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Gas exchange will be operational this year itself, says regulatory board chief
The Chairperson of the Petroleum and Natural Gas Regulatory Board (PNGRB), Dinesh Kumar Sarraf, is confident that the country’s natural gas exchange will become operational in 2020 itself. “We have made substantial progress on the gas trading hub,” he told BusinessLine in an interview. On natural gas prices, Sarraf said that they are expected to remain soft due to abundance of supply. Excerpts:
What is the status of the natural gas trading hub?
Crisil has been appointed for recommending the structure of the trading hub, including drafting the regulations required for operationalising the hub. We would now need to initiate the process of issuance of the regulations, including consultation with the stakeholders. We will initiate this process once we have the government approval on creation of the natural gas trading hub. Before this, the government also appointed another consultant — KPMG — for recommending the pre-requisites and enablers as well as the way forward for establishing the gas hub.
It would be operational during 2020 itself.
Is the gas infrascturcture here well developed?
We have 16,800 km of operational natural gas pipelines and another 14,000 km under various stages of construction, in addition to some under bidding. In the next few years, we should have about 35,000 km of gas pipelines. Most of the existing cross-country gas pipelines are well connected to form the natural gas grid.
We require many more gas pipelines to continue strengthening the gas grid given the size of our country. It is not necessary that the grid has to be completed before the gas trading hub is created, as development of the grid is a continuous process, which is a function of creation of further demand. In fact, once the gas exchange starts functioning, it would create more gas demand and thereby further push for more pipeline to come…as I said, it’s a continuous process.
What role will PNGRB play in the gas hub?
We are focussing on how to increase gas consumption in the country through strengthening of infrastructure and bringing more transparency in the gas markets; the creation of a gas trading hub is an important step towards that.
From a regulatory stand point, PNGRB’s role in the gas exchange is likely to be akin to Securities and Exchange Board of India’s role vis-a-vis the stock exchanges, or the role of the Central Electricity Regulatory Commission (CERC) in the case of power exchanges. In essence, PNGRB’s responsibility would be to regulate the gas exchange to ensure its smooth and transparent working for establishing a transparent and vibrant gas market.
Will there be separate gas exchange companies similar to the power exchanges in the country?
Yes, there would be some companies which would operate the gas exchange like in the securities and power markets. These companies would be authorised to operate the gas exchange. PNGRB’s role would be to monitor and regulate the working of the exchange. On price, the function of the exchange would be discovery of natural gas price.
What is your outlook for natural gas availability and price?
Presently, the prices of natural gas are low; today, the gas price in the US market is at its 4-year low. Prices of LNG are also ruling quite low — the LNG spot market is around $4.5 per million British thermal units (mBtu). The projections for the LNG prices even in the mid-term to long-term are on the softer side.
LNG is expected to be available in plenty as new LNG liquefaction plants are coming up.
The demand side is expected to be softer as China has constructed new gas pipelines across its Russian borders, reducing its demand in the LNG market.
On the other hand, crude prices are expected to remain either at the current levels or increase slightly. Because of these two things, comparatively speaking, gas has been and would remain cheaper as compared to crude oil.
This opens up an excellent opportunity to the consumers to migrate to the use of natural gas from the liquids. In addition, the country could save on foreign exchange. Besides gas is more environment friendly. On the policy front, lower gas prices provide a window to the government to deregulate gas prices.
What is the progress on setting up ‘city gas distribution (CGD) geographical areas’?
During the financial year 2018-19, we authorised 136 GAs (geographical areas) under the 9th and 10th bid rounds in addition to 16 other GAs of previous rounds and those of GAIL under Section 42 of the PNGRB Act. In total, we have presently 227 GAs spread over more than 400 districts. With this, about 71 per cent of Indian population and 53 per cent of the geographical area are covered by the CGD authorisations. Construction of physical infrastructure would be spread over eight years, but the time has already started ticking.
How many compressed natural gas (CNG) stations would be completed in 2020 itself?
The entities which were awarded geographical areas in the 9th and 10th rounds have already started commissioning CNG stations. The industry has committed to complete 8,181 CNG stations in 8 years in the 9th and 10th rounds. Of these, about 1,500 should be completed in the financial year 2020-21 itself.
More CNG stations are also coming up in the GAs awarded prior to the 9th round. Based on the industry’s commitment, we expect the number of CNG stations to go up from 1,900 in December 2019 to about 3,500 by March 2021.
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