India’s city gas distribution (CGD) industry is undergoing significant transformation driven by urbanisation, rising demand and the government’s emphasis on low-carbon resources. The government aims to expand the CGD network, providing about 70 per cent of the population with access to cleaner cooking fuel – piped natural gas (PNG) – and transportation fuel – compressed natural gas (CNG). An estimated Rs 1,200 billion will be invested by the government over the next 10 years to support this ambitious goal.
Current infrastructure and upcoming plans
BPCL
Bharat Petroleum Corporation Limited (BPCL) has been a pioneer in building the country’s gas ecosystem. Gas is a critical component of the company’s long-term growth strategy and is one of its key focus areas. Till date, BPCL has established CGD networks in 26 geographical areas (GAs), 25 GAs of which are operational. Meanwhile, a detailed feasibility report is being prepared for one GA, which was awarded in the 12th CGD bidding round. Besides this, BPCL, along with six joint ventures (JVs), has established CGD networks in 26 more GAs. In total, BPCL has 52 GAs, which cover about 19 per cent of India’s population and about 25 per cent of its geographical spread. Overall, the company has a market share of about 26 per cent in the mobility business.
In terms of outlets, BPCL has set up about 700 CNG stations and caters to more than 0.4 million PNG consumers. At present, BPCL has about 2,900 stations (including petrol and diesel). Additionally, it has around 122 fast charging corridors, with one station at approximately every 100 km.
IOAGPL
Indian Oil Adani Gas Private Limited (IOAGPL) is a 50:50 JV between Adani Total Gas and Indian Oil Corporation Limited. The company has a CGD network in 19 GAs, spread across 30 districts covering 10 states and three union territories. So far, it has laid 18,000 inch-km of pipelines. Besides, the company has operationalised about 392 CNG stations, while about 20 stations are in the final stages of commissioning. It has about 1,000 industrial and commercial customers and about 0.15 million domestic customers.
In terms of volume, the company is achieving a throughput of more than 1.5 million standard cubic metres per day (mscmd). Going forward, the company expects to reach 1.6-1.7 mscmd by March 2025 and close to 20 mscmd by the end of 2026.
GAIL Gas
GAIL Gas Limited is a wholly owned subsidiary of GAIL (India) Limited, with a presence across 16 GAs and in another nine GAs through JVs. The company’s total 25 GAs cover almost 6 per cent of the total population and 6.3 per cent of the total geographical area. It has about 0.6 million domestic PNG connections and plans to increase these to 1.5 million in the next five years. The pipeline network stands at around 9,000 km. Besides, at present, the company has about 500 CNG stations, with another 500 stations to be added in the next five years. Further, it has around 900 industry connections and 550 commercial connections.
Since the company also supplies to bulk customers, total consumption remains high as compared to other CGD entities. It is supplying around 7.8 mscmd of gas.
Challenges and opportunities
The CGD industry faces several challenges associated with regulations, policies, domestic production, etc. One of the key concerns is price fluctuations owing to changing geopolitics. Further, gas is a capex-intensive industry and laying pipelines inside cities is challenging as it requires utility shifting. The government’s “Call Before u Dig” is an innovative initiative to bring excavators and asset owners on one platform to underwrite and mitigate the losses incurred in a calendar year due to unmonitored digging activities across the country.
Land acquisition for setting up CNG stations, along with obtaining necessary permissions and statutory clearances, presents additional challenges. Thus, there is a need to create a single-window clearance system to ensure the timely completion of projects.
Another pain point is that India lacks facilities for manufacturing equipment. There are also some restrictions on imports imposed by the government. This presents opportunities for manufacturers to scale up production.
There has also been an increase in competition among various fuels. With lower crude oil prices, the market is witnessing greater challenges from alternative fuels. If gas is brought under the goods and services tax (GST) regime, then there would not be any pressure to identify locations where gas is available at a lower price. Electric vehicles (EVs) are also facing critical issues because of the equation between the total cost of ownership versus every month’s savings.
The market has also faced several challenges with respect to the adoption of liquefied petroleum gas (LPG) as a fuel. For instance, at present, BPCL’s active LPG consumers are around 325 million. Of these, about 110 million are Ujjwala connections and another 110 million come under the price-sensitive segment. In the past few years, almost every state has been offering some kind of subsidy or scheme, under which the landed cost of a cylinder is Rs 500. It remains a key challenge to connect with consumers through the traditional approach and to encourage them to accept prepaid meters.
Future trends and key priorities
With increasing urbanisation, the penetration of CGD is expected to grow by about 12-13 per cent in the next few years. The Indian government also aims to achieve net zero emissions by 2047. Thus, as a transition fuel, gas will play an important role in reducing the usage of polluting fuels. The government has launched the Ujjwala scheme to distribute LPG cylinders to deprived and rural households. The scheme should also be extended to PNG customers.
Fuelling and mobility are proximity-driven businesses. Thus, it is necessary for every third station in the country to offer a CNG facility in order to galvanise the market and make the product readily available to consumers. Meanwhile, LNG as a transportation fuel is one of the key enablers for decarbonising the ecosystem. With about 10 per cent of the LNG transition expected over the next five years, 7-8 mscmd of natural gas will be sold through this ecosystem. For instance, BPCL has planned to set up 12 LNG stations, of which two stations have already been mechanically completed. BPCL currently handles 1.8 million tonnes of natural gas business annually and expects to triple its footprint in the sector. Its key priorities are to make gas available to the remaining GAs, diversify sources and improve digital adoption.
The primary focus of CGD players is improving both CNG and PNG networks across the country. BPCL plans to set up energy stations offering a range of fuels, including motor spirit, high speed diesel, 100 per cent biofuel, ethanol, CNG and LNG. Meanwhile, IOAGPL has invested almost Rs 41 billion and plans to further invest Rs 40 billion in the coming four years. At present, the capex rate is about Rs 8 billion-Rs 10 billion. So far, the CNG segment has witnessed positive growth and it is expected to continue expanding in the coming years. One of the biggest areas of improvement for the company is increasing its domestic PNG connections by providing 20,000-40,000 connections in a GA. Besides, GAIL Gas has already spent around Rs 45 billion and plans to invest another Rs 40 billion in the next five years, with a target capex of about Rs 100 billion by 2030.
Based on a panel discussion between representatives from BPCL, IOAGPL and GAIL Gas at a recent India Infrastructure conference
