A $4.5 billion new pipeline, projected to bring 1.1 billion standard cubic feet of gas a day to India, will be doubling the country’s gas imports and bringing much-needed energy to the country. But, will India have the infrastructure to handle this additional input?
The ultra-deepwater natural gas pipeline will run across the Arabian Sea, from Iran to India’s west coast. Known as the SAGE pipeline (for South Asia Gas Enterprises Ltd., the Indian company leading the project) or the Middle East to India Deepwater Pipeline (MEIDP), the trans-Arabian pipeline will be one of the longest and deepest oil or gas pipelines ever built, running for 1,400km (870 miles) at depths of more than 3km underwater.
Gas grid expansion faces challenges
India's existing gas pipeline network is estimated at about 15,000km, with GAIL owning 10,700km and Gujarat State Petronet Ltd and Reliance Gas Transportation Infrastructure Ltd (RGTIL) operating the rest. It can transmit 350 million metric standard cubic metres per day (mmscmd) of gas.
In his budget for 2014-15, finance minister Arun Jaitley proposed that the government will set up additional gas transport infrastructure under the public-private-partnership mode. The enhanced grid will promote the usage of gas, both domestic and imported, reducing dependence on one source of energy, he said. The national gas grid project envisages the creation of a gas pipeline network about 28,000km in length by 2017 which will obviously play an instrumental role in spreading the gas network to the entire country.
But, there seem to be a number of serious challenges ahead.
While industry experts agree that building a national gas grid is important, developers have been shelving plans because it was has not been economically viable due to an extreme shortage of domestic gas. Hopefully this will change now that the SAGE pipeline will bring in more gas.
The gas shortage has been one of the biggest challenges faced by the country’s sector because the declining domestic production of gas is occurring at a time when demand is increasing as a result of its dynamic economic growth and modernization. India is the third-largest economy on a purchasing power parity basis and has the world's second-largest population, according to World Bank data.
The inadequate gas supply (due to costly imports and lack of cheaper domestic gas) has had an adverse impact on the capacity utilisation of the existing pipelines as well as on the plans for future pipeline projects.Currently the network is being utilised at 45-50% of its capacity.
Regulatory issues are another challenge for grid expansion plans. Projects have been stalled or delayed due to various regulatory issues relating to land acquisition and receipt of environmental clearances. These delays often lead to an increase in the cost of laying the pipeline.
Moreover, various stakeholders have been questioning the process of awarding gas pipelines by gas distribution regulator, Petroleum and Natural Gas Regulatory Board (PNGRB).
Uneven tariff structures are also in question. Until 2010, India had traditionally followed a uniform tariff system for all consumers drawing natural gas from a pipeline irrespective of their location with respect to the source of natural gas. However, PNGRB subsequently stipulated a switch to a zonal tariff system, which provides for incremental tariff after every 300km. The tariff keeps rising at the next zone, increasing the further one moves away from the source towards the destination.
According to analysts, the zonal tariff system is expected to lead to the skewed development of the gas market. The states nearer to gas fields will continue to utilise the resource at lower tariff rates and prices, while the landlocked and underdeveloped states will have to face gas shortages and inadequate gas-based infrastructural development.
A senior official at state-run GAIL India, which owns 71% of the gas transmission infrastructure, said a wider pipeline network is important to supply gas across the country, but that there is an urgent need to bring clarity on pricing and availability issues of the fuel.
Timely implementation of infrastructure
Other than the aforementioned issues, fast-tracking the development of the gas import and distribution infrastructure is also a key step for pipeline project development. PNGRB also needs to take steps to ensure that market participants deliver on time when it comes to their pipeline commissioning schedules.
The new pipeline will no doubt witness high growth in the country’s transmission segment in the near future.
In order to ensure the timely implementation of the expansion plans of all the market players, there is a pressing need to deal efficiently with the various challenges that may prevent the sector’s efficient growth. It can be fair to say that the success of the government’s ambitious pipeline infrastructure development plan depends on its effective implementation and on strict regulatory vigilance.
India has three to four years to expand its gas transmission infrastructure-the time it will take to build the subsea pipeline from Iran. Whilst expanding infrastructure, the country should also look at developing its own balance of energy mixes in in order to secure its power supply and reduce import costs. India is certainly not short of natural energy resources.