Over the past few years, the city gas distribution (CGD) network in India has witnessed steady growth in terms of infrastructure development. The government aims to increase the share of natural gas in the primary energy mix from 6.7 per cent in 2021 to 15 per cent by 2030. As the country transitions towards a gas-based economy, the demand for gas is expected to increase. In a bid to meet the increasing demand for compressed natural gas (CNG) and piped natural gas (PNG), the gas allocation policy has given highest priority to the CGD sector. At a recent India Infrastructure conference, key CGD operators shared their views on the growth of the CGD network, challenges and future of the sector in India…
Bhashit Dholakia, Chief Operating Officer, IOAGPL
Indian Oil-Adani Gas Private Limited (IOAGPL) is a joint venture between Indian Oil Corporation Limited (IOCL) and Adani Total Gas Limited (ATGL). The MoU between IOCL and ATGL was signed in 2008 and IOAGPL received its first authorisation in 2013. The operation of the first CNG station started in 2015. IOAGPL has authorisation for 19 geographical areas (GAs). The company has a presence in 10 states and three union territories. Even though the company has IOCL as its promoter it works with all the oil manufacturing companies. At present, IOAGPL has more than 250 operational CNG stations, a network of more than 8,000 inch-km pipeline, more than 600 commercial and industrial customers and more than 100,000 domestic customers.
Indraprastha Gas Limited (IGL) and Gujarat Gas Limited were amongst the first companies that established CNG stations in India in the early 1990s. The campaign to establish more CNG stations in the country was led by IGL. In the 1990s, developing CNG stations was extremely difficult with India having no CGD ecosystem and vendors for infrastructure development. In the next phase of station development, the number of online stations increased when IGL and other companies started laying pipelines, resulting in a clear shift from daughter and daughter booster stations to the online stage. Post-2018, a large number of GAs were authorised, creating significant growth prospects. The dealer-owned-dealer-operated station model also emerged after the ninth CGD bidding round. Large infrastructure has been committed by all CGD companies, but even today, India has only a handful of vendors and suppliers for compressors, dispensers and cascades, which poses a major challenge to infrastructure development.
Despite being the most readily available, credible and proven green fuel, focus on CNG is seen to be reducing due to discussions around the development of electric vehicles (EVs) and the promotion of alternative fuels such as hydrogen and liquefied natural gas (LNG). They are bound to enter the market. However, their uptake will take time. At present, it is essential to invest in CGD infrastructure. Ongoing talks around the development of EVs and alternative fuels to CNG are impacting the sector negatively in terms of capital investments.
Gas prices have been a deterrent in the past one year. However, with the government amending the domestic pricing model of natural gas to align with the recommendations of the Kirit Parikh committee on gas pricing and with gas prices stabilising globally, a positive impact on gas prices is expected in the future. In addition to this, if natural gas is brought under the ambit of the goods and services tax, it could bring additional benefits for users.
Going forward, for better growth the sector needs to undergo a technological revolution. In terms of cost and operations and maintenance practices, the sector requires smaller, smarter, more efficient and optimised machines. Further, the sector needs more vendors to optimally build the infrastructure targeted under the CGD bidding rounds.
“Despite being the most readily available, credible and proven green fuel, the focus on CNG is seen to be reducing due to discussions around the development of EVs and the promotion of alternative fuels such as hydrogen and LNG.” Bhashit Dholakia
Anilkumar, Executive Director, Marketing, BPCL
Bharat Petroleum Corporation Limited (BPCL) is an Indian central PSU under the Ministry of Petroleum and Natural Gas, Government of India. The use of piped gas as a fuel started in India in the 1800s when coal was gasified and supplied to homes in Calcutta. CGD development in the country was accelerated owing to the formation of IGL and Mahanagar Gas Limited. Post that, efforts by the Petroleum and Natural Gas Regulatory Board have shaped the sector to its current shape and form. The government’s aim to make India a gas-based economy and raise the share of natural gas in the energy mix to 15 per cent by 2030 led to an aggressive expansion drive of establishing CGD infrastructure in the country. Further, the One Nation-One Grid concept adopted by the country is also expected to drive the country towards becoming a gas-based economy.
BPCL is among the top three CGD operators in the country and has authorisations in 50 GAs, of which 25 GAs are standalone and 25 are joint ventures. At present, the company has nearly 0.1 million PNG connections, which are at various stages of implementation. Even though commercial gas conversion is happening, it has been observed that owing to the price factor, industrial conversions are slower. In the next year, the company plans to establish nearly 250 CNG stations and add 0.15 million PNG connections. At present, the company is focusing on operationalising all its city gate stations and model stations.
On the technological front, BPCL is working on developing single-platform automation for its entire network using a single supervisory control and data acquisition (SCADA) system on the cloud. The company is also exploring the concept of prepaid meters for domestic customers. It is installing smart meters as pilots in some areas. If the cost of smart meters drops by 50 per cent, deploying them will become economical for the company. Investment of Rs 150 billion-Rs 200 billion is anticipated in the next five years.
Apart from approvals and pricing issues, a key challenge is the number of CGD operators that are in the market. This is putting a pressure on vendors and suppliers. In terms of skill sets, providing PNG connections is one skill that is challenging and difficult to procure. It becomes even more challenging looking at the huge number of connections that have to be provided in the coming years. Going forward, given the substantial demand that has been created in the recent bidding rounds, it is expected that suppliers and vendors will swiftly indigenise and embrace Make in India.
CGD operators are investing heavily in the development of infrastructure. The number of CNG stations in the country is expected to triple and the pipeline network is expected to increase fivefold to reach 0.25 million inch-km by 2030. Further, PNG connections will increase seven times to reach 7 million. The transport sector is expected to fuel the CGD sector’s growth as the uptake of CNG vehicles is growing tremendously in the country.
“The transport sector is expected to fuel the CGD sector’s growth as the uptake of CNG vehicles is
growing tremendously in the country.”
P. Anilkumar
Rajiv Sikka, Senior Vice President, Megha Gas
Megha Engineering and Infrastructures Limited (MEIL) ventured into the CGD business in 2015 by acquiring the licence to develop CGD networks in three GAs during the fifth round of CGD bidding. MEIL further acquired four licences in the ninth round and 15 licences in the 11th round. In 2022, Megha City Gas Distribution Private Limited (MCGDPL) was formed as a subsidiary of MEIL to develop, grow and operate the CGD business in the 22 GAs acquired by the parent company. In terms of licences, the company is the fifth largest in the country and has plans to significantly expand the pipeline and CNG infrastructure in all its GAs.
At present, the company has a strong presence in the southern states of Tamil Nadu, Andhra Pradesh and Telangana. MCGDPL is operational in eight GAs, and has more than 80 operational CNG stations. It has a PNG customer base of more than 0.1 million connections, a 600 km steel pipeline and a 2,400 km medium density polyethylene (MDPE) pipeline. The company plans to source its gas from GAIL Limited and IOCL’s existing gas pipelines. Further, it has plans to build LNG stations to service customers in a faster manner. Once the minimum work programme targets are achieved, the company plans to create its presence in 10 states and 62 districts. It will service nearly 10 per cent of the country’s area and 7 per cent of the population.
The company is confident of the growth potential in the GAs it has acquired, supported by strong backward integration with MDPE pipe manufacturing and fabrication facilities, which enable smooth project execution. With a strong execution base, the company has the skills to execute projects quickly and efficiently. Its extensive expertise in engineering and infrastructure, including hydrocarbons, gives it a competitive advantage in network development. Further, the key existing and upcoming national highways/expressways passing through GAs and synergy with its existing EV business will also act as a growth driver for the company. The ability to align contractors and chip in when they do not meet expectations are notable strengths of MCGDPL.
A lot of challenges have come up in the integration and alignment of steel pipelines with the geography of the authorised districts. Another challenge is servicing domestic PNG customers. There has been improvement in getting approvals from the authorities in the past few years, and the regulatory regime is moving in the right direction to ensure sector growth.
Apart from the existing operational GAs, the company is in the process of procuring land for establishing CGSs and developing a pipeline network around it. It is also working on the increasing steel requirements. The company’s total gas demand is likely to cross 1 mmscmd by 2026, and exceed 4 mmscmd by 2030. In terms of infrastructure, the company plans to commission 30-40 CNG stations, which are in advanced stages of development, by mid-2023, and another 300 CNG stations by 2024. By 2030, the company plans to reduce 2.1 million metric tonnes of carbon dioxide emissions.
Going forward, the company plans to deploy technologies such as SCADA and geographic information system. Bio-CNG and other CNG alternatives are also on the company’s radar and appropriate action for setting of such plants will be taken as per the viability.
“The regulatory regime is moving in the right direction to ensure sector growth.”
Rajiv Sikka
Conclusion
After the completion of the 11th and 11A CGD bidding rounds, the CGD network is expected to cover 98 per cent of the population and 88 per cent of the geographical area in the country. With CGD players investing in the development of the gas network, the sector is poised to grow and offer opportunities to multiple stakeholders. Going forward, it is essential to reduce CNG and PNG prices in order to build a strong and loyal customer base.