City Gas Distribution Market in India: Analysing Current Status and Infrastructure Requirement for Strengthening CGD Network in India

Overview of CGD in India : Development Timeline

In 2007, the Government of India (GoI) set up a regulator, the Petroleum and Natural Gas Regulatory Board (PNGRB), which has, among other mandates in the hydrocarbon sector, the mandate of regulating the CGD business. PNGRB has outlined its vision of expanding the CGD network to over 300 cities in India, as part of which bidding has been initiated through four rounds for 28 cities. Although some of these cities are yet to be awarded to the successful bidders and the fourth round has been cancelled recently, the bidding has elicited enthusiastic participation even as several challenges exist. This paper focuses on the challenges for the new entrants in the CGD sector—one that appears lucrative at first glance. In 2016, new bidding rounds were rolled out by the PNGRB. Bids were invited for the development of CGD networks for five GAs under the seventh round and another eight GAs under the eighth round. While the seventh round was deferred due to issues of uncertain/distant natural gas pipeline connectivity, the eighth round is currently in its bidding phase.

 

CGD Market in India :Current  Status & Realistic Assessment

The city gas distribution (CGD) sector has witnessed mixed progress in the past few years. The network has continued to grow and fresh licences have been issued at a much faster pace. However, despite several changes in the bidding parameters to encourage participation, the response has remained lukewarm. However, post 2014 when the CNG & PNG were given top priority for gas allocation the business case of CGD is supposed to improve in the country. Consequently, the pipeline network has grown at a compound annual growth rate (CAGR) of about 15 per cent between 2012 and 2016 (till June 2016) and the number of CNG stations has increased at a CAGR of 16 per cent. The total sales in 2015-16 were close to 15 mmscmd. The key developments which the CGD sector has witnessed are highlighted in the bullet pointers as below:

  • In 2016, new bidding rounds were rolled out by the PNGRB. Bids were invited for the development of CGD networks for five GAs under the seventh round and another eight GAs under the eighth round. While the seventh round was deferred due to issues of uncertain/distant natural gas pipeline connectivity, the eighth round is currently in its bidding phase.
  • The PNGRB also plans to invite fresh bids for 27 GAs under the fifth and sixth bidding rounds that either did not receive a bid or received only one bid. The Ministry of Urban Development has also selected 20 cities to be taken up for CGD network development under Round I of the Smart Cities Challenge. Of the 20 cities selected, bids have been invited for the development of CGD networks in 11 cities. There is thus significant opportunity for CGD operators in the next four to five years.
  • The PNGRB granted authorisation to lay, build, operate and expand the CGD network in two cities covered under the fourth bidding round, seven cities covered under the fifth bidding round, and 16 cities covered under the sixth bidding round.
  • While gas availability continues to be a challenge, policy developments have certainly helped improve access to domestic gas. Since January 2014, the top priority in domestic natural gas allocation has been accorded to domestic the CNG and PNG categories. This has helped CGD players to cut prices and retain their margins, thereby allowing them to regain competitiveness.
  • Going forward, the business potential for CGD networks in India is significant, owing to a strong domestic consumer base for the industrial, commercial and vehicular segments.

Infrastructure Requirement for Strengthening CGD Network in India

Although country has expanded on its natural gas transfer pipeline infrastructure but shall need further steps to enable itself in terms of a robust CGD network which shall emerge due to the impetus of GoI on smart cities which shall put pressures to increase both the usage of PNG and CNG in the cities. The GoI has intents of promoting the CGD network through the smart city program and expansion of CGD coverage, with an aim to cover more than 100 cities by 2022. A snap shot coverage of existing pipeline infrastructure in the country is covered in the following section. There are presently three major pipeline entities in gas transportation across the country namely GAIL, RGTIL and GSPL. GAIL is operating HVJ and DVPL trunk Pipeline to evacuate gas like domestic gas , JV gas from ONGC and R-LNG from PLL, consisting about 11077 km (about 68.59%) including Dabhol-Bengaluru Pipeline. RGTIL is operating 1480 km (about 9.16%) East West Pipeline (EWPL) to evacuate gas from KG-D6 in Andhra Pradesh. This pipeline passes through Andhra Pradesh, Maharashtra and Gujarat and integrated with GAIL’s and GSPL’s network to reach Northern and Western Indian market. GSPL is mainly focused in the state of Gujarat consisting about 2612 km (about 16.17%). In addition GAIL also operates regional gas pipeline networks across India in Maharashtra, K.G.Basin, Cauvery Basin and South Gujarat.

 

Capacity Expansions in CGD Networks of India

As CGD comes at the end of the natural gas value chain, its development is contingent on the development of the rest of the value chain. It is up to the Government and industry players to ensure adequate supply of natural gas in the CGD market. This can happen only if the country has a fully integrated gas infrastructure with uniform natural gas pricing and affordable end-user prices with favourable and clear regulatory policies.

Taking due cognizance of the strong credentials of the UK’s CGD market, one of the most developed CGD markets in the world, the Indian Government should develop the CGD market with an objective of:

  • Allowing customers to select their supplier
  • Avoiding dominance by a single player
  • Keeping the ownership and operation of different
  • Segments of the natural gas value chain clear and segregated
  • Allowing open access to natural gas infrastructure such as transmission and distribution pipelines, storage and LNG terminals
*The views expressed in this article are solely those of enincon perspectives and do not necessarily represent those of Enincon LLP.

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