Regulator proposes tweak in pipeline tariffs; CNG and piped gas to be charged lowest rate

In a significant change to regulations, oil and gas regulator PNGRB has proposed a new policy of how tariffs for pipelines carrying gas to users will be determined, and proposed charging city gas entities selling CNG and piped cooking gas to households at the lowest rates. The Petroleum and Natural Gas Regulatory Board (PNGRB) has floated a public consultation document for changing the zonal tariffs levied on pipelines that carry natural gas from fields producing it or from import ports, to users such as power plants that make electricity from it, or fertiliser units that manufacture urea from it, or city gas entities that turn it into CNG for sale to automobiles and pipe it to household kitchens for cooking purposes.

"In yet another far-reaching reform for bringing investments and to increase the gas consumption especially in CNG and domestic piped natural gas (one used in household kitchens for cooking) in the country, PNGRB has brought a proposal for reducing the price of piped natural gas used by domestic consumers and in transport," the regulator said.

A public consultation document (PCD) has been webhosted for seeking comments from stakeholders on various aspects of tariff regulations like reducing the unified tariff zones to two from three, levying zone one unified tariff to all the CNG and piped natural gas (PNG)-domestic customers, it said.

PNGRB regulates the transmission tariffs for natural gas pipelines and these are fixed to provide a 12 per cent normative return on capital employed. These tariffs, traditionally, were apportioned along the length of the pipeline and increased as one travelled further from the gas source. This resulted in higher tariffs for consumers located at a longer distance from the source.

To resolve the distance-related dislocation in the pricing of natural gas, a unified tariff for all consumers connected to the natural gas grid was proposed in November 2020 and implemented from April 1, 2023.

Against the practice of every incremental 300 km of pipeline from the gas injection point being classified as the successive zone with successively higher tariffs, PNGRB divided the entire length into three zones -- up to 300 km, from 300 km to 1,200 km, and more than 1,200 km, with tariffs of 52.5 per cent of unified tariff for Zone 1 and 75 per cent for Zone 2.

In the new system that it now proposes, 66.17 per cent of the unified tariff will be charged for first tariff zone and the 100 per cent for users on either size of the zone-1.

However, CNG and PNG-Domestic users anywhere in the country and irrespective of the distance from the source, will be charged zone-1 tariff. This would help cut costs for city gas entitled that are away from the gas source.

"This is expected to make natural gas even more competitive to liquid fuels," PNGRB said.

"The proposals also include incentivising the isolated network operators/ pipelines, equal distribution of benefit of volumes beyond the normative threshold with the consumers and pipeline operators and usage of such benefits by pipeline operators for creation of pipeline infrastructure, policy for long term procurement of system use gas (SUG) by the pipeline operators, etc."

The proposal, it said, will boost investments in the gas infrastructure specially in isolated and remote areas, which will tap the isolated gas.

The amendments will also help in the development of CNG and PNG-Domestic connections in far-flung areas and benefit major stakeholders like city gas sector, transmission operator, consumers in far-flung areas and will boost the investment in the gas infrastructure, it said.

PNGRB has authorised entities to lay pipelines and distribute piped natural gas and set up CNG stations. PNGRB has authorised whole of India except islands for the purpose of development of gas pipelines in the country.

As per Minimum Work Programme for which commitments have been taken from these entities, the country will have 120 million PNG (domestic) connections and 17,500 CNG stations by 2030.

As on December 2024, India has 7,395 CNG stations and 14 million PNG domestic connections.

The future growth in gas consumption is mainly expected to be in the city gas distribution (CGD) sector with a compund annual growth rate (CAGR) of 10 per cent by 2030 and 2040.

Earlier in 2020 and 2022, PNGRB brought various amendments to boost investment and gas consumption in far-flung areas. Prior to that, pipeline tariffs rose with distance especially from gasfields in eastern and western offshore as well as LNG receiving terminals mainly along the western coast.

In 2023, it implemented the Unified Tariff (UFT) system to standardise natural gas transportation charges across India's expanding national gas grid.

Unified tariffs are calculated using a levelised approach, considering factors like transportation costs and distance. The levelised unified tariff for the 2023-24 fiscal year was set at Rs 73.93 per million British thermal units, with zonal tariffs apportioned as Rs 39.45 per mmBtu for Zone-1, Rs 74.97 per mmBtu for Zone-2, and Rs 99.90 per mmBtu for Zone-3.