new tariff structure when the proposal was rolled out.
- Ministry of Fertilizers indicated that as the cost of fertilizers rises, it will increase the subsidy burden on the government since the cost of natural gas is a pass-through item for the determination of concession rate paid to fertilizer units.
Impact on Pipeline Operators
- Now, transport tariff will be paid to the operator at the exit point of gas by customers. Thus, the exit point operators will have to settle dues with operators of other pipelines used in the transport of the gas.
Closing Note…
Though on a broader level the new tariff structure seems to be beneficial, experts noted that it could lead to legal troubles between customers and pipeline operators as the new regulation will lead to a significant hike in the transport price of gas for customers who may already have agreements with pipeline operators at a cheaper price based on the existing regime.
