India’s gas market shake-up: How a new tariff model could make your bills cheaper

The system, called the entry-exit tariff model, works like this: instead of charging based on distance alone, customers pay separately for where gas enters the pipeline network and where it exits near their facility. This encourages more efficient use of the pipelines. Gas can flow through less busy terminals instead of crowded ones, letting companies choose the cheapest route to move gas, according to experts.

By spreading demand more evenly across the network, the system reduces bottlenecks and wasted capacity, which could help lower costs and make gas prices more competitive for consumers, expertssaid.

PNGRB chairman Anil Kumar Jain said that many advanced gas markets, including Spain, the UK, Germany, and Austria, already use this model.

“We are thinking of starting to work on entry-exit tariff model, which is the ultimate tariff model. Currently, the tariff is decided based on the distance and slabs. In advanced gas economies of the world, they have moved away from this. The tariffs are market-determined. The entry-exit model will drive efficiency," Jain told Mint in an interview.

He added that the regulator aims to establish an “efficient, competitive, and consumer-centric" tariff framework, which would come into effect once the one-nation-one-grid plan is implemented. This would also require the completion of Ennore and Kochi terminal connections and a fully-integrated national pipeline network.

As of March, India had a natural gas pipeline network of 25,429km, while 10,459km was under construction. India has seven LNG terminals, and the overall utilization of these terminals was about 50.50% in FY24, according to data from the regulator.

The regulator is also looking at the international precedents of adopting the entry-exit model of tariffs for gas. Some of the countries that have adopted this model are Spain, the UK, Germany and Austria.

This tariff model was first considered by the regulator a few years back. However, it did not take a concrete shape. With the growth of the national grid over the years and reforms in the oil and gas space, there are plans to revive the proposal to look at the feasibility of this method in India. In an interview to The Economic Times in 2019, the erstwhile PNGRB chairman Dinesh Kumar Sarraf had said that the regulator is considering such as move.

The Indian Gas Exchange had suggested to the regulator in 2020 that unified tariffs and entry-exit tariff model should be considered for implementation in the country.

The exchange had noted that among the two options, entry-exit model is a more efficient option and separate booking of entry and exit capacity will allow users to book capacity without any complication of contractual path.

“This will also enable users to buy and sell gas freely, once having paid the tariff to enter into the system, thus creating the conditions for an efficient gas market," it had said.

It had said that entry-exit is the best model for a route-agnostic and counterparty-independent tariff, and it also helps in multiple other ways, including reducing complexities and bringing in efficiency in the system, increasing utilization of the network. This is also expected to promote trade of the excess gas with users.

In July this year, the regulator brought down the number of unified tariff zones in the country to two, from the earlier three, a move that is expected to increase the accessibility of natural gas across the country and make it more affordable for urban households.

The proposed reforms in the gas sector come in the backdrop of the government’s target to take the share of gas to 15% of India’s energy mix from the current about 7% by 2030.

City gas distributors providing piped natural gas to households and compressed natural gas for vehicles are among the major consumers of gas, besides industries like fertilizer and steel. The country had about 14.2 million domestic PNG connections and 7,513 CNG stations of 31 December 2024.