Natural Gas Captive pipelines- unregulated domain? – 02-02-2019
1. ARE ‘CAPTIVE’ AND ‘DEDICATED’ NATURAL GAS PIPELINES THE SAME CONCEPT?
- The Petroleum and Natural Gas Regulatory Board (Authorizing entities to lay, build, operate or expand natural gas pipelines) Regulations, 2008 (‘2008 Authorizing Regulations’) contemplates that capacity of ‘natural gas pipelines’ proposed to be laid, has to be on a ‘common carrier’ basis or a ‘contract carrier’ basis. The term ‘natural gas pipeline’ does not contemplate capacity utilisation on a ‘captive’ basis or
- At the time of introduction of the Petroleum and Natural Gas Regulatory Board Bill, 2005 (enacted as the Petroleum and Natural Gas Regulatory Board Act, 2006 (‘2006 Act’)), the Legislature was well aware of the existence of the various categories of pipelines. The Guidelines for laying Petroleum Products Pipelines dated November 20, 2002 (‘2002 Notification’) treated the following 2 categories of pipelines as falling under ‘captive pipelines’ i.e. for exclusive use by the proposer company for grant of right of use in land for laying pipelines under the Petroleum Pipelines (Acquisition of Right of User in Land) Act, 1962
(i) Pipelines originating from refineries, whether coastal or inland, up to a distance of around 300 kilometers from the refinery; and
(ii) Pipelines dedicated for supplying product to particular consumer, originating either from a refinery or from oil company’s terminal.
- An in-depth study of the act, rules and case law reveals that pipelines other than ‘Common Carrier’ or ‘Contract Carrier may fall under at least the following 2 categories;
(i) Dedicated Pipeline – a pipeline laid to supply natural gas to a specific consumer or perhaps more than one specific consumer, to meet the requirement of such specific customer or such specific customers, and not for resale.
(ii) Captive Pipeline – a pipeline laid by an entity for its own exclusive use. In this category, as opposed to a dedicated pipeline, the entity laying the pipeline is the sole user of such pipeline.
A pipeline laid for exclusive use by the proposer company (i.e. captive pipeline as defined in the 2002 Notification) did not intentionally find place in the 2006 Act.
2. DOES PNGRB HAVE THE AUTHORITY TO REGULATE ALL NATURAL GAS PIPELINES?
- The authority of PNGRB does not extend to authorizing an entity for laying, building, operating or expanding pipelines other than Common Carrier or Contract Carrier for its own use.
3. DOES PNGRB HAVE THE AUTHORITY TO DECIDE DISPUTES IN RESPECT OF ALL NATURAL GAS PIPELINES?
- The function of the Board thereunder is of regulating the inter se relationship of entities under the Act and not to regulate/control the relationship between the entities under the Act and the consumers.
- Under Section 12 of the 2006 Act, PNGRB has the jurisdiction to decide disputes amongst entities or between an entity and any other person on issues relating to amongst other matters, transportation of natural gas in accordance with Chapter V of the 2006 Act. Section 24 of the 2006 Act (which is the relevant provision under said Chapter V) empowers PNGRB to settle matters relating to;
(i) refining, processing, storage, transportation and distribution of petroleum, petroleum products and natural gas by the entities;
(ii) marketing and sale of petroleum, petroleum products and natural gas including the quality of service and security of supply to the consumers by the entities; and
(iii) registration or authorization issued by PNGRB under section 15 or section 19, between entities or between an entity or any other person (unless relevant agreement between entities
or between entity and any other person contains an arbitration clause).
Arguably, an entity governed by the 2006 Act may seek to redressal by the PNGRB in respect of dispute with the entity laying captive pipelines.