Regulator drops plan to force LNG terminals to reserve share for common use

NEW DELHI: The downstream regulator has scrapped its plan to force LNG terminals to reserve a share of their capacity for common use after industry opposed the move arguing the proposal was premature and would hurt local gas demand.

In March 2018, the Petroleum and Natural Gas Regulatory Board (PNGRB) had published a draft regulation for LNG terminals in the country, requiring them to register with the board, follow certain safety standards and, most contentiously, offer some common carrier capacity.

The draft mandated an LNG terminal to “offer at all times, after registration, 20% of its short term (less than five years contract) uncommitted regasification capacity or 0.5 million metric tonnes per annum (MMTPA), whichever is higher, as common carrier capacity.”


Uncommitted capacity means the part which is net of the entity’s own and contractual requirement. “We will bring regulation only to the extent of registration and safety,” PNGRB chairman DK Sarraf told ET, adding the proposal on common carrier capacity has been dropped.

“We would like to support LNG terminals by keeping them away from regulatory burdens until they are fully established and their capacity utilisation goes beyond a level where some regulation becomes necessary to protect consumer interest,” he said.

The draft provoked strong reaction from industry players, who felt proposed rules could upset the economics of LNG terminals as they may have to make additional investment for the capacity that will have to be reserved for common use. This would mean either longer payback period or higher toll for customers that could hurt demand for gas. “Industry told us that they respected the consumer protection intent of the regulator but it was unnecessary at this point in time,” Sarraf said. “They said so many new terminals were coming up that there will be a lot of capacity in the country, and utilisation will be low for a long time. Therefore, capacity will anyway be available to every customer. But a new regulation will place unnecessary financial burden on LNG terminals, they said.”

India has added about 10 million tonnes a year LNG regasification capacity in the past six months to about 37 million tonnes now. This is expected to rise to 50 million tonnes a year by 2022. The capacity explosion and the government’s aim to push up gas usage in India’s primary energy mix to 15% from 6% had triggered temptation to regulate LNG terminals.