LNG regulations drive up costs, defer India's gas economy ambitions

Experts question need for Petroleum & Natural Gas Regulatory Board to mandate registration of LNG import terminals

India’s new regulations for the $15 billion LNG import business couldn’t have come at a worse time for India’s LNG stalwarts like state-run Petronet LNG, Shell, Adan-Total, Indian Oil, and Hindustan Petroleum.

 

For an industry, which, like the software sector, has grown relatively unsupervised for the last two decades, the fresh regulatory oversight adds costs and delays to adding LNG import capacity at a time when imports of the fuel are declining. LNG imports, which account for half of India's gas use, are expected to play a key role in India, which plans to more than double the share of natural gas in the overall energy mix to 15 per cent by 2030.

 

Top industry officials questioned the need for the Petroleum & Natural Gas Regulatory Board (PNGRB) to mandate registration of new, expanding and existing LNG import terminals, which receive chilled and liquefied natural gas, regasify the molecules, and transport the cleaner burning fuel via pipelines to fertiliser plants, city gas units, generators and industries.

 

India’s LNG imports have declined this year because of high global prices after a 15 per cent surge year-on-year (Y-o-Y) in financial year 2024-25 (FY25) to 27.7 million tonnes (mt), oil ministry data showed. Imports in the January-March quarter (Q4FY25) totalled 6.4 mt, 3 per cent lower from 6.6 mt/year a year earlier.

 

Along with a decline in imports, Petronet LNG’s terminal business also suffered — it processed 14 per cent less LNG in its flagship 17.5 mt/yr Dahej processing facility in Gujarat at 189 trillion British thermal units, company data showed. Company Chief Executive Officer (CEO) A K Singh attributed the fall to lower processing because of high spot LNG prices.

 

“Barring Shell and Dahej terminals, nobody is operating at high levels of utilisation,” said Prashant Vasisht, senior vice president at ratings agency ICRA, a Moody’s affiliate. Most operate at less than 30 or 40 per cent utilisation, he added.

 

Amid this mini-crisis brewing in the LNG business, PNGRB, the regulator for oil and gas pipelines, issued a 23-page notification on May 14, listing several rules that developers must follow to build new facilities. The notification mandates disclosure of regasification tariffs, fees to transport LNG by trucks, contracted capacity details, and other commercial matters. 

 

Two industry officials from a state-run oil company and a private sector involved in LNG business said the regulation was “bad” in practice. They questioned the need for a regulation when the business was proceeding smoothly.

 

“Market dynamics will take care of new terminals,” Vasisht said, adding: “Now that most infrastructure is in place, how do you regulate? The LNG sector is not in the initial stages like the city gas business industry.” 

 

Backdoor regulation

 

But PNGRB said that the “regulations lay down a robust framework focused on registration and oversight of LNG terminals, promotion of competition among entities, and prevention of infructuous investments”. India has eight LNG import terminals with a combined capacity of around 53 mt/yr. Ongoing projects include expansion of Dahej by 5 mt/yr by September, and a greenfield LNG import project in Gopalpur on the east coast.

 

PNGRB is trying to coordinate construction of LNG terminals with laying of pipeline infrastructure, so that both are ready at the same time, said IGX CEO Rajesh Mediratta. Hindustan Petroleum’s Chhara LNG terminal, GSPC’s Mundra, Indian Oil’s Ennore, and Petronet LNG’s Kochi were delayed and/or they operate below capacity because of incomplete pipeline networks, according to company data.

 

Industry officials fear that registration of LNG terminals could be a first step towards backdoor regulation of the sector. They are concerned that PNGRB will start interfering with regasification fees, and other charges after it secures such details from all the facilities.

 

But Petronet LNG officials said that PNGRB has no regulatory reach over the LNG business in terms of interfering with tariffs.

 

“There is no regulation. It is a registration process and they have defined the processes in line with the provision of the PNGRB Act passed by Parliament,” Singh said. He added that PNGRB tried registering LNG terminals twice in the past but could not complete the process.

 

The 2007 PNGRB Act, which created the regulator, allows for the registration of LNG terminals. But it has no power to regulate the LNG sector unless the Act is amended by Parliament, industry officials said. A senior government official told Business Standard that there were no plans to amend the Act at the moment.

 

But Petronet must still seek the regulator’s nod for the planned 4 mt/yr Gopalpur LNG import terminal in Odisha, adding to costs and delays, industry officials said. Applicants must furnish a bank guarantee for an amount equivalent to 1 per cent of the estimated project cost of the LNG terminal or ₹25 crore, whichever is less, a PNGRB note said.

 

There are further complications during the registration process. For instance, LNG import facilities typically follow standards set by the Petroleum and Explosives Safety Organization (Peso). But PNGRB’s note said that developers must follow all applicable technical standards, and specifications, including safety standards, as notified by the Board. An official from a state refiner questioned the need for multiple standards.