By Suresh P. Manglani, Executive Director, Adani Total Gas Limited
We are living through a truly VUCA world, one defined by volatility, uncertainty, complexity and ambiguity. Over the past year, global energy markets experienced major shocks that tested the resilience of both national economies and corporate strategies alike. For India, a nation which is striving to be self-reliant in all aspects but remains critically dependent on imports to meet its energy demand, the escalation of geopolitical conflicts in West Asia brought unprecedented uncertainty and energy price volatility.
The vulnerability of critical maritime choke points, most notably the Strait of Hormuz, was highlighted during the crisis. The damage to regional production infrastructure and subsequent declarations of force majeure by suppliers triggered global supply-demand imbalances.
Indian consumers faced the triple whammy of physical supply constraints, surging international commodity prices and a depreciating Indian rupee. International indices like Brent crude and spot liquefied natural gas (LNG) rose upward, bringing further anxiety for consumers. Domestically, new well gas (NWG) and spot regasified LNG (RLNG) prices experienced upward trajectories due to their exposure to rising prices.
Government decisiveness and industry resilience
In times of such a crisis, the true strength of a sector lies in a collaborative approach between policymakers, regulators and market players. The Ministry of Petroleum and Natural Gas (MoPNG) and the Petroleum and Natural Gas Regulatory Board (PNGRB) acted swiftly to insulate essential consumption segments. Under the Essential Commodities Act, 1955, the government promulgated the Natural Gas (Supply Regulation) Order, establishing a priority-based allocation framework. This framework prioritised allocation to domestic piped natural gas (DPNG) and compressed natural gas (CNG) for transportation, ensuring that household kitchens and urban mobility remain uninterrupted. Driven by this strong impetus from the MoPNG and PNGRB, all industry entities are aggressively accelerating infrastructure development. With the initial preparation phase now safely behind us, most geographical areas (GAs) are witnessing robust, all-around infrastructure build-out, and demand across both the CNG and PNG segments is steadily building up. Several supportive steps have been taken both by the MoPNG and PNGRB to maximise PNG and CNG reach; a testament to this is the recent PNGRB drive that successfully resulted in the addition of nearly 1.6 million DPNG connections across various GAs.
PNGRB also provided vital liquidity relief by waiving off system imbalance and disciplinary charges for CGD operators. The implementation of a levellised unified tariff earlier this year, designed to harmonise pipeline transport costs for the DPNG and CNG (transport) segments across geographical zones, ensured equitable relief to consumers located in the hinterlands of the country. Additionally, the recent and improved growth-oriented CBG policy – with enhanced incentives for producers and the integration of CBG and CGD networks – will help achieve India’s long-term goal of moving towards self-reliance and reducing energy imports.
From an industry perspective, navigating this volatile landscape required operational flexibility, portfolio diversification and capital prudence. When RLNG allocation for non-priority industrial segments faced curtailments, CGD entities had to innovate rapidly.
While government decisiveness and industry agility cushioned Indian consumers from witnessing the full extent of energy supply constraints, fortifying our energy security and unlocking the next wave of capital investment requires the continuation of systemic and structural reforms, some of which are proposed as follows:
Tax rationalisation and GST integration
The goods and service tax (GST) was adopted in India in 2017, and yet the old regime of value added tax (VAT), that too at different rates, continues for the natural gas sector. This is causing a significant cost impact for end-consumers due to the cascading effect of multiple taxes, besides delaying the government’s vision of “One India, One Market, One Tax” from being achieved.
Therefore, policymakers must look at implementing the GST regime for natural gas to significantly enhance its competitiveness vis-à-vis alternative and polluting solid/liquid fuels. This will also make India a seamless market for the entire natural gas value chain, enabling industry to work towards the government’s vision of increasing the share of natural gas from 6 per cent to 15 per cent in India’s energy basket by 2030.
The central government could also urge state governments to keep VAT on all forms of natural gas (CNG, PNG and LNG) within the cap of 5 per cent. Furthermore, central excise duty on compression of natural gas (to CNG), which is currently considered as deemed manufacturing, should be dispensed with to incentivise consumers opting for cleaner fuel.
Standardised national RoW and unified CGD policy
Physical infrastructure execution often encounters local, on-ground challenges. Building upon the MoPNG’s Uniform National RoW framework, state governments and urban local bodies must institutionalise a standardised CGD policy. Transitioning from a “permit to dig” to an “intimate and dig” framework, instituting a single-window clearance portal with deemed approval timelines, and capping RoW restoration charges will significantly compress project execution cycles and reduce capital lock-up.
Creating a level playing field
Hitherto, the focus has been on developing policies as needed for a particular fuel/energy source, and as different ministries govern these, policies often may not work in tandem. This in some way distorts the level playing field for natural gas compared to alternative fuels, which at times are inferior in terms of carbon emissions, pollution, handling and import dependency. In the long run, to develop a predictable and robust fuel basket, policies should be aligned with the principle of providing a level playing field for all fuels comprehensively.
- Adoption of natural gas by MSMEs: Despite being the backbone of the Indian economy, micro, small and medium enterprises (MSMEs) are subject to varied restrictions on the use of polluting fuels, depending on their location and level of on-ground implementation, resulting in market distortion and the lack of a level playing field across the segment. One of the ways to promote wholehearted acceptance of cleaner fuels is to incentivise voluntary decarbonisation by offering consumption-linked incentives for the adoption of natural gas via the direct benefit transfer model to MSMEs. This would enhance the adoption of PNG by an additional 60-80 million metric standard cubic metres per day, while also creating a level playing field for MSMEs vis-à-vis alternative fuels.
- Comprehensive and merit-based multifuel policy: To provide a stable policy framework for capital providers, consumers, original equipment manufacturers and other stakeholders, India requires a comprehensive fuel policy. One of the dimensions that should be given impetus is the categorisation of various fuels based on life cycle emissions, tailpipe air quality impacts, health externalities, import dependence and any other robust parameters determined by an expert task force. Based on this, fuels can be categorised into three clear regulatory baskets: green fuels such as CBG, green hydrogen and renewable sources of power for electric vehicles (EVs); clean fuels such as CNG, LNG, LPG and conventional power sources for EVs; and the remaining fuels such as petrol, diesel and other pollutant fuels. All fiscal or tax policies must be oriented and aligned with categories of fuel rather than an individual fuel. Later, as we transit towards the implementation of a unified fuel policy, we should bring in awareness about the environmental impacts of fuels by prescribing green, blue and red colour bands at refuelling stations so that consumers know what they are buying and paying for.
Developing a pan-Indian national gas grid, giving every district access to natural gas
Policymakers are already working on enhancing pipeline connectivity to extend reach across the width and breadth of the country. However, at the policy level, we must consider putting in place a bold vision of ensuring access to the natural gas transmission pipeline for every district authorised by the PNGRB, thereby enabling the faster development of last-mile connectivity and the wider supply of PNG and CNG. This will require the government’s support in the form of viability gap funding (VGF). The government has already demonstrated its vision of providing natural gas access to the north-eastern states by developing the Indradhanush Gas Grid with strong VGF. The VGF will be a one-time, generational investment to boost the development of infrastructure for Viksit Bharat and enable access to PNG and CNG for every citizen.
Calibrated sunsetting of LPG
As a result of various government initiatives, a large segment of the population has moved from using polluting cooking fuel to LPG. Currently, there are 330 million LPG consumers in the country, of which nearly 106 million are beneficiaries of the Ujjwala scheme. LPG, however, still relies significantly on imports and has a road transportation-based supply chain for last-mile delivery. As Indian cities grow, citizens expect dramatic improvements in the quality of life, which includes on-tap water, electricity and cooking fuel. PNG aligns well with this expectation and should appropriately be incentivised for urban adoption, while LPG is ideal for distribution in areas with sparse population or where PNG laying is unfeasible (mountains, forest, remote rural pockets, etc.).
CGD entities have also bid for extensive DPNG coverage (about 125 million households), in line with the vision of “Har Ghar PNG”. Hence, the time is apt for a calibrated sunsetting of home LPG connections, starting with metro and high-population urban areas and subsequently extending to other cities across the country.
The choice between crossroads and commitment
Today, the CGD sector is at a critical crossroads. On the one hand, it possesses tremendous growth potential across both the PNG and CNG segments, bolstered by regulatory and governmental support. On the other, the sector is countering a complex web of challenges. These include global geopolitical and supply chain issues and much-needed growth in domestic gas production, which have resulted in the realignment of administered price mechanism gas allocations. To meet demand, there has been an increased reliance on NWG and imported RLNG, which inherently heightens the industry’s exposure to gas price volatility. Furthermore, the sector is operating amid a broader energy transition, witnessing an increasing market share of EVs and growing use of electric cooking appliances.
The global energy landscape will remain complex, but India’s growth story provides an unprecedented opportunity. Natural gas is an ideal bridge for decarbonisation of the transportation and industrial segments. By coupling core CGD expansion with emerging clean energy vectors, such as LNG, CBG, and and e-mobility infrastructure, the CGD sector can drive both decarbonisation and energy independence.
Achieving India’s mid-term and long-term decarbonisation goals will require each and every stakeholder to stop treating natural gas as an option and commit to its adoption. By doing so, India will not only insulate its energy ecosystem from geopolitical turbulence but also lay a firm foundation for a sustainable, resilient and self-reliant Viksit Bharat.
(The views expressed in this article are the personal views of the author.)
