Govt mulls tweak in gas distribution norms to benefit small producers

The Ministry of Petroleum and Natural Gas is in talks with the Petroleum and Natural Gas Regulatory Board, the downstream regulator, to bring in changes in the city gas distribution (CGD) norms that give priority to these entities for locally produced gas.
 
According to norms, if a natural gas producing block comes under the new CGD geographical area, gas from that block should be given to the CGD operator.
 
The government is of the view this may hurt small producers under the discovered small fields (DSF) and also coal bed methane producers. The new open acreage licensing policy (OALP) is already offering them liberalised terms, including marketing and pricing freedom with lower taxes.

 

The CGD business model is based on the supply of cheap domestic gas — comprising piped natural gas for the household sector and compressed natural gas for the transport sector.
 
In the current gas allocation policy regime, city gas has the priority in the allocation of cheap domestic gas, followed by the fertiliser sector. In February this year, a committee chaired by NITI Aayog Vice-Chairman Rajiv Kumar had reportedly recommended withdrawal of gas supply at concessional rates to compressed natural gas users and proposed direct subsidy to only domestic kitchens. The panel was reportedly of the view that the CGD networks may not be subsidised as even the market price-based gas would be cheaper compared to diesel or other fuel substitutes.

 
“If those companies are being given gas on priority, less than the market rate, new producers may not be able to survive. Hence, we are seeking a change in the CGD guidelines,” said a source.  With the completion of the tenth round, CGD would be available in 228 geographical areas, comprising 402 districts spread over 27 states and union territories, covering approximately 70 per cent of India’s population and 53 per cent of its geographical area too. This was compared to 11 per cent of India’s geographical area and only 19 per cent of its population covered put together the first eight rounds.

 
The ninth and tenth round of CGD is expected to see investment of around Rs 1.2 trillion in the next 10 years. An exploration industry official told Business Standard that both DSF and coal bed methane producers are entitled to supply to CGD players, if they are offering at par with the market rates based on current rules. “In case of any such disputes, the Directorate General of Hydrocarbons (DGH) will form a three-member committee that will be entitled to solve it,” he said.
 
The main reason why India is pushing for gas is its environment-friendly tag, to meet the country’s COP21 commitments on carbon emissions. It is also cheaper than liquid fuels such as petrol and diesel. There have been more lucrative discoveries in natural gas in recent years.

 
During the second round of DSF bidding in March, 14 companies were shortlisted for award in 23 contract areas, of which eight were new entrants in the exploration sector.