Not a pipe dream: Govt to set up national gas hub

The proposed gas-trading platform will be similar to international hubs such as Henry Hub (US) & National Balancing Point (UK)

In what could transform the pricing scenario of domestic natural gas in India, the Narendra Modi-led government is to come up with a national gas hub, which would be a trading platform for gas at market-determined price. A final form of this Indian benchmark will be ready within a year. 

If the idea gets cleared, India will also have a gas-trading place similar to international hubs such as the US’ Henry Hub and the UK’s National Balancing Point. While Henry Hub is a physical point where several gas pipelines come together, National Balancing Point is a virtual trading point. 

“We are planning to come up with a national gas hub for pricing determination. It is expected within a year,” said Directorate General of Hydrocarbons Atanu Chakraborty, addressing a KPMG energy conclave in Delhi. 

At present, the Indian domestic natural gas price is calculated on a half-yearly basis, based on a weighted average of Henry Hub, National Balancing Point, Russian gas and Canada’s Alberta Gas. When asked about this, a petroleum ministry official said: “The idea is floating around in its initial stages but as a country, we’ve minimal amount of gas available. Moreover, the country has only three major producers. To set up a hub, we need both active producers and consumers in the market.” 

Currently, gas is bought based on hub pricing in most European countries. The virtual model of gas hub was followed by various countries, including Belgium (Zeebrugge), Netherlands (TTF), France (PEGs), Germany (NCG and GPL) and Italy (PSV). “This is a huge positive for upstream companies in India as prices will be market-driven. Moreover, it seems like the domestic natural gas pricing will be uniform with the move,” said a Mumbai-based analyst. 

Henry Hub works as a distribution hub on the natural gas pipeline system in Erath, Louisiana, owned by Sabine Pipe Line LLC. It needs to be seen whether India will follow the physical model of the US or the virtual model of other countries. “Gas is the way ahead for us and we have a huge consumer base. Our country is set to see $10-15 billion of investment on pipelines, which may cover about 15,000 km,” said Chakraborty. 

India has only 0.8 per cent of the global gas reserves and 0.5 per cent of the global oil reserves. “This is good enough for us to meet the demand for a few years. The problem is with the prospectivity in our policy structure,” Chakraborty added.

Recently, the government had invited bids for auction of 67 discovered small oil & gas fields that were given up by state-owned Oil & Natural Gas Corporation and Oil India. The last date to submit the bids will be November 21. The fields in place have expected reserves of 48 million tonnes of oil and 38 billion cubic metres of gas reserves. India had seen the last exploration licensing round in 2012 March, under the ninth round of New Exploration Licensing Policy (NELP). India has so far awarded 256 blocks in nine NELP rounds.