The petroleum and natural gas ministry has begun interministerial consultations on its proposal to end the power sector’s priority access to cheap domestic gas, setting up a gas trading platform and hiving off GAIL’s pipeline business into a subsidiary. It will send the proposals to the Cabinet after the consultation process, which is expected to take a few weeks, said officials.
The ministry has proposed to permit use of cheaper domestic gas by just fertilizer makers, city gas distributors and liquefied petroleum gas (LPG) makers, they said. Power plants and other industries are proposed to be barred from accessing cheap local gas, most of which is priced as per a government-set formula and is cheaper than the imported liquefied natural gas (LNG). The proposal will not initially apply to gas from isolated fields that can’t reach the national pipeline grid.
The aim is to free up some local gas that can then be traded on a proposed trading hub, helping discover market rates for the output, said officials. The power sector and other consumers can buy local gas at market rates. The power sector, the biggest consumer of local gas, is expected to fiercely oppose the proposal that would increase its input cost. The power sector consumes about 31% of the local gas while fertilizer and city gas sectors take about 24% and 22%, respectively. India has 25,000 mw of gas-based plants in a total generation capacity of 3,56,000 mw. Some natural gas is also used to make LPG, primarily used for cooking in India.
Inter-ministerial talks on natural gas sector reforms begin
Setting up a trading platform is necessary for the maturity of local gas market, an official said, adding that it would help discover market rates, increase opportunities for suppliers and boost consumer confidence. The petroleum and natural gas ministry has also proposed that GAIL form a subsidiary to house its pipeline business. The move is aimed at satiating a clamour for level playing field by other gas marketers who have been demanding splitting of GAIL for enhanced third-party access to its pipelines. NITI Aayog and the Department of Investment and Public Asset Management (DIPAM) had suggested sale of GAIL’s pipeline unit to a third party but the ministry did not agree to it.
Without the financial support from its gas marketing business, GAIL would not have been able to build 16,000 km of pipelines that it currently operates, according to GAIL executives and ministry officials. It’s necessary for GAIL to keep both gas marketing and pipelines under one parent until some of the proposed pipelines are executed in the next three-four years, they said.Share This