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INTERVIEW: India's gas policy change to widen LNG's reach, draw new investors

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INTERVIEW: India's gas policy change to widen LNG's reach, draw new investors

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Singapore — India's decision to ease rules on setting up LNG stations will help expand the fuel's accessibility as well as attract more private investors as the country nurtures a dream to become a gas-based economy, the head of India's oil and gas regulator told S&P Global Platts in an interview.

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This decision will help to tap in smaller scale and well as commercial transport sector for LNG use, a step towards boosting gas consumption in India where the share of gas in the energy mix is as low as 6%, compared with a global average of close to 25%, said Dinesh Kumar Sarraf, chairperson of India's Petroleum and Natural Gas Regulatory Board.

"The traditional 'LNG premium over gas' has narrowed down significantly. Therefore, India needs to develop this LNG fuel alternative. We have studied and found out that the City Gas Distribution companies are not necessarily the best bet to develop LNG stations. Therefore, we have opened up the LNG sector," Sarraf said.

Earlier this month, PNGRB issued a notice declaring that LNG stations would be excluded from the purview of CGD exclusivity licenses issued for specific geographical areas. Any entity can set up an LNG station in any geographical area or anywhere else, even if it is not the authorized entity for that area.

According to Platts Analytics, the move would benefit integrated players and could also increase the penetration of LNG in the transport sector.

Commenting on how the LNG-based transport sector -- trucks and buses -- would grow after the recent policy decision, Sarraf drew a comparison, saying currently there were 400,000 LNG trucks in China, an indication that the potential can be huge in India.

"The rationale is that gas is cheaper than high-speed diesel. It's more environment friendly too. But on the issue of how many LNG trucks and buses would come on road, how many LNG stations would come up and how much of LNG would be consumed through this route, it would depend how seriously various industries would take this development," Sarraf said.

"But we can already see that some companies have already initiated action on this. The government has always been supportive of gas as a product," he added.

Pipeline tariff structure

Sarraf said that under the existing "cascading pipeline tariff structure" if gas travels through several pipelines, tariff for each pipeline have to be paid. Therefore, gas becomes unaffordable by the time it reaches a customer located at a distance from the gas source.

"We want to address this issue of affordability by rationalization of tariffs. Soon we would initiate industry consultation to decide what's the best way forward. The objective is to keep gas affordable in far flung areas," he added.

Earlier in the week, India launched its first natural gas trading platform, a move which government officials expect will bring more price transparency to the market and aid in boosting consumption of the clean fuel.

The trading exchange for physical delivery of gas was launched by IGX, a wholly owned subsidiary of Indian Energy Exchange, or IEX.

For the first phase of the launch there will be three pricing nodes, with ex-terminal prices at two of India's busiest LNG terminals Dahej and Hazira in Gujarat on the west coast of India along with domestic gas price in Oduru, Andhra Pradesh on the east coast.

"This will give confidence to consumers of natural gas who until now were not able to take a decision on whether to shift from other energy sources to natural gas as they were not sure whether they were getting a transparent price or not," Sarraf said.

India's gas consumption is split between locally produced gas and imported LNG. However, a large portion of the gas which is allowed to be marketed freely is re-gasified LNG. India's domestic gas output falls under the Administered Pricing Mechanism under which it's sold at a price set by the Petroleum Planning and Analysis Cell on a half-yearly basis.

Prices for LNG cargoes delivered to the west coast of India is currently benchmarked against the Platts West India Marker or WIM.

Impact from COVID-19

Sarraf said that the extended countrywide lockdown that India recently witnessed had slowed down pipeline construction activity.

"However, pipeline entities like GAIL and the GSPL consortium can catch up on the lost time. Good news is that many of the pipelines which were stuck-up for years have shown good progress in the recent quarters due to the excellent cooperation from the states and the efforts of the pipeline entities. Notable among them are the Kochi-Mangalore pipeline, the Ennore-Tuticorin pipeline and the Mehsana-Bhatinda pipeline," Sarraf added.

Commenting on the outlook for global LNG prices, he said that we would expect LNG prices to remain soft in the foreseeable future because of the additional capacity that's coming up globally. "This would be good for a country like India which is looking to boost its gas consumption."