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INTERVIEW: India seeks to plug energy gap through gas reforms, transition fuels

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INTERVIEW: India seeks to plug energy gap through gas reforms, transition fuels

Highlights

India studying feedback on unified pipeline tariffs

Aiming to provide third parties access to CGD network

Gas demand inching closer to pre-pandemic levels

Singapore — India will move swiftly to introduce more gas policy reforms to boost the fuel's share in the energy mix, while finding ways to incentivize production of fuels like hydrogen in its efforts to prepare for the energy transition process, the head of the country's oil and gas regulator PNGRB told S&P Global Platts in an interview.

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Dinesh Kumar Sarraf, chairperson of the Petroleum and Natural Gas Regulatory Board, said the agency was working on examining the feedback from stakeholders on introducing a unified gas pipeline tariff structure, one of the most closely watched gas reform initiatives pursued by New Delhi.

"We have got a lot of feedback on various issues relating to the unified gas pipeline tariffs that we have proposed. We are evaluating the feedback, including some legal issues that stakeholders have raised. Depending on how the legal feedback is, we will decide whether to implement it now or defer it for some time," Sarraf said.

Under the existing "cascading pipeline tariff structure", if gas travels through several pipelines, tariff for each pipeline has to be paid. Therefore, gas becomes relatively more expensive by the time it reaches a customer located at a distance from the gas source.

To amend that policy, the PNGRB recently published a draft proposing unified tariff for the national gas grid system in India, which, if approved, would move away from the current distance-based zonal tariffs to a unified tariff rate applied across major pipelines in India.

The new tariff structure would be beneficial for buyers away from the gas source as they would be paying lesser tariffs compared to what they paid previously. The buyers further away from the gas source would be cross subsidized by end-users closer to the gas sources since the tariff paid by them would increase, PNGRB notice showed.

The Tariff Equation

Based on the data for the Indian financial year 2019-20 (April-March), the unified pipeline tariff would be Rupees 56.84/MMBtu, or 77 cents/MMBtu, PNGRB calculations showed.

Buyers in key gas consuming states of Gujarat, Maharashtra and New Delhi would end up paying higher transportation costs than before.

The highest transportation tariff currently on major pipelines such as Gujarat State Petronet Ltd's (GSPL) High pressure grid, integrated Hazira-Vijaipur-Jagdishpur (HVJ) pipeline and Dahej-Uran-Dabhol pipeline is Rupees 34.86/MMBtu, Rupees 49.64/MMBtu and Rupees 39.85/MMBtu, respectively.

However, the unified pipeline tariff would benefit producers of domestic gas on the east coast of the country as it would be more economical to transport gas from the Krishna Godavari basin to the West coast of the country through the PIL East-West pipeline.

In another policy reform, the PNGRB has also proposed a policy change under which city gas distribution, or CGD, companies would have to provide third-party companies access to their infrastructure to supply gas.

The PNGRB has sought comments from stakeholders on how the tariff for the third-party users using the pipeline network of the city gas distribution companies should be decided.

"The idea is when the market exclusivity period for CGD companies ends in five years, third parties can come in and use the same infrastructure. We have completed the public consultation on this issue and will issue the final regulations within one month," Sarraf said.

Sarraf said India's gas demand was recovering at a decent pace as the country was gradually opening up after a series of lockdowns, adding that he expected demand to bounce back to pre-pandemic levels by December. "LNG prices have picked up, which shows that gas demand is recovering globally," he said.

However, he added that domestic pipeline construction activity had not picked up as there was a shortage of workers in some areas.

Hydrogen-based Fuel

Sarraf said that India would be looking at rolling out a road map for transition fuels, such as hydrogen, and provide incentives to attract private sector investment in its efforts to embrace the energy transition process.

"A lot of research is already happening on hydrogen. Our industry has started mixing hydrogen with gas so that the end product is cleaner. I think hydrogen-spiked compressed natural gas, or H-CNG, has the potential to become a key fuel. But the ultimate aim is to make hydrogen a standalone fuel. The government will look to provide more incentives along the way," Sarraf said.

State-run Indian Oil Corp. earlier in October, launched its reformer plant that will produce H-CNG, a fuel Indian energy policy makers are betting can play a major role in the transport sector in the coming years.

To produce H-CNG, the entire CNG of a station will pass through this new reforming unit, where some methane gets converted into hydrogen, with the outlet product having 17%-18% hydrogen.

IOC officials said emission levels would come down for vehicles using H-CNG as a fuel. The oil ministry has also launched a trial run of buses that will run using H-CNG as fuel.