Easing of LNG distribution and regulation by PNGRB – Has it provided the required momentum?

Easing of LNG distribution and regulation by PNGRB – Has it provided the required momentum?

PNGRB issued a public notice [1] (Notice) on June 2, 2020, which may considerably impact the regulatory and distribution mechanism of LNG in India.

New Delhi: “The June 2, 2020 clarification by PNGRB is an august step in strengthening the Government’s commitment towards reduction of fuel emissions by increasing the share of LNG in India’s energy mix and promote the usage of cleaner fuels in the future.” The Petroleum and Natural Gas Regulatory Board (PNGRB) issued a public notice [1] (Notice) on June 2, 2020, which may considerably impact the regulatory and distribution mechanism of LNG in India. The said Notice intends to shed clarity on the issue of whether LNG can only be marketed or distributed through LNG stations by certain authorized entities which 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), it concluded 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.” This implies that entities holding authorisation to develop City or Local Gas Distribution Networks are not the only ones entitled to distribute and market LNG, and the clarification therefore widens the scope of eligible parties to engage in this business. The demand of LNG has increased substantially in the past few years. Trends of LNG import in India have shown an increase of 18 percent to 33,680 Million Standard Cubic Meter in the Financial Year 2019-2020 [2]. In 2019, the new liberalized fuel retail policy was announced which mandated having at least 5 percent petrol pumps in rural areas. The minimum investment for non-oil companies marketing fuel was also recommended to be reduced from Rs 2,000 crore to Rs 250 crores [3]. This led to the clarification under the Notice, thereby increasing the footprint of LNG companies and encouraging entry of foreign companies like Shell and Aramco in the Indian fuel retail industry. This move was encouraged by Petronet LNG Ltd, which is the largest LNG infrastructure company in India, since it is seeking to develop greater LNG infrastructure on highways where its availability is relatively scarce [4]. Petronet has already sought to expand its LNG infrastructure along the Delhi-Mumbai highway, established LNG operated buses and LNG dispensing terminals in Dahej and Kochi [5]. Furthermore, this also opens the floodgate of opportunities for state-owned fuel retailers and private players, such as Rosneft-backed Nayara, Reliance Industries and BP [6]. As per sources, GAIL is also expected to develop LNG stations along the golden quadrilateral expressway with ExxonMobil and Mitsui. This indicates the willingness of parties to engage in the LNG sector and expand growth opportunities in it. The prospective entities are also expecting the Government to facilitate the participation of more parties to enhance the LNG grid country-wide. The announcement broadening the scope of participation in the LNG sector may also pose challenges. While the regulation in the Compressed Natural Gas (CNG) space is well laid out in the PNGRB Act, further rules may be required for regulating LNG due to a greater range of participants who have now been permitted to conduct business in the sector due to the Notice. 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” [7]. Hence, 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. At the same time, the Notice states that any entity can set up an LNG station provided it follows the PNGRB Act and regulations, which are currently unclear. Hence, there may be a requirement of introducing specific rules and regulations for parties that do not hold authorizations for operating a city or local natural gas distribution network.

Other applicable regulations include the Petroleum and Natural Gas Regulatory Board (Technical Standards and Specifications including Safety Standards for Liquefied Natural Gas Facilities) Regulations, 2018, which have been approved by the PNGRB. It applies to all LNG facilities and relates to the testing, commissioning, operation, maintenance, safety etc of LNG stations. The Petroleum and Natural Gas Regulatory Board (Registration for establishing & operating Liquefied Natural Gas (LNG) terminals) Regulations, 2018, which shall be relevant for a clear registration process for LNG stations and terminals are yet to be notified.

In 2019, the Ministry of Petroleum and Natural Gas had revised the guidelines for authorization to market transportation fuels. Under the revised guidelines, in addition to conventional fuels, the authorized entities are required to install facilities for marketing at least one new generation alternate fuel at their proposed retail outlets within three years of operationalization of the said outlet, which can be LNG. Furthermore, this Notice has come at a time when other initiatives such as the Draft National Auto Policy, 2018 are being introduced by the government to promote greener fuels, thereby indicating the need to ease business in sectors like LNG. In 2019, the GST for Electronic Vehicles was also slashed from 12 percent to 5 percent [8]. Perhaps a similar move in the LNG space will pave the way for its early adoption in the fuel retail business, and make it economically competitive alongside CNG.

PNGRB has said that it governs standalone LNG stations only for licensing and setting up, and not for other functions, whereas it has extensive guidelines for CNG stations [9]. Hence, a uniform regulatory system for setting up stations to distribute or market fuels like CNG and LNG would be desirous and helpful for developing a strong LNG infrastructure. Corresponding rules for LNG, as required under the Notice must be made clear to prospective retailers. Further, expedited introduction or notification of the applicable regulations for the class of entities wishing to set up LNG stations without holding authorizations to set up a city or local distribution network is also essential. This step will also help strengthen the Government’s commitment towards reduction of fuel emissions and increasing the share of gas in India’s energy mix from 6 percent to 15 percent [10], thereby helping our country to tread in the direction of a gas based economy and promote the usage of cleaner fuels in the future.

https://energy.economictimes.indiatimes.com/news/oil-and-gas/easing-of-lng-distribution-and-regulation-by-pngrb-has-it-provided-the-required-momentum/76521527

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