GAIL's New Integrated Natural Gas Pipeline Tariff Hiked By 45%

GAIL Is All Set To Enforce A Tariff Of INR 58.61/Mmbtu On Its Integrated Natural Gas Pipeline

The integrated pipeline tariff by GAIL (India) Ltd. has been surged by 45%, which is planned to come into effect by April 1, 2023.

The tariff on the integrated natural gas pipeline was launched to offer natural gas access in remote locations at cheaper and more competitive rates.

The tax on India's GAIL's integrated natural gas pipeline would be INR 58.61 per metric million British thermal units (MMBtu), as stated on March 22 by Petroleum and Natural Gas Regulatory Board (PNGRB).

This followed after PNGRB's proposal earlier during the month for a hike of 41 percent for the state-owned gas distribution company that settled at INR 60.92/mmbtu.

The regulator of the oil sector later held an open house session asking stakeholders to provide feedback concerning GAIL'S unified pipeline tariff.

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As per the analysts, the long-awaited hike will help boost the finances of GAIL as well as give rise to the natural gas sector investments.

GAIL revised its integrated pipeline tariff to INR 68.55 per mmBtu. But, the oil and gas regulator considered the downward price of high pressure/temperature and arrived at INR 58.61 per mmBtu tariff. The city gas distribution firms gave their opinions to the regulator as well, viewing the influence of increased tax on end users.

The integrated tax at INR 58.61 per mmBtu, is more suitable compared to the estimated expectation of INR 55 per mmBtu in contrast to INR 68.55 per mmBtu that GAIL filed, as per the managing director of brokerage house KRChoksey Holdings Pvt., Deven Choksey.

A cut-down of about INR 5.8/mmBtu took place as PNGRB considered lower gas price, whilst INR 1–1.5/mmBtu slice-down was on capex, volume divisor as well as pay correction, as stated by Choksey.

The Union government aimed to raise the contribution of natural gas to the complete energy mix in India from the present 9% to 15% by 2030.

India's natural gas industry has witnessed steady growth with the growing focus of the government on raising the natural gas share in the energy mix. The hiked tariffs are anticipated to improve the sector's investments and will probably propel the natural gas industry's growth in India.

GAIL is among the most significant companies that operate in natural gas processing and distribution in India, with a pipeline network spread across thousands of kilometres all over the country.

GAIL's shares settled higher by 0.38%, as opposed to the 0.24% boost in the benchmark Sensex.

GAIL's 10 pipelines viewed under the integrated pipeline tax are:

• Hazira-Vijaipur-Jagdishpur-GREP-Dahej-Vijaipur 
• DVPL-GREP capacity augmentation 
• Dahej-Uran-Panvel-Dhabol 
• Dabhol-Bengaluru 
• Chhainsa-Jhajjar-Hissar 
• Dadri-Bawana-Nangal 
• Jagdishpur-Haldia-Bokaro-Dhamra 
• Baroda Sub Network (Gujarat Natural Gas Pipeline Network)
• Uran Thal Usar Sub Network (Mumbai Regional Network) 
• Trombay Sub Network (Mumbai Regional Network)

The Hike’s Impact

The increase in GAIL's tariffs for its pipelines can have positive as well as adverse impacts, based on the location. Whilst a few might gain an edge due to the rise, others might experience losses, as per managing director Ashu Shinghal, Mahanagar Gas Ltd (MGL).

If the increase gets passed on, it might lead to an INR 1/kg rise in the prices of CNG, according to Shinghal.

As per Pinakin Parekh, JPMorgan India, the hike had a positive impact on GAIL since it can lead to better revenues and profits.

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According to the above-mentioned Procurement Resource article, GAIL, that is a major leader in natural gas processing and distribution in India with a wide-spread network, has enforced a tariff of INR 58.61/Mmbtu on Its Integrated Natural Gas Pipeline, which is 45 percent higher when compared to the latest rate. The following change will take effect on April 1st. The reason behind the tax was to make natural gas available in remote locations at a less expensive and more competitive price.

Although GAIL revised its integrated pipeline tariff to INR 68.55 per mmBtu earlier, it was settled at INR 58.61 per mmBtu as the oil and gas regulator considered the downward price of high pressure/temperature. Furthermore, the Union government raised the natural gas contribution for the complete energy mix from 9% to 15% by 2030.

All in all, it can be observed that India's natural gas sector has grown significantly at a stable rate as the government focuses on raising the natural gas share in the energy mix and the high tax is expected to enhance the industry investments whilst propelling the sector's development in Inda. The impact of the hike has been expected to improve revenues and profits.