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July 22, 2019

Key issues plaguing India’s natural gas pipeline sector

The Indian government's plans need to be seen with scepticism given some of the issues holding back the development of the country’s natural gas pipeline sector.

By GlobalData Energy

The Indian government is planning to spend around US$10.2 billion on the expansion of a natural gas pipeline network across the country and to promote a gas-based economy.

However, the plan needs to be seen with scepticism given some of the issues holding back the development of the country’s natural gas pipeline sector.

A major prerequisite for increasing natural gas demand is the creation of adequate pipelines infrastructure. Presently natural gas pipelines are not included under the infrastructure sector by the Indian government. Once the pipelines sector attains ‘infrastructural status’, it is entitled to concessions and benefits such as the ability to raise capital on easier terms and for longer tenures from a variety of lenders such as from insurance companies and pension funds. The issues affecting the development of natural gas pipelines have led to low private sector participation.

Indian state-owned companies such as GAIL (India) Ltd (GAIL), Indian Oil Corp Ltd (IOCL), and Oil and Natural Gas Corp Ltd (ONGC) dominate the country’s natural gas pipeline landscape.

Indian gas pipeline industry key players by length (km)*

Source: Midstream Analytics, GlobalData Oil and Gas © GlobalData
* On natural gas pipelines that are currently under operation (active pipelines).

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In India, the unbundling of transportation and the marketing of gas is another major step required to increase private participation and for the development of the pipelines network.

The separation of natural gas transportation and marketing will stop vertically integrated companies gaining an unfair advantage due to their potentially dominant position in the market, provides equal opportunities to all the companies and fosters competition.

Though India has ample potential for natural gas consumption, it is not being translated into reality due to the low availability of gas, inadequate infrastructure and high gas prices for consumers.

Low gas availability and high gas prices, in turn, result in inadequate pipeline capacity use of the available pipelines, affecting operational efficiencies of the pipelines and causes financial duress to pipeline operators.

Another important issue plaguing the pipelines industry is the non-inclusion of natural gas under the Goods and Services Tax (GST) regime. Non-inclusion under the GST regime has led to varying tax rates on natural gas production and related value chain, such as pipelines and retailing in different states. A lower and uniform tax rate on natural gas production, allied infrastructure for transportation and distribution would unlock the growth potential of the natural gas pipelines sector.

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