In the past four to five years, greater emphasis has been laid on developing a gas-based economy to reduce the country’s carbon emissions. The government aims to increase the share of gas in India’s energy basket from the current 5-6 per cent to 15 per cent by 2030. The city gas distribution (CGD) segment plays an important role in driving the consumption of natural gas in the country. However, due to lower domestic gas output, CGD operators are relying on liquefied natural gas (LNG) to meet their requirements. LNG accounts for nearly half of the CGD consumption volume. Besides, CGD companies are facing several challenges due to the slow development of the pipeline network in the country.
In such a scenario, small-scale LNG (SSLNG) has emerged as a viable option for serving users in areas that are not connected to the main pipeline infrastructure or those in remote places where pipelines cannot be laid. SSLNG stations/facilities can effectively cater to residential, commercial, transport and industrial consumers. Under an SSLNG network, LNG is transported on small trucks from LNG terminals to liquefied compressed natural gas (LCNG) stations, from where it is distributed to end-use consumers.
The supply of natural gas through the development of SSLNG stations has gained traction in the country. In 2019, around 90 billion tonnes of LNG was supplied through road tankers to the existing liquid to compressed natural gas (LCNG) stations as well as to remote industrial consumers from the Dahej, Ennore and Kochi terminals. The total LNG output from the eight truck loading facilities at the three LNG terminals is 0.4 million tonnes per annum. At present, LNG is being supplied to around 50 industrial/LCNG operators from the existing terminals.
Further, four LCNG stations have been set up at different locations for compressed natural gas (CNG) and piped natural gas (PNG) supply. GAIL (India) Limited has set up an LCNG station in Bhubaneswar. The station, which was commissioned in 2019, can cater to around 3,000 CNG vehicles and 1,000 homes. Another LCNG facility has been established by Rawamatt Industries in Nagpur. The station supplies CNG to Nagpur Municipal Corporation’s buses. The LNG is transported from the Dahej terminal with the help of tankers. It is then converted into CNG through vaporisation and transported to daughter stations by CNG cascades mounted on vehicles. Besides, LCNG stations have been set up at Vadodara in Gujarat and Ratnagiri in Maharashtra.
In the past few years, several initiatives have been taken by the government to create an efficient ecosystem for SSLNG development. In 2017, amendments were made to the Central Motor Vehicle Rules to include LNG as a fuel for automobiles. The Gas Cylinder Rules have also been modified to include auto LNG under its regulatory framework. This change has extended the scope of the rules to include storage of LNG in cylinders, its possession and transport. Further, the Petroleum and Natural Gas Regulatory Board’s recent announcement permitting an entity to set up an LNG station in any geographical area (GA), even if it is not an authorised entity for that GA, is expected to create new opportunities in the LNG and SSLNG segments. This would help in faster realisation of gas demand in areas that are not connected to the pipeline grid.
Several CGD companies in India are planning to develop LCNG or satellite stations in GAs that lack pipeline connectivity, for their early monetisation. For instance, GAIL is planning to set up eight LNG satellite stations across the country. Besides, Bharat Gas Resources Limited, a subsidiary of Bharat Petroleum Corporation Limited, is currently developing an LCNG facility in Aurangabad as the nearest tap-off is 220 km away and pipeline laying may take considerable time. The facility will supply natural gas to CNG stations in and around Aurangabad and cater to the PNG demand of the Aurangabad Industrial City. A provision for dispensing LNG will also be made at the station.
Further, Indian Oil is setting up a fuel complex, which would include LNG/LCNG facilities, at Anayara, Thiruvananthapuram. The construction on the project started in October 2019. The Atlantic, Gulf & Pacific Company India is also developing six LCNG stations for faster implementation of its CGD projects. The company has already initiated the construction of its first LCNG station at Jodhpur in Rajasthan. Besides, Think Gas Distribution plans to set up five LCNG stations in its GAs that lack pipeline connectivity. One such facility is being set up in Bhopal where the closest tap-off is around 200 km away. The LNG will be brought from Dahej through cryogenic tankers. Moreover, Petronet LNG, the country’s largest natural gas importer, has big plans to set up LNG dispensing stations on major national highways. The company plans to set up around 1,350 stations in three phases. In the first phase, around 50 stations would be set up on five major highways, which include the Western and Southern Corridor, by 2021. In the second and third phases, the company plans to establish around 300 and 1,000 stations respectively. The company aims to tie up with CGD companies or oil marketing companies to set up these stations. It has already signed agreements with Gujarat Gas Limited and Indraprastha Gas Limited to jointly set up LNG/LCNG stations on the Delhi-Mumbai Expressway.
Key issues and challenges
A major challenge faced by CGD companies in setting up an LCNG station is land availability. LCNG stations have higher land requirements as compared to CNG stations. Thus, difficulties in the procurement of land can delay the establishment of LCNG facilities. Besides, entities wishing to establish these stations have to obtain multiple approvals and clearances. Further, the cost competitiveness of an LCNG station depends upon the availability of LNG at a cheaper rate. LNG transportation through tankers, trailers or semi-trailers can be capital intensive. Another hurdle in transporting LNG through trucks is the lack of a harmonised tax regime for natural gas. Currently, natural gas is under the value added tax (VAT) regime with VAT ranging from 3 per cent to 20 per cent across states. This makes interstate transportation more time-consuming and less profitable. Moreover, finding skilled labour can be a challenge for most operators. As SSLNG is a relatively new way of supplying natural gas, it is important to develop a pool of labour that is skilled and trained in the management of LNG infrastructure and related safety aspects.
The way forward
Although still at a nascent stage, the SSLNG industry offers immense potential to meet the growing demand of the CGD sector. The SSLNG route eliminates right-of-way issues related to the laying of pipelines and developing associated support infrastructure, thereby accelerating project implementation. This results in huge cost savings as compared to conventional CGD networks. Going forward, given the country’s commitments to reduce carbon emissions, the use of SSLNG is likely to gain traction. The pandemic is expected to lead to greater delays in pipeline development due to labour availability issues. In such a scenario, the use of SSLNG facilities, which can be built much faster than conventional gas infrastructure, will help in fulfilling the demand for gas. However, the supply of natural gas through the SSLNG route is viable only up to a certain point beyond which the laying of pipelines becomes necessary.