Regulator Proposes Major Overhaul in Gas Pipeline Tariffs

In a move aimed at reducing costs for consumers and boosting investments in the gas sector, the Petroleum and Natural Gas Regulatory Board (PNGRB) has floated a public consultation document proposing significant changes to the tariffs for gas pipelines across India. This initiative targets city gas entities providing Compressed Natural Gas (CNG) and Piped Natural Gas (PNG), with plans to charge them at the lowest rates irrespective of their distance from gas sources.

Background: The Need for Change

Traditionally, pipeline tariffs have been structured based on the distance from the gas source, resulting in higher costs for consumers farther away. This system has been a significant deterrent to the widespread adoption of natural gas as a fuel, especially in regions distant from gas fields or import terminals. Recognizing these challenges, the PNGRB introduced a unified tariff structure in November 2020, which was implemented from April 1, 2023. However, the new proposal seeks to further simplify and reduce costs by reducing the number of tariff zones from three to two and ensuring that CNG and PNG-domestic users receive the benefits of the lowest tariff zone nationwide[1][2][3].

Key Proposals and Their Impact

Simplification of Tariff Zones

• Unified Tariff: The new framework aims to reduce the number of tariff zones from three to two.
• Lower Tariffs for Key Users: City gas entities selling CNG and PNG to households will be charged at the lowest rate, equivalent to Zone 1 tariff, regardless of their location[1][3].

Benefits to Consumers and Industry

• Cost Savings: This will significantly reduce costs for city gas entities that are far from gas sources, making natural gas more competitive with liquid fuels[1][3].
• Increased Gas Consumption: Lower costs are expected to drive up demand for CNG and PNG, benefiting major stakeholders like city gas distributors and consumers[1][3].
• Infrastructure Development: The proposals also include incentives for isolated network operators to develop infrastructure in remote areas, which will help tap isolated gas reserves and expand gas networks[1][3].
• Long-term Procurement Policy: The regulator is also considering a policy for long-term procurement of system use gas (SUG) by pipeline operators to stabilize operations[1].

Economic Impact and Projections

• Growth Targets: India aims to achieve 120 million PNG connections and 17,500 CNG stations by 2030. As of December 2024, there were 14 million PNG domestic connections and 7,395 CNG stations[3].
• Market Analysis: Kotak Institutional Equities predicts that this move will particularly benefit entities operating in hinterland areas like Indraprastha Gas Limited (IGL), while its impact on Mahanagar Gas Limited (MGL) and GAIL will be minimal or marginally positive[3].

How the New System Works

Under the current system, pipelines are divided into three zones based on distance from the source:

• Zone 1: Up to 300 km
• Zone 2: From 300 km to 1,200 km
• Zone 3: More than 1,200 km

In the proposed system:

• Zone 1: 66.17% of the unified tariff
• Zone Boundary Users: 100% of the unified tariff

However, CNG and PNG-domestic users will be charged Zone 1 tariff rates across the board, regardless of location[1][3].

Policy and Regulation Changes

• Incentivization of Isolated Pipelines: The regulator aims to incentivize operators of isolated pipelines, promoting the development of gas infrastructure in remote areas[1].
• Volume Benefits Distribution: The proposal includes a plan for equal distribution of benefits from volumes beyond the normative threshold between consumers and pipeline operators[1].

Conclusion

The proposed changes in gas pipeline tariffs are part of a broader effort to enhance the competitiveness of natural gas against other fuels and expand its use across India, particularly in the automotive and domestic sectors. By simplifying tariff structures and reducing costs for critical sectors, the PNGRB is paving the way for increased investments in the gas infrastructure and aligning the sector with national energy policy goals.

Future of Natural Gas in India

With these changes, India is positioning itself to increase its reliance on natural gas, a cleaner energy source that can help reduce the country's carbon footprint and dependence on imported fuels. The focus on developing infrastructure and expanding access to remote areas will be crucial in making natural gas a viable option for both domestic and commercial users.

Key Points to Consider:

• Regulatory Framework: The PNGRB's proposals are aimed at streamlining and reducing transmission costs for natural gas.
• Market Expansion: Lower tariffs for CNG and PNG are expected to boost demand and drive market growth.
• Infrastructure Development: Incentives are included to promote investment in remote areas.

Challenges Ahead

Despite these positive developments, challenges remain, particularly in ensuring the timely implementation of these proposals and maintaining investor confidence in the sector. However, with a clear roadmap and regulatory support, the natural gas sector in India is poised for significant growth and transformation.

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