In order to ensure abundant availability of natural gas at affordable prices, the government has introduced various policies and measures to increase its share of the fuel in the country’s primary energy mix from present level of about 6 per cent to 15 per cent by 2030. This plan is part of a broader strategy to diversify energy sources and cut down dependence on fossil fuels.
Yet, a critical challenge in boosting the share of natural gas in the energy economy lies in the removal of certain policy bottlenecks and opening up to make it more competitive, particularly with respect to current framework for the fuel’s transportation. At present, pipeline owners also act as operators, controlling not just the infrastructure but also access to it. This dual role leads to conflict of interest that undermines fair competition and transparency within the sector. Addressing this structural issue is essential for ensuring the success of India’s energy transition. The establishment of an Independent Gas System Operator (IGSO) offers a viable solution, as it would create a level-playing field for all market participants. By separating ownership from operation, an IGSO could significantly enhance the efficiency, transparency, and reliability of gas delivery, contributing to a more robust and equitable energy market and, thereby, enhancing gas contribution in the primary energy mix.
Pipeline operations
India’s natural gas infrastructure is extensive, with pipeline network criss-crossing the country, ensuring gas can be delivered from sellers to buyers. However, the process of accessing these pipelines is far from straightforward. Unlike in other matured and developed gas markets of the world, the same entities that own the pipelines also manage their transportation and marketing operations which has led to issues like delayed responses, selective approvals and lack of transparency in how capacity is allocated. For instance, while pipeline operators may quickly approve capacity request for their own trade, they can delay or even deny access to third parties, citing technical reasons or taking more than the required time to respond.
In addition to delayed responses, there is often a lack of clarity around penalties and capacity overflows. When third-party users exceed their booked capacity, they may face penalties that are not uniformly applied across the board. For the pipeline owners’ transactions, these penalties are often waived or reduced, adding another layer of complexity. This lack of transparency creates an uneven playing field, where neither third-party participants nor regulators have full visibility on capacity allocation or the methodology behind levy of imbalance charges.
An independent Transmission System Operator (TSO) can address these issues by acting as a neutral party responsible for the allocation and management of pipeline capacity. The TSO model has been successfully implemented and accepted globally, where it has reduced conflicts of interest and ensured a fairer distribution of resources. In the Indian context, a TSO would offer the following advantages:
Ensure non-discriminatory access: An independent GSO would guarantee that all market participants have equal access to the pipeline network, whether they own pipelines or not. This would prevent pipeline owners from giving preferential treatment to their transactions and ensure that the market operates on the principle of equity.
Increase transparency: The GSO would provide clear, real-time information about capacity availability, bookings, and penalties by separating pipeline ownership from operations. This approach would also streamline operations. Capacity seekers would benefit from a single-window, one-click system to book capacities across multiple pipelines, eliminating the need to approach each individual pipeline owner along their route. This would significantly simplify the process and improve overall efficiency for market participants.
Simplify contracts and reduce conflicts: In the current system, some pipeline operators bundle gas sales and transportation contracts which can make it difficult for third-party sellers to compete.
With an independent TSO in place, these contracts would be separated, making it easier for different market players to participate. One contract would cover the purchase of gas while a separate contract would govern its transportation. This separation would reduce conflicts and ensure that the rules of the market are applied uniformly.
Improve efficiency: Currently, delays in accessing pipeline capacity can slow down the trading process, affecting the timely delivery of gas. An independent TSO would help avoid bottlenecks and ensure that gas reaches its destination on time by managing the flow of gas across all pipelines in a coordinated way.
Level-playing field: Pipeline imbalances are not treated equally between contract and common carrier, giving advantage to pipeline owners. An independent TSO would treat all imbalances equally and would ensure a level-playing field.
Hub operations: System operators can also operate specially designed physical hubs for creating liquidity at few area/points.
The path forward
India’s natural gas sector needs to move towards a more transparent and equitable system for pipeline access. An independent TSO could be the key to solving many of the current challenges, from discriminatory practices to delays and lack of transparency. The government is said to be already considering establishing an independent GSO, in line with Grid India, the electricity system operator. When implemented, this move would be a significant step towards ensuring seamless availability of pipeline capacity for carrying natural gas and reducing carbon footprint in the economy. An independent GSO would help make India’s natural gas market more competitive, efficient, and reliable as it would remove conflicts of interest and ensure that pipeline capacity is managed fairly and transparently.
This shift would also align with India’s broader goal of increasing the share of gas in energy mix.
The writer was former CMD of Petronet LNG and former Director, HR, ONGC