The Petroleum and Natural Gas Regulatory Board (PNGRB) has issued a clarification notice on June 2, 2020 that widens the scope of parties which are eligible to engage in the marketing or distribution of LNG other than certain authorised entities, which already have permission for developing a city or local gas distribution network. On examining various provisions of the Petroleum and Natural Gas Regulatory Board Act, 2006 (PNGRB Act), the notice says that “any entity can set up an LNG Station in any Geographical Area (GA) or anywhere else, even if it is not the authorized entity for that GA.” Therefore, the entities holding authorisation to develop city or local gas distribution networks are not the only ones entitled to distribute and market LNG. The notice reinforces government’s commitment towards reduction of fuel emissions by increasing the share of liquefied natural gas (LNG) in India’s energy mix and promoting the usage of cleaner fuels.
The clarification has resolved the long standing regulatory confusion over LNG stations and is expected to help companies such as Shell or Petronet, which do not own city gas licenses but are keen on marketing LNG for transport, launch their own dispensing stations. Besides, the regulatory clarity is also expected to increase opportunities for state fuel retailers as well as private retailers such as Rosneft-backed Nayara and the joint venture of Reliance Industries and BP India, Reliance BP Mobility Limited.
The increased scope of participation in the LNG sector is, however, subject to some challenges. While the regulation in the compressed natural gas (CNG) space is well laid out in the PNGRB Act, further rules may be required to regulate LNG due to a new set of participants who are now permitted to conduct business in the sector. The PNGRB Act contains provisions for registration by an entity and penalties for running terminals without such registration. The Petroleum and Natural Gas Regulatory Board (Commissioning and Gas Charging in Steel Pipelines for City or Local Natural Gas Distribution Networks) Guidelines, 2016 (Guidelines) are also applicable in case of LNG. However, the applicability of these guidelines is for an entity “which is laying, building, operating or expanding or which proposes to lay, build, operate or expand a city or local natural gas distribution network”. Therefore, the entities which do not have permission to develop a city or local natural gas distribution network desirous of engaging in the LNG business are technically excluded from the purview of these guidelines. Hence, there may be a requirement of introducing specific rules and regulations for parties that do not hold authorisations for operating a city or local natural gas distribution network.
In March 2018, the PNGRB had also published a draft regulation for LNG terminals in the country, requiring them to register with the board, follow certain safety standards and offer some common carrier capacity. The draft had mandated an LNG terminal to “offer at all times, after registration, 20 per cent of its short term (less than five years contract) uncommitted regasification capacity or 0.5 million metric tonnes per annum (MMTPA), whichever is higher, as common carrier capacity.” Uncommitted capacity means the part which is net of the entity’s own and contractual requirement. However, later in March 2019, the board decided to drop its plan to force LNG terminals to reserve share for common use. The draft had incited strong reaction from industry players, as it had direct impact on the economics of LNG terminals involving need for additional investment and longer payback period.
The demand of LNG has increased substantially in the past few years, witnessing an increase of 18 per cent in 2019-20. Therefore, these recent regulatory developments can be well attributed to the increased demand of LNG, coupled with the government’s aim to push up gas usage in India’s primary energy mix to 15 per cent.