Bringing natural gas under GST crucial for national grid, gas trading hub

Bringing natural gas under the ambit of goods and services tax (GST) will not only make transport of the fuel across the country more efficient but also facilitate setting up of the much discussed domestic gas trading hub, said industry players and analysts.

Finance minister Nirmala Sitharaman on Saturday announced plans for expansion of the National Gas Grid to 27,000 km from the present 16,200 km and said that to deepen gas markets in India, more pricing reforms will be undertaken.

“For free movement of natural gas, be it a gas grid or trading hub, GST is essential. Pipelines reaching more areas is positive and more and more consumers will at least be closer to the gas. However, if they shift to using gas as a fuel for their industrial units, it will depend on the economics of fuel,” said a chief executive of a gas company on the condition of anonymity. “A gas trading hub can aid people buying the gas directly and sell it directly. Today gas is locked up in contracts and a trading hub will be a kind of a spot market, which will be good.”

The government has been discussing the idea of a gas trading hub for nearly two years now. While a trading hub would facilitate availability of gas, the grid would help connect gas sources to consumption hubs which is key to government’s plans to increase the share of natural gas in India’s energy basket to 15% over the next decade from 6.2% now.

India’s downstream oil and gas regulator, the Petroleum and Natural Gas Regulatory Board (PNGRB), had in May 2018 appointed Crisil Infrastructure Advisory Services as a consultant to prepare regulations for the planned gas trading hub.

“Gas trading hub should be positive for the upstream oil companies, as it will enable them to achieve higher price levels than the one prevailing currently, which are based on certain formula linked to global prices,” said K. Ravichandran, senior vice president & group head, corporate ratings, ICRA Ltd.

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