The Case for Entry-Exit System in Gas Transportation

As India sets its sights on a cleaner and diversified energy future, natural gas is expected to play a central role. However, the backbone of this ambition- the gas transmission system remains anchored in a model that is fast becoming outdated. The existing Point-to-Point (P2P) system, where gas flows are rigidly tied to specific routes, is creating inefficiencies that could hold back growth of India’s gas economy.

If we are serious about increasing the share of gas in energy mix then we must embrace a new approach that offers flexibility, transparency, and ease of trading. It’s time to rethink how capacity is booked, tariffs are collected, and gas flows are measured and managed. The Entry-Exit (E-E) model, successfully implemented in Europe and the UK, and conceptually mirrored in India’s own electricity market, could be the right way forward for the gas market too.

A Simpler Way to Move Gas

Imagine shipping a package wherein you choose the sender and recipient, and the transporter takes care of the rest. You don’t worry about how the package moves, which path it takes, or how many transfers it goes through.

This is exactly how the Entry-Exit gas system works. A gas buyer only books the exit point capacity at its plant, and the seller ensures entry into the network. Everything in between - the route, flows, and coordination is handled by the transporters.

By contrast, under the current P2P model, buyers must negotiate separate contracts with each pipeline operator along the gas route, manage multiple bookings and procedures, and are even held responsible for gas imbalances caused upstream. Procuring gas from the KG Basin to North India, for example, may involve three to four different transporters. It’s an administrative maze that discourages market participation, particularly in the short-term spot market.

What’s Holding us Back?

The existing P2P system was suitable when India’s pipeline network was smaller and simpler. But as the network is growing, the system is starting to show its limitations. Unclear ex-ante cost makes it harder to participate in a collective trade market like exchange. Fragmented and varying rules across pipelines complicate transportation. Buyers are penalized for imbalances that may not stem from their actions but instead result from cascading effects across the system.

These challenges not only increase costs and complexity for gas consumers but also discourage active trading, ultimately undermining the creation of a competitive gas market.

How the Entry-Exit System Fixes This?

Unlike the rigid P2P system, the E-E system separates capacity booking from physical transportation paths. Shippers can book entry and exit capacities separately, without needing to specify a fixed route. Capacity bookings are managed through a centralized platform. Entry and exit capacities are netted at nodes, optimizing pipeline usage and reducing congestion by single System Operator and concerned Pipeline Operators . For example, if a pipeline segment is blocked, gas can still flow through alternate routes, enhancing flexibility and ensuring uninterrupted supply. Additionally, costs are known upfront and are not dependent on contractual path.

Imbalances are calculated at the entry and exit points itself, allowing for netting across multiple contracts, ensuring that penalties levied are proportionate to the actual costs incurred by the system. For example, if a shipper has a positive imbalance on one contract and a negative imbalance on another, the net imbalance is considered. The system encourages market participants to self-balance their positions, reducing reliance on pipeline operators for residual balancing. Additionally, imbalance charges are settled through market based transparent prices, reducing the financial uncertainty for participants.

The model also opens the door to a virtual trading environment, where gas can be bought and sold without worrying about physical routes, just like electricity is traded across country today.

How this will work?

First, the network user (Buyer/Seller) may book pipeline capacity at entry and/or exit points. He may do long-term, short term or prompt (few hours before). The nominations submitted by network users will be zero sum and will identify entry and exit points. Once, scheduled, seller will ensure that gas scheduled enters the network at the entry point, and buyer will ensure withdraw at exit point. Imbalance will be calculated at entry and exit points separately, based on total entry schedule vs actual entry volume and exit schedule vs actual exit volume. For negative imbalances, the entity shall pay the market-linked price plus a premium, while for positive imbalances, it shall receive the market-linked price less the premium. Imbalance is to be priced under a fair, transparent market-based system. Market-linked imbalance price would be linked with average price at Gas Exchange of the day.

Tariffs can be charged at either the entry or exit point or a mix of both, depending on the model adopted.

Steps to Make

To shift to the Entry-Exit system, regulations relating to tariff collection will need to be suitably amended. PNGRB had proposed this model as early as 2014, and many stakeholders supported it. In the consultation paper, it was noted that the E-E model is normally used in gas grids where customers are supplied from multiple sources and the transportation network has multiple owners. While this might not have been the case then, today’s grid fully meets these conditions, making the shift both timely and necessary.

The Entry-Exit methodology itself has several variants, from which a suitable option may be adopted for India. Tariffs under this regime can be computed using the ACER Capacity Weighted Distance (CWD) Model, in a manner that ensures revenue neutrality for all transporters. The CWD model ensures that buyers situated closer to entry points are charged relatively less. The Entry-Exit model also provides flexibility to incorporate discounts or premiums for a set of buyers categorized by location or sector.

International adoption

EU adopted entry-exit as mandatory model in Third Energy Package in 2009 and mandated all Member States to move to Entry-exit system by 2011. Today most European countries, UK have adopted it. In Australia, Victoria’s DWGM also uses Entry-exit for daily balancing and imbalances.

The Road Ahead

Transitioning to an entry-exit system will be a pivotal step in modernizing India’s gas market. It will improve infrastructure utilization, foster competition, simplify tariffs, enhance liquidity, and create market-based transparent mechanism. Finally, it will make gas more competitive for end consumers. Similar benefits were observed in matured market like EU, which is similar to India in spread and complexity.

The writer is Indian Gas Exchange Ltd MD & CEO