Interview with L. Mansingh: “We are entering the natural gas era”

The Petroleum and Natural Gas Regulatory Board (PNGRB) played a pivotal role in reforming and shaping the oil and gas regulatory landscape. Bringing in change was, of course, no mean task. As late L. Mansingh, the first chairman of PNGRB, said, “The first regulator always has a difficult time.” In this interview published about a year after PNGRB’s inception, Mansingh talked about the priorities and challenges for PNGRB… 

How has the oil and gas sector progressed over the past 10 years?

Over the past decade, the sector was opened up as part of the reform process – the exploration and production (E&P) segment was opened to the private sector, foreign direct investment (FDI) was allowed and an independent regulator was established. To attract FDI, we needed to provide a level playing field through a regulator. This has been done. When the regulations begin to have their impact, more FDI will flow into the sector, as will improved technology and best practices, thereby improving the Indian energy scenario.

In addition, natural gas has emerged as a major energy source. In the past, the Oil and Natural Gas Corporation was the only producer of natural gas, the administered pricing mechanism was in place, gas availability was low, and gas was mainly supplied to the fertiliser sector as feedstock. In recent years, there have been major gas finds; there is also the facility of importing liquefied natural gas (LNG). We are now entering the era of natural gas, which is an extremely convenient and clean source of energy.

What are the key reasons for the emergence of natural gas as a major source of energy?

It is the inevitable outcome of the reform process. After reforms, India started growing at a very rapid pace, and our aspirations grew along with our confidence. Then, suddenly, India’s hunger for new energy sources intensified and we realised that we had a major energy deficit. That is when people started thinking about national energy security. When the dependence on imports is going up, what do you do? Two things: first, we use the natural gas available in the country, step up E&P activities and set up the necessary infrastructure; and second, find viable energy sources in other countries, considering that the facility to import is there. India has aspirations to become an economic superpower, and this will require higher energy supplies.

What have been the major disappointments in the past 10 years?

A major disappointment is that E&P activities, both domestic and overseas, have not increased as expected. We have not achieved any major success in securing dependable long-term energy sources overseas. In the domestic E&P segment, we need to intensify our efforts in both offshore and onshore areas. Although the government has stepped up efforts and has achieved considerable results, more needs to be done. For the old fields, we need to adopt new technologies and make more investments to squeeze out the last drop of oil. Many isolated fields have not been developed due to the lack of infrastructure to transport gas, and nobody is going to lay pipelines just for isolated fields.

Recently, the government has opened up the isolated fields for private players, who are expected to contribute significantly to natural gas production. With the development of new pipelines, every isolated field is expected to have a pipeline nearby that it can connect to. One area where we need to intensify our efforts is energy efficiency. Although some efforts have been made, these are not enough.

What are your comments on the lack of diversification in energy supply sources?

One of the major renewable sources of energy is hydel power. However, we have been able to harness only 17-18 per cent of our total hydro potential. In wind energy, we have the second highest potential in the world. Although we have emerged as a major manufacturer of wind turbines, much more needs to be done. In solar energy, we haven’t had a breakthrough so far, and the effort has been marginal despite all the central and state schemes and subsidies. Finally, with our nuclear isolation about to end, greater contribution by nuclear power is something that the country can look forward to.

How has been your experience so far as the downstream regulator?

The first regulator always has a difficult time. Although there are constraints, we haven’t faced any major roadblocks. When the regulator’s credibility and effectiveness is accepted by both the government and the industry, things will change dramatically and everybody will begin to root for the independent functioning of the regulator. It takes time for mindsets to change. Though it is a slow process, I don’t envisage any major difficulties.

How has been the response to the CGD regulations? When can the new CGD firms be expected to become operational?

The response to the regulations has been outstanding. Before the bidding process begins, we are trying to resolve the complexities associated with dealing with expressions of interest for cities where there are existing operators. We are now planning to hold open house in each of the cities concerned to get the views of the entities and thereby formulate regulations in a transparent manner.

For cities where there are no existing operators, the bidding can start without further delay. The process is almost automatic and driven by the formula as per the regulations. We expect the whole process to be completed by the end of 2008-09, when gas from the new domestic discoveries will become available.

Distortions are hampering the optimum use of products in the downstream segment. How can this issue be resolved?

These are policy issues, and I have conveyed to the government that it is under the government’s purview, not ours, about whether to subsidise or not, or who to subsidise. It is now universally accepted that subsidies must be direct and focused. We should move away from general subsidisation, particularly since the subsidies are flowing to unintended sections. This movement has started and will accelerate because the government’s capacity to subsidise would become limited due to resource constraints. Hopefully, these distortions will reduce in the near future, though I don’t think that they will completely disappear.

What are your key priorities for the next few years?

Issuing regulations for transmission and distribution of natural gas was our first priority, which has been completed. Our next focus would be transportation of petroleum products through pipelines. The refineries are located in different corners and the products are mainly transported by road. Transportation through pipelines would be more efficient. As of now, without regulations, each company lays parallel pipelines for short distances, which does not lead to optimum utilisation of assets. Through regulations, we aim to change that.

In addition, we want to ensure that international best practices are adopted. We want to have a regulatory framework that does not over-regulate and rather, allows the industry to self-regulate so that the penal provisions in the PNGRB Act do not have to be enforced. At the same time, we want to protect the interest of the consumer. On the one hand, we have to enhance the competitiveness of the sector. On the other, looking at the state of the common man, if CGD is rolled out to cover even 20 per cent of the population, the quality of life for a very large number of people will improve significantly. Moreover, in the context of global warming, we would be reducing environmental pollution to a significant extent.

Based on what you are officially informed by the DGH, what is the supply outlook for gas?

There is a strict requirement that only what the Directorate General of Hydrocarbons (DGH) has approved can be publicly stated. There are some finds that are yet to be certified. So, I would expect that the actual availability of gas in India is more than what has been certified. I have already proposed to the DGH that we should meet regularly and exchange ideas, irrespective of the very rigid procedure for gas certification. We should know in practical terms how much gas would be available in the next 5 to 10 years.

We have two LNG terminals, both of which are more than doubling their capacity, and the third one is ready in Ratnagiri. The fourth terminal will be coming up in Kochi and a fifth has been announced in Mundra in Gujarat. We are planning to give merchant access to these terminals in the future. We expect more and more LNG to come into the country to supplement what is domestically available.

How can the sector work towards making India energy independent?

The viewpoints of the regulator and the government may not necessarily be the same on all issues. If the regulator has to agree with the government on every step, then it is a redundant body. We are supposed to be operating independently. However, all the players – the government, the regulator and the industry – should have the same goal and vision. We are all working to make India an economic superpower and improve the quality of life of its people.

The PNGRB is not one more body that has been created to add to the plethora of regulations that exist but are not yet implemented. We try to have open consultations and involve all the stakeholders, and I would like to put on record that the industry has been very cooperative and its suggestions have enhanced the quality of regulations. When, without any experience or precedent, we have been able to achieve this, I can say with confidence that things are only going to get better.