Comprehensive report on India's Natural Gas Distribution and Pricing at the office. Discussed key insights on distribution networks, pricing mechanisms, and the latest developments in our nation's energy sector. 📊🇮🇳 #EnergyReport #NaturalGas #IndiaEnerg

1. Natural gas - Distribution and Pricing
1. Background
In 1960s gas fields were discovered in Assam & Gujrat. With discovery of South Basin
fields by ONGC in 1970 natural gas assumed Importance in India. Earlier exploration
activities in India were carried out by the National oil Companies i.e. ONGC and Oil
India under nomination regime. Later private companies where allowed to enter into
exploration through JV with National oil companies (NOCs) under Pre-NELP regime.
Subsequently, 100% foreign participation in exploration was allowed in the current
NELP regime.
At present the share of natural gas in India in its primary energy mix is 6.5%.This is
fairly low, compared to the global average of 24%. GOI has set the target to increase
this share to 15% by 2030.
2. Gas Distribution Process:
a) Natural gas available in India can broadly be classified into two categories:
(i) Domestic Natural Gas and
(ii) Imported Re-gasified Liquefied Natural Gas (R-LNG)
A statement showing sector-wise supplies between April-Dec.’2016 of natural gas
is given in table below.
Sector Domestic
(MMSCMD)
R-LNG
(MMSCMD)
Total
(MMSCMD)
Fertilizers 22.04 20.51 42.55
Power 24.73 7.44 32.17
City Gas Distribution 11.55 8.12 19.67
Sponge Iron/
Petrochemical/Refineries/Internal
Consumption/LPG
Shrinkage/Miscellaneous
10.99 34.21 45.20
Total 69.31 70.28 139.59
* Million Metric Standard Cubic Meter per Day (MMSCMD)
As shown in the above figure half of the natural gas requirement in India is fulfilled by
importing the gas from other countries, which costs around $7.5 per MMBTU as compare
to Domestic natural Gas which costs at $3.06 per MMBTU. India is fourth largest gas
importer in the world. India’s Natural gas deficit is primarily due to low domestic
production and an inadequate transmission and distribution Infrastructure
b) Natural Gas Infrastructure in India:
(i) Natural Gas Pipelines:
At present, India is having about 16470 Km long Natural Gas pipeline network in
operation out of which around 11000 km gas pipeline is owned by GAIL and
around 14500 KM long pipeline is under development.

2. The spread of pipeline network of different transporter/ Distributor is given as
under:
Sr.NO Transporter/Distributor Length in KMs % Share
1. GAIL 11092 67.34%
2. RGTIL 1784 10.83%
3. GSPL 2613 15.87%
4. AGCL/OIL/DNPL 817 4.96%
5. IOCL 140 0.85%
6. ONGC 24 0.15%
Total 16470 100%
(ii) R-LNG terminals:
An LNG terminal is a facility for re-gasifyng the liquefied natural gas (LNG) shipped
in by LNG tanker from the production zones. At present, 4 LNG terminals with total
regasification capacity of 26.3 MMTPA are operational on the western coast of the
country.
(iii) City Gas Distribution (CGD) Infrastructure:
City gas distribution (CGD) sector offers a way to improve the availability of
natural gas to the industrial, domestic and commercial segments of a region. CGD
sector has two distinct segments – Compressed Natural Gas (CNG)
predominantly used as auto-fuel, and Piped Natural Gas (PNG) used in in
domestic, commercial and Industrial segments .At present, there are 31 CGD
entities which are developing and operating in 81 Geographical Areas in 20
states/UTs.
Following are the major players in the CGD area:
• Indraprastha Gas Limited
• Mahanagar Gas Limited (MGL)
• Gail Gas Limited (wholly owned subsidiary of GAIL (India))
• Gujarat State Petronet Ltd.
• Adani Gas Limited
• Central U.P. Gas Limited
City Gas Distribution network is regulated by Petroleum and Natural Gas Regulatory
Board (PNGRB). PNGBR was established by Ministry of Petroleum & Natural Gas
(MoPNG) in 2007 under the PNGRB Act 2006 to have conducive regulatory environment
for CGD network development, PNGRB grants the authorizations to interested entities
through a competitive bid selection process for laying a CGD network (PNG network) in
a specified Geographical Area (GA) of the country.
Currently the CGD segment constitutes 15 percent of the total gas consumption in India
and is expected to reach a share of 20 percent by FY20.

3. ONGC & Oil India are the major producer of Domestic natural gas in India about 80% of
natural gas is produces by ONGC and Oil India and rest 20% is produced by JVs and
private companies.
Distribution of Gas is done mainly by GAIL as around 11000 KM gas pipeline out of 16000
KM is operated and maintained by GAIL.
3. Gas Pricing Mechanism
To meet with the challenges of low Investment in domestic gas exploration and low
domestic gas production and to minimize the dependency on expensive import of LNG
from different countries, Govt of India has time to time introduced different Gas pricing
regimes to make the Domestic Gas exploration and Production an attractive investment
option for National and International Investors and Companies.
Before November 2014, all the market prices for gas in India are regulated i.e. wellhead,
wholesale and retail. There were multiple gas pricing regimes in India. These can be
divided into the following:
a) Administered Pricing Mechanism (APM)
APM Gas Pricing: The price of APM gas was set by the Government principally on a
cost-plus basis. This mechanism covers the initial gas fields which was allotted on
nomination basis to National oil companies i.e. ONGC and Oil India. In Past,
Government has revised the APM prices from time to time basic on different factors
and recommendation by different committees. APM Gas pricing has continued till
November 2014 before the implementation of New gas pricing policy.
b) Non- Administered Pricing Mechanism:
Further Non-APM gas is divided into two categories:
(i) Price of Imported LNG: Petronet LNG Limited (PLL) was incorporated on 2 April
1998 to import LNG and to sell the same in the domestic market The prices of LNG
Gas
Exploration
and
Production
Imported Liquefied
Natural Gas (R-LNG)
R-LNG terminals-
Dhabola, Kochi, Hazira
Domestic Natural Gas-
ONGC, Oil India, RIL,
Cairn
Natural gas Pipeline-
Gail, RIL etc
Fertilizer industry
Power plants
City Gas Distribution

4. imported under Long term contract from countries like Qatar is governed by the Sale
& Purchase agreements (SPA) between the LNG seller and LNG Buyer and the Spot
cargos are purchased on mutually agreeable commercial terms.
(ii) Domestic gas pricing: -
• Pricing of Pre-NELP Gas: IN 1991 certain blocks were discovered by National
oil companies (NOCs) which was auctioned under a Production Sharing
Contract (PSC) to Private sector E&P companies to overcome the funding
constraints. Gas prices are determined on the basic of formula specified in the
PSC. All the gas produced is sold to GAIL which was nominated by the
Government at the time of bidding for the Pre NELP fields.
• Pricing of Gas under NELP: In 1997, Govt of India announced the New
Exploration Licensing policy (NELP) which provided level playing field to both
private and public sector in upstream petroleum sector. Under this price of gas
is determined on the basis of arm’s length prices (Market prices), subject to the
government approval, and is controlled by production sharing contract (PSC)
terms. It was introduced to boost the private investment in the domestic gas
exploration. The pricing was valid till November 2014. After this, a new pricing
mechanism come into force.
c) New Domestic Natural Gas Pricing Guidelines
In effort to incentivizing domestic gas exploration and production, Govt of India has
introduced the New domestic natural gas pricing formula in November 2014.
In the new formula the weighted average of price in USA, Canada, Russia and Europe
is taken for price indexation. The formula is as mentioned below:
P =
VHH∗PHH+VAC∗PAC+VNBP∗PNBP+VR∗PR
VHH+VAC+NVBP+VR
Where,
• VHH = Total annual volume of natural gas consumed in USA and Mexico.
• VAC = Total annual volume of natural gas consumed in Canada.
• VNBP = Total annual volume of natural gas consumed in EU and FSU, excluding Russia
• VR = Total annual volume of natural gas consumed in Russia.
• PHH and PNBP are the annual average of daily prices at Henry Hub (HH) and National Balancing
Point (NBP) less the transportation and treatment charges.
• PAC and PR are the annual average of monthly prices at Alberta Hub and Russia respectively less
the transportation and treatment charges.
Note:
The periodicity of price determination/notification shall be half yearly. The price and

5. volume data used for calculation of applicable price shall be the trailing four quarter
data with one quarter lag. The price would be determined on the basis of price
prevailing between July 1, 2016, and June 30, 2017. This price would come into effect
from November 1, 2017, and would be valid till March 31, 2018. Thereafter, it would be
revised for the period April 1, 2018, to September 30, 2018, on the basis of prices
prevalent between January 1, 2017, and December 31, 2017, i.e. with the lag of a quarter
and so on.
A statement showing the revision of Gas price after the implementation of the New
Gas pricing formula
Sr.NO Time Period Price (MMBTU)
1. Nov 14 – March 15 $5.05
2. April 15 – Sept 15 $4.66
3. Oct 15 – March 16 $3.82
4. April 16 – Sept 16 $3.06
5. Oct 16 – March 17 $2.50
6. April 17 – Sept 17 $2.48
7. October 17 – March 18 $2.89
8. April 18 – Sept 18 $3.06
*Note Domestic Natural gas Price ($/million metric British thermal unit)
Observation and Comment:
5.05
4.66
3.82
3.06
2.5 2.48
2.89 3.06
0
1
2
3
4
5
6
Nov 14 –
March 15
April 15 –
Sept 15
Oct 15 –
March 16
April 16 –
Sept 16
Oct 16 –
March 17
April 17 –
Sept 17
October 17
– March 18
April 18 –
Sept 18
PRICE
IN
$
PER
MMBTU
PERIOD
Gas Price Trend in India
Price Trend Line

6. In an effort to make Upstream investment attractive and to meet the huge unmet demand
of gas at reasonable cost, Govt has introduced the New gas pricing policy. However, since
that decision was made, global oil and gas prices have fallen significantly, impacting the
attractiveness of the upstream sector to potential investors. Domestic gas prices have
now fallen below the average cost of production for many companies, say ONGC and Oil
India Limited, which have an average cost of production of $3.59 per MMBTU. These
producers and others have been hit hard by the price decline, which will adversely impact
new gas development projects.
4. Gas Exchange and Trading Hub
In July 2017, when Domestic natural gas price has fallen to $2.48 MMBTU, Oil Minister
Mr Dharmendar Pradhan has announced in annual World Petroleum Congress (WPG)
that India is Building the Gas Trading hub. In December of same year Ministry of
petroleum and natural gas (MoPNG) has designated the Oil Industry Development Board
(OIDB) to engage a consultant for carrying out the detailed study on the current state of
Indian gas sector, government priorities and to recommend further course of action for
establishment of a Gas Trading Hub or Exchange in the country. OIDB submits its report
in MOPNG in February 2018. March 2018, it is announced that PNGRB is set to take up
the role of market regulatory for the natural gas trading hub. 28th march, PNGRB issues
the tender for hiring the consultant to help develop a regulatory framework for operating
the Gas trading hub. May 29 2018, PNGRB appoints Crisil to assist the regulatory and
government in framing rules for the exchange and it is expected to be functional by
October 2018.
Author: Date: 2018
Ashish Goel