‘India’s ambition towards building a gas-based economy will need more elaborate policy reforms’

The government has already set a vision to make India a gas-based economy. The goal is to increase the share of gas in the energy mix from the current 6 per cent to 15 per cent in 2030. We have already witnessed a growing demand for natural gas owing to higher availability at reasonable prices, its attribute of being a cleaner fuel, and of course improvement in supply and distribution infrastructure over the years.

This has increased the criticality of indigenous gas markets to give the necessary push to the entire ecosystem by boosting both, domestic production and consumption. In fact, India has recently forayed into gas markets, however, the country’s ambition to develop gas markets towards building a gas-based economy will need more elaborate policy reforms. This would mean bringing in reforms such as adopting more market-based mechanism for the discovery of APM gas prices through gas-to-gas competition within India, bringing the fuel under a nationwide tax, creating a Transmission and System Operator, unbundling of marketing and transmission, etc.

There are several learnings from other mature gas markets that are maintaining a large share of gas in their energy mix. In markets like the US and Europe, gas trading hubs have been pivotal in the expansion of gas industry. Globally, Henry Hub of US and Europe’s National Balancing Point (NBP) and Title Transfer Facility (TTF) are considered benchmark hubs for determining gas pricing. There have been some aspects that have greatly contributed to the success of the respective gas markets that include open access to infrastructure, system operator, market-friendly transport access and tariff among others.

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Building India’s nascent gas market

India has now its own gas exchange, acting as a nationwide, automated trading platform to trade in a delivery-based spot as well as forward contracts and enabling competitive indigenous benchmark gas prices. As of now, only free market or non-APM domestic gas and Regasified Liquefied Natural Gas (RLNG) are allowed to be traded on the exchange.

As India moves towards the path of increasing the share of gas in its energy basket, gas markets will be a catalyst towards this shift. It will provide competitive and transparent pricing, flexibility in procurement coupled with payment security. In fact, pricing determined by the market will lead to greater industrial growth and improve India’s economic competitiveness.

India has already made some progress in addressing the gaps at both the infrastructure and policy level needed to develop the gas markets. We are already witnessing a strong focus on the expansion of the gas pipeline framework in the country. The PNGRB’s recent regulation on uniform transmission tariff and gas exchange regulation, are in the right direction. Further, the PNGRB has also notified access codes for new city gas distributors. This would help city gas distribution companies to transport, distribute and price natural gas in new cities. This is likely to increase gas consumption, thereby, stimulating demand for competitively priced gas which, in turn, increases the importance of gas markets.

However, there is a need for further key enablers to build successful gas markets. These enablers are vital as they help ensure greater competition, better utilisation of pipeline infrastructure, and lower costs for end customers. As a nation, we still have some ground to cover in this direction but there are more changes on the horizon for the industry.

Read Part 2 of this article: What’s relevance of independent system operators, rational transportation tariffs in building gas markets

Rajesh K Mediratta is the Director at Indian Gas Exchange and Director at Strategy & regulatory Affairs, Indian Energy Exchange. Views expressed are the author’s own.