KOLKATA (miningweekly.com) – Indian government-owned natural gas importer and infrastructure provider GAIL India has agreed, in principle, to unbundle its gas marketing and pipeline operational business, but only after a domestic gas trading hub has been established and a trading market has developed to an optimal level.
While the government has announced its decision to set up a domestic gas trading hub, the configuration and model of such a hub is yet to be finalised. GAIL has pointed out that in countries where monopoly companies have been unbundled, natural gas constituted more than 15% of the energy mix, while in India, it is a shade below 6%.
The Petroleum and Natural Gas Ministry has already laid down that unbundling of GAIL’s operation and ending its monopoly in gas transportation will be a precursor to the setting up of the trading hub that will offer market players open access to a pipeline network.
However, GAIL has taken the position that any unbundling of its operation and hiving off of its pipeline business has to follow domestic gas trading reaching optimal volumes and maturity.
GAIL chairperson and MD B C Tripathi pointed out that the organisation is the only company in the country that has constructed a gas pipeline network in the past ten years, while other private companies, despite having approvals to do the same, had not done so.
He also said that as far as access to transportation by third parties went, GAIL had opened up 11 400 km of its network for third parties to use it as a common carrier.
Though not yet an officially stated position, GAIL’s concern over gas market development, according to sources, stemmed from the fact that the configuration of the proposed trading hub – a physical hub along the lines of the Henry Hub, in the US or a virtual trading platform like National Balancing Point, in the UK – was yet to be decided by the Petroleum and Natural Gas Ministry.
As reported by Mining Weekly Online earlier, the Ministry is expected to send its team to visit trading hubs in various parts of the world, including the similar hub model that might be adopted by China, before proposing a model suitable for India.
It has been pointed out that a physical trading hub necessarily includes a network of physical pipelines converging at various points serving as a transit point for buyers and sellers, distributors and storage operators.
If such a model is adopted, the challenge will be that southern India is not yet connected to any existing natural gas grid. Considering that no other investor has yet constructed a gas pipeline project over the past ten years, it will be incumbent on GAIL to continue with its pipeline business to extend its network across the country to facilitate development of a physical trading hub instead of hiving off the business vertical.