CITY GAS DISTRIBUTION NETWORK 26 April 2019
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CITY GAS DISTRIBUTION NETWORK 26 April 2019 INDUSTRY OUTLOOK City Gas Distribution (CGD) refers to transportation or distribution of natural gas to consumers in domestic, commercial or industrial and transport sectors through a network of pipelines. This business has, over the last decade, attracted several companies to lay a network of gas pipelines. India's natural gas consumption is currently driven by the CGD. Ministry of Petroleum and Natural Gas (MoPNG) has accorded priority to Piped Natural Gas (PNG) and Compressed Natural Gas (CNG) segments of CGD sector in domestic gas allocation. At present, domestic gas is being supplied to meet entire require- ment of CNG (transport) and domestic PNG segments based on last six-monthly consumption data by the respective CGD networks. Currently, 31 companies are developing CGD networks across 81 geo- graphical locations in 21 states and Union territories, delivering clean cooking fuel in the form of piped natural gas (PNG) to about four million households. The government, which plans to provide 10 million PNG connections, has introduced stringent emission levels for vehicles and plans to develop green corridors to reduce India’s carbon foot- print. There are about 60,000 fuel retail stations and around 1,500 CNG stations across India. The expansion of CGD network across India is being facilitated by various policy initiatives for its swift development. CGD has been accorded the highest priority in gas allocation while allocating 100% domestic gas for the domestic PNG and CNG segments. On the regulatory front, recently, the Petroleum and Natural Gas Regulatory Board (PNGRB) has reformed to a large extent the CGD authorization regulations to address the impediments faced in previous bid rounds. Also, some state governments have introduced sector-specific policies/guidelines enabling overall growth of CGD network in India.1 City gas distribution (CGD) network is turning out to be the next big downstream expansion in India, after fuel retailing, with investments of as much as Rs. 1.1 trillion expected over the next decade.2 Source: Petrotech 2019, 13th International Oil & Gas Conference and Exhibition (10-12 February 2019), Greater Noida; URL: https://www.petrotech.in /static/pdf/Theme%20Session%20-%20McKinsey%20-%20(Unlocking%20gas%20potential).pdf Domestic Production of Natural Gas and Consumption of Natural Gas in CGD Sector (in million standard cubic meters per day) Items 2014-15 2015-16 2016-17 2017-18 Domestic 92.2 88.1 87.4 89.5 Production of Natural Gas Consumption 14.8 14.9 20.1 23.5 in CGD Sector Source: Ministry of Petroleum and Natural Gas, also reprinted in The Hindu titled as ‘225 bids for 10th round of city pipe gas auction’(5 February 2019) https://www.thehindubusinessline.com/economy/policy/225-bids-for-10th-round-of-city-pipe-gas-auction/article26187029.eceCGD: City Gas Distribution Natural Gas Production in India (2018-19) (in mmscm) Source: PPAC Net Availability of Natural Gas Production (gross production less flare and loss by gas producing companies) in 2018-19 (in mmscm) Source: PPAC The natural gas production shows increasing trend during 2018-19, though there is a decline in February. GOVERNMENT INITIATIVES The government has invested INR 70,000 crore 3 to set up CGD networks which could help expand the network of CNG stations from 1,500 stations (82 percent of which are in Delhi, Mumbai and Gujarat) to 10,000. This investment is expected to increase to INR 1.1 lakh cr in the next 10 years.4 Under the Pradhan Mantri Ujjwala Yojana, the government has set up LPG connections for more than 88.5 percent households in 2018, account- ing for around 25 MTPA of LPG demand.5 According to the Indian infrastructure, in May 2018, the biggest CGD licensing round offering 86 geographical areas (GAs) in 174 districts was announced. The bidding round received a good response from both domestic and global players. Besides, Letter of Intent (LoI) to 12 successful entities for 50 geographical areas has been 6 distributed under the 10th CGD bidding round on 1 March 2019. 10th round covered 50 Geographical Areas (GAs) spread over 14 states and 124 districts (112 full and 12 part), covering 24% of India’s population and 18% of its area. Total 225 bids from 25 entities were received up to 05th February 2019 i.e., the bid closing date. Based upon the bids evaluations, PNGRB in its 88th Board meeting held on 26th February 2019 approved issuance of Letters of Intent (LoI) to the 12 successful entities for 50 Geographical Areas (GAs). As per provisions of the CGD Authorisation Regulations, authorization shall be granted to the successful bidders after receipt of the requisite Performance Bank Guarantee from the concerned entities within specified period of 30 days. Entity-wise details of successful bidders are given below: Sl No. Name of Bidder Number of Geographical Areas (GAs) 1 Adani Gas Limited 2 2 Bharat Gas Resources Limited 2 3 Consortium of LNG Marketing 9 Pte. Ltd. & Atlantic Gulf & Pacific Company of Manila Inc. 4 Consortium of Think Gas 1 Investments Pte. Ltd & Think Gas Distribution Pvt. Ltd. 5 GAIL Gas Limited 4 6 Gujarat Gas Limited 6 7 Hindustan Petroleum Corporation 9 Limited (HPCL) 8 Indian Oil Corporation Limited 9 (IOCL) 9 Indian Oil Adani Gas Private 1 Limited 10 Indraprastha Gas Limited 3 11 Rajasthan State Gas Limited 1 12 Torrent Gas Private Limited 3 Total 50 As per the commitment made by the various entities in the 50 GAs approved for issuance of LoIs in 10th CGD Bidding Round, 2,02,92,760 domestic PNG (piped natural gas) connections and 3,578 CNG (compressed natural gas) stations for transport sector would be installed largely during a period of 8 years up to 31st March 2029, in addition to 58,177 inch-km of steel pipeline.7 Further, the entities would be authorised to supply natu- ral gas to industrial and commercial units in their respective GAs as per the limits provided in the CGD Authori- sation Regulations. Year-wise approximate phasing of the creation of physical infrastructure by the entities as per CGD Authorisation Regulations would be as under: Year Period Number of Number of Length of steel PNG CNG Stations pipeline Connections (in inch-km) 1 1st April, 2019 to 31st 0 0 2909 March, 2020 2 1st April, 2020 to 31st 20,29,276 526 8,727 March, 2021 3 1st April, 2021 to 31st 20,29,276 526 11,635 March, 2022 4 1st April, 2022 to 31st 20,29,276 526 11,635 March, 2023 5 1st April, 2023 to 31st 20,29,276 526 5,818 March, 2024 6 1st April, 2024 to 31st 39,59,552 526 5,818 March, 2025 7 1st April, 2025 to 31st 39,59,552 526 5,818 March, 2026 8 1st April, 2026 to 31st 39,59,552 358 5,817 March, 2027 9 1st April, 2027 to 31st 99,000 22 0 March, 2028 10 1st April, 2028 to 31st 1,98,000 42 0 March, 2029 Total 2,02,92,760 3,578 58,177 Source: Distribution of Letter of Intents for 50 Geographical Areas (GAs) under the 10th CGD Bidding Round’ (1 March 2019) Press Release by the Petroleum and Natural Gas Regulatory Board http://www.pngrb.gov.in/pdf/cgd/bid10/Press%20release_01.03.2019.pdf In terms of network, 1,069,263 PNG connections and 244 CNG stations have been added in the past 18 months.8 CGD operations have commenced in Daman & Diu, Bhubaneswar, Dadra & Nagar Haveli, Kutch (West), Amreli, Dahod, Dahej-Vagra and Jalandhar cities. Meanwhile, authorisations have been granted to 14 new GAs. Emphasis is being accorded in deploying advanced IT and OT solutions such as enterprise resource planning, terminal automation systems, smart metering, customer relationship management, supervisory con- trol and data acquisition, geographical information system, satellite surveillance and remote sensors. The government is exploring new eco-friendly and cost-efficient fuels to expand CGD network coverage. There are plans to set up 5,000 compressed biogas plants at an investment of about Rs 1.75 trillion in the next four to five years.9 These compressed biogas networks will be integrated with CGD networks to boost supplies to domestic and retail users. Further, Petronet LNG plans to launch around 20 LNG fuel stations on a 4,000 km route running from Delhi to Thiruvananthapuram. Further, Government has envisaged to connect one crore households with PNG supplies for cooking purpose by 2020.10 MAJOR PLAYERS Major Players include Gujarat Gas Limited, Indraprastha Gas Limited, Mahanagar Gas Limited, GAIL Gas Limited, Adani Gas Limited, Maharashtra Natural Gas Limited, Central U.P Gas Limited, Bhagyanagar Gas Limited, Tripura Natural Gas Company Limited, Sabarmati Gas Limited, and Green Gas Limited. Indraprastha Gas Ltd (IGL) is enabled for grant of authorization from PNGRB for development of city gas distri- bution network in the geographical areas of Kaithal District, Ajmer, Pali and Rajsamand District & Kanpur (except area already authorized) District, Fatehpur and Hamirpur districts. At present, the IGL has its operations in NCT of Delhi, Noida, Greater Noida, Ghaziabad and Rewari with 463 CNG stations, 10.29 lacs residential consumers and ~4100 industrial/commercial customer. It is a Joint venture of GAIL and BPCL. IGL, with 452 CNG stations in Delhi, Noida, Greater Noida, Ghaziabad, Rewari has started giving the franchise to dealers who own lands. IGL, Gujarat Gas, Mahanagar Gas, among others, are not only expanding their footprint in existing markets, but also focusing on foraying into new geographies. Likewise, Indian Oil Company plans to invest Rs 20,000 crore in city gas distribution projects over the next 5-8 years.