1111thth energy Summit energy SummitIndian oil and gas SectorIndian oil and gas Sector

New Delhi, 17New Delhi, 17thth October, 2008 October, 2008organized byorganized by

ASSOCHEMASSOCHEMDiscussion onDiscussion on

Regulatory issues in mid stream sectorRegulatory issues in mid stream sectorbyby

BS NegiBS NegiMemberMember

Petroleum and natural gas regulatory board, IndiaPetroleum and natural gas regulatory board, India

ContentsContents

• Oil and Gas- mid stream• Petroleum and Natural Gas Regulatory Board

(PNGRB)• Pipeline network in India• Common carrier versus Contract carrier • Role of PNGRB in management of pipelines in

the country • Government Policy- Pipeline and City Gas

Distribution projects• Regulations related to Pipeline systems

Oil and gas – mid streamOil and gas – mid stream

• Pipeline transportationCrude oil pipelines to refineriesPetroleum product pipelines- refineries or

ports to terminalsNatural gas transportation pipelines

Petroleum and Natural Gas Petroleum and Natural Gas Regulatory Board (PNGRB)Regulatory Board (PNGRB)

• Created by an Act of the Parliament d on 31st March 2006

• President assent accorded on 3rd April, 2006

• Act was notified on 1st October, 2007

PNGRB Act excludes Crude oil pipelines and dedicated Petroleum product or natural gas pipelines from its purview

PNGRB- FUNCTIONS

Enforce retail & marketting service

obligation

Monitor prices & prevent restrictive

trade practices

Register & Authorise entities

Declare pipeline as common / contract

carrier

Perform other functions entrusted

by Central Government

Protect consumer interest by fostering

fair trade & competition

Regulate access & transportation rate

on common / contract carrier /

CGD network

Ensure adequate availability, and

equitable distribution

Functions of the Board

Lay down technical standards /

specifications

Maintain databank of information

Pipeline network in India Pipeline network in India

• Petroleum products pipelines ( as on 1.4.2008) Length- 11,413 Km. Capacity-61.77 mmtpa (petroleum products) Capacity utilization- 73% Players- IOCL, BPCL, HPCL,PETRONET,GAIL• Natural Gas pipelines( transmission) Length- 8,673 Km.* Capacity- 150 mmscmd Capacity utilization- 65% Players- GAIL, GSPCL, GGCL, RGTIL * Excludes RGTIL and GAIL P/L under commissioning

Common carrier and Contract carrierCommon carrier and Contract carrier

Common carrier• Transportation is provided on as required basis

and users are not committed to long term use of system

• Transporter to construct additional capacity to meet future demand

• Significant demand forecast required• Investment obligations• ROR to be assured

Contract carrierContract carrierContract carrier• Transporter needs to provide additional facilities

only where users are willing to sign firm contract for their use

• Transporters are obliged to provide transmission services up to the extent of available spare capacity

• System development takes place in response to demand from users

• Project financing becomes easy • Assignment of capacity or trading helps develop

infrastructure but …

PNGRB definition of common PNGRB definition of common carrier and contract carriercarrier and contract carrier

• Common Carrier- Any pipeline for transportation of PP&NG by more than one entity on non discriminatory open access basis

• Contract Carrier- Any pipeline for transportation of PP&NG by more than one entity pursuant to firm contracts for more than one year*

*The access capacity of contract carrier will be treated as common carrier

Common Carrier and Contract Common Carrier and Contract Carrier- a thoughtCarrier- a thought

• Who is responsible for ensuring that desirable development takes place and who bears the cost and commercial risk arising from such developments?

• Contract carrier is likely to provide a level of development which is broadly as appropriate and efficient as common carrier with the additional benefit of not requiring the granting of monopoly franchises to compensate for the additional risks

Common Carrier and Contract Common Carrier and Contract Carrier- a thought contd…Carrier- a thought contd…

• Where the Govt. or other agencies require socially desirable facilities to be developed, this can still be achieved under the contract carriage, with the relevant agency in effect providing subsidy by taking on the role of the contracting party for all or part of the relevant capacity

Common Carrier and Contract Common Carrier and Contract Carrier- IssuesCarrier- Issues

• Pipeline and CGD as common carrier – capacity determination

• Open access to pipeline and CGD• Access Code – Pipeline capacity allocation,

gas quality, grid connectivity• Unbundling• Affiliate code of conduct• Trading – commodity and capacity

as a means to develop infrastructure to stabilize price

Government Policy- Pipeline and City Government Policy- Pipeline and City Gas Distribution projectsGas Distribution projects

• Petroleum Products pipeline policyUpto 300 km not common carrier25% extra capacity for common carrierCrude oil pipeline excluded

• Policy for development of Natural Gas Pipelines and City or local Natural Gas distribution networks policy33% extra capacity as common carrierOpen access, unbundling and affiliate codeROU only after authorization by the Board100% FDI permitted

Government Policy- Pipeline and City Government Policy- Pipeline and City Gas Distribution projects contd…Gas Distribution projects contd…

• Gas utilisation policy ( as agreed in EGOM)Applicable for one yearPriority-1, unmet Fertilizer requirement ( 9.5

mmscmd)Priority-2, unmet Power plant requirement

( 18 mmscmd)Priority-3, City Gas requirement( 5 mmscmd)Priority-4, Refinery fuel Priority-5, others

Regulations related to Pipeline Regulations related to Pipeline systemssystems

• Petroleum and Natural Gas Regulatory Board( authoring entities to lay, built, operate and expand common carrier or contract carrier) regulations 2008 (Notified in May,2008)

• Regulations for Determination of pipeline tariff*• Regulations for declaring a pipeline as common carrier

or contract carrier*• Regulations for Access code ( July 2008)• Regulations for Access code ( July, 2008)• Regulations for Technical standard and specification

including safety standards*• Regulations for Emergency Response & Disaster

Management Plan**being notified

Regulations for Authoring common Regulations for Authoring common carrier and contract carriercarrier and contract carrier

• EOI route or Suo motu• Selection through bidding process* Level playing field Rules of the game are well defined Technical qualifying criterion Financial selection criterion• Capacity of the system (i) Own use quantity (ii) Contracted quantity (iii) common carrier quantity= ( I + ii )/ 3 Total capacity = ( I + ii + iii )* flow chart follows

Regulations for Determination of Regulations for Determination of pipeline tariffpipeline tariff

• Tariff for EOI or Suo motu route authorized pipelines- as per the bid

• Tariff for Government authorised pipeline or PNGRB authorised pipeline u/r 18(i) or other pipelines declared as common carrier or contract carrier, computed as per above regulation i.e.,

Return on capital employed @ 12% post tax Capacity to be considered- first year 60%, second year

70%, third year 80%, fourth year 90%, fifth year 100% Pipeline divided in to zones @ 300 Km. including spurs of

10% of pipe line length or 50 Km. which ever is less Tariff computed on the basis of fix number in a zone but

increasing with successive zones on reducing slope

Regulations for declaring a pipeline as Regulations for declaring a pipeline as common carrier or contract carrier*common carrier or contract carrier*

• U/s 20 of the Act, PNGRB can declare a pipeline or city or local natural gas distribution net work as a common carrier or contract carrier

In the public interest For promoting competition Avoiding infructuous investment For ensuring adequate availability of P,PP&NG Entity owning the pipeline an opportunity of

hearing • Assess capacity and ensure that extra capacity

is available for public utilization

Regulations for Access codeRegulations for Access code• Common carries pipeline by authorization or by

declaration• Capacity of pipeline as authorized or as computed with

notified software module• Well defined rules for entry point and exit point

construction and cost sharing• Gas quality parameters well defined both at entry and

exit point At entry point Gas heat value band Impurities level at inlet point in the gas Hydraulic condition (Pressure, temp. Volume)

Regulations for Access code contd…Regulations for Access code contd… At exit pointGas heat value at exit point to meet consumer

requirementImpurities level to be within consumer

acceptable bandPressure, temp. and volumes to be as per

contract between transporter and the shipper• Limits well defined for over drawl, under draw,

positive and negative imbalance• Provision for penal action for defaultGas supply to any place from any place for any

one at competitive cost is the motto

Regulations for Technical standard and Regulations for Technical standard and specification including safety standardsspecification including safety standards

• Function of the Board as per Section 11 (i) of the Act.

• Applicable to activities relating to construction and operation of pipelines and infrastructure projects in downstream petroleum and natural gas sector

• Board has constituted a Advisory Committee

• The Advisory Committee has constituted ten sub-committees to assess the adequacy of existing standards & suggest addition deletion or re-writing of the standards

T4S sub-committees T4S sub-committees

• SN Sub-Committee Headed by

1 Cross Country Pipeline IOC

2. CGD IGL

3. Refining, Processing, LNG Terminal RIL

4. LPG Bottling and Storage IOC

5. POL Depot and Terminal HPCL

6. Retail Outlets BPCL

7. Commercial Storage, Crude, POL and NG EIL

8. Access Code GAIL

9. Accreditation Criterion QCI

10. ER&DMP Mr. B.C.Bora

Regulations for Technical standard and Regulations for Technical standard and specification including safety standards contd…specification including safety standards contd…

• Uniform standard for pipeline design, construction, commissioning and operation

Population density classification Design pressure Construction standard, safety, record keeping, third party

inspection Commissioning requirement spelt out Operational requirement Trained manpower Safety requirement Record keeping Accident prevention, reporting and ERDMP management

T4S Specific to Pipeline SafetyT4S Specific to Pipeline Safety

• Pipelines spread through out country – prone to affect wider section of society in case of leak, burst, fire etc.

• Safety features Provision of SV and Venting – to contain the effect of leak Pipeline protection through coating and CP Intelligent Pigging Pipeline patrolling– foot patrol, vehicle, helicopter Pipeline surveillances with GPS based monitoring, CCTV, Satellite

based scanning & vibration sensing through optical fiber optic system

Leak detection module Central Gas Management

Regulations for Emergency Response & Regulations for Emergency Response & Disaster Management PlanDisaster Management Plan

• All kind of accidents codified• Accident reporting system standardized• Resource planning standardized• Mutual aid system made mandatory• Involvement of various authorities clarified• ERDMP formats and document standardized for

uniform implementation• Skill mapping and training needs stressed• Ensures corporate involvement

Role of PNGRB in Management Role of PNGRB in Management ofof

Pipeline network in the countryPipeline network in the country• Summary Develop mid stream infrastructure which is totally

inadequate to meet country's requirement Allow a level playing field to all players To provide competition with well defined rules To ensure optimal utilization of infrastructure Ensure uniform design, operation and safety standards

across the country Provide growth potential to all stake holders-

entrepreneurs, manufacturers, suppliers, investors, marketers, academia etc

Ensure that shipper can transport his commodity from any place to any place at reasonable cost

Let us jointly manage the mid Let us jointly manage the mid stream sectorstream sector

THANKS