New unified natural gas pipeline tariff neutral for owners, a mixed bag for distributors 

Gas pipeline

The recently approved unified natural gas pipeline tariff is revenue-neutral for pipeline owners, but for City Gas Distributors (CGDs) and their consumers, it depends on the location and source of supply, industry executives and analysts say.

The Petroleum and Natural Gas Regulatory Board (PNGRB) on March 29 approved a unified natural gas pipeline tariff (UFT) of Rs 73.93 per metric million British thermal unit. The tariff would be effective from April 1.

Mixed bag for CGDs

The immediate impact on cost for City Gas Ds in India would largely depend on the location of their usage and source points of supply.

For instance, the tariff is expected to increase costs for Indraprastha Gas, based in North India, and Gujarat Gas, according to analysts at Emkay Research.

“For consumers, rates will differ as tariff would increase for more local customers while decreasing for far-flung consumers,” analysts at Emkay Research wrote in a note on March 31.

The report said CGDs in Emkay’s coverage universe are likely to see an increase in delivered gas costs, requiring Rs. 1-2/kg  equivalent of the Retail Selling Price of Compressed Natural Gas (CNG) RSP hikes. Gujarat Gas and Indraprastha Gas are the two CGDs in Emkay’s coverage universe.

The analysts noted that the companies had indicated that the change in costs would be passed on to consumers while adjusting for any decline in gas prices that arise.

For Mahanagar Gas, which operates in the western part of the country, no major increase in overall costs is expected.

“For Mahanagar Gas, the impact of the unified pipeline tariff announced on 29th March, overall is expected to be broadly neutral, some places we pay more now and some places less. It is cheaper for those at far-flung places from the source to move gas through the pipelines,” Mahanagar Gas Managing Director Ashu Shinghal told Moneycontrol.

Consumers in eastern and north-eastern India are likely to be major beneficiaries. Petroleum and Natural Gas Minister Hardeep Singh Puri wrote in tweet on March 30. ” I have been informed that Tariff of customers in NE (North Eastern ) region will reduce by 1/4 & tariff of customers in eastern region will be halved.”

Greater choice, higher competitiveness

For pipeline owners like GAIL, the move is expected to be revenue-neutral.

“The unified tariff may make some tariff for some pipelines less lucrative and some more for GAIL, but the overall tariff impact will be largely neutral,” said Anshuman Khanna, director at ValPro and Enablers, a financial services company that also deals with the energy sector.

Analysts at Emkay hold a similar view. “Principally, UFT will be revenue-neutral for pipeline companies, with a settlement mechanism that adjusts for under-over recovery (with minimal GST effect of Rs0.19/mmbtu),” they said in their report.

Mmbtu is short for metric million British thermal unit.

Khanna is hopeful the new tariff would introduce logistics and trading competitiveness in the gas sector.

“We expect the UTP regime to bring greater accessibility for pipeline users and this will push all gas marketers, including GAIL, to become more competitive, as customers would have the choice to bring in gas from any LNG  terminal or from any RLNG marketer,” Khanna said.

LNG is short for Liquified Natural Gas and RLNG for Regassified LNG.

Khanna dded that as far as GAIL’s efforts would be focused even more on procuring and marketing gas at the most competitive rates as opposed to purely relying on the infrastructure advantage.

Pave the way for an entry-exit mechanism

Rajesh K Mediratta, Managing Director and Chief Executive Officer (CEO) of Indian Gas Exchange, hopes this will get the industry closer to an entry-exit mechanism.

“We, as a market operator, believe that in the next phase of reforms, we should move to an entry-exit tariff which would further simplify the tariff for end-consumers,”Mediratta said.

“In entry-exit tariff, the tariff is delinked from the contractual path. This will help create a single national market with one virtual hub, instead of several physical delivery points, as they exist today,” Mediratta told Moneycontrol.