Natural gas was available in 30 geographical areas (GAs) when the Petroleum and Natural Gas Regulatory Board (PNGRB) came into existence in 2006. Progress after that was slow and steady, and the number of GAs had risen to just 92 by 2018.
Then came the big bang – the PNGRB announced the ninth and tenth rounds of bidding in quick succession and awarded licenses for 128 GAs during 2018 and 2019, taking the tally to 228 GAs. More than 50 per cent of the area and 70 per cent of the Country’s population are now covered by city gas distribution (CGD).
CGD is a misnomer now, since the GAs awarded are sometimes large swathes of land encompassing multiple districts and often falling in multiple states.
The CGD sector historically supplies gas to four categories of consumers – piped gas to households, industrial and commercial consumers, and compressed natural gas (CNG) to the transport segment. While the households and CNG are given priority allocation of administered pricing mechanism (APM) gas by the government, the industrial and commercial segments have to rely on market-priced gas.
All put together, the CGD segment consumed 25 mmscmd of natural gas in September 2020. Of this, 14 mmscmd came from the domestic gas allocation, and 11 mmscmd was contributed by regasified liquefied natural gas (RLNG). This is a sharp decline from the pre-Covid period of February 2020, when the total consumption in the CGD segment stood at 30 mmscmd.
The lockdown has put enormous pressure on the CGD sector. Industrial and commercial segments were shutdown. Movement of vehicles stopped (except for emergency services), as people were confined to their homes. Except for consumption in the kitchens, natural gas stopped flowing to the most segments, which dealt a mighty blow to CGD companies. The period from April 2020 onwards saw a large decline in gas consumption, putting a massive strain on the financials of CGD companies.
Carrying out work at construction sites became a herculean task. Labour, materials, and machinery became scarce. All the GAs awarded during the ninth and tenth rounds of bidding suffered as construction activities came to a halt.
However, with the lifting of lockdown and the reopening of the economy, things have started improving for the CGD sector, albeit at a slow pace. The sector is expected to take a few more months to get back on its feet.
However, if we were to analyse the data from the last five years (taken from the Petroleum Planning & Analysis Cell [PPAC]), the segment has shown impressive growth across all categories of consumers.
| Year | No. of domestic connections Growth (%) | Growth (%) | No. of commercial connections | Growth (%) | No. of industrial connections Growth (%) | Growth (%) | No. of CNG stations | Growth (%) |
|---|---|---|---|---|---|---|---|---|
| 2015-16 | 3,163,588 | 23,750 | 6,243 | 1,053 | ||||
| 2016-17 | 3,585,646 | 13% | 21,996 | -7% | 6,670 | 7% | 1,233 | 17% |
| 2017-18 | 4,280,054 | 19% | 26,131 | 19% | 7,601 | 14% | 1,424 | 15% |
| 2018-19 | 5,043,188 | 18% | 28,046 | 7% | 8,823 | 16% | 1,730 | 21% |
| 2019-20 | 6,068,415 | 20% | 30,622 | 9% | 10,258 | 16% | 2,207 | 28% |
While the existing GAs continued growing, massive commitments were made by the bidders in the ninth and tenth rounds, as shown in table 2:
| CGD bid round | CNG stations | PNG connections | Steel pipe (inch-km) |
|---|---|---|---|
| 9th | 4,603 | 22,116,702 | 116,171 |
| 10th | 3,578 | 20,292,760 | 58,177 |
| 11th | 8,181 | 42,409,462 | 174,348 |
Going by the numbers in Tables 1 and 2, India should have more than 10,000 CNG stations and 50 million household connections by 2027-28. This is a huge task, and, coupled with the industrial and commercial segments,may lead to a gas consumption of about 70 mmscmd (on a conservative estimate), making the CGD sector the largest gas consuming segment.
This will present its own challenges, with the government’s commitment to giving the household and CNG categories priority over APM gas. The problem will accentuate if you consider that the total domestic gas (including the market priced gas) available for sale during the month of September 2020 was 56 mmscmd only.
Among the four consumer sub-segments in CGD, the transport sector constitutes the largest consumer of natural gas. The biggest driver for the use of natural gas in the transport segment is pollution. With the massive outcry for cleaner air from all quarters, there has been large-scale judicial intervention to promote a shift to clean fuels, with natural gas being the cleanest fossil fuel available.
The movement, which began with the conversion of vehicles from liquid fuels to natural gas, has achieved large-scale success. With the proliferation of CNG pumps in metro cities such as Delhi and Mumbai, and regulatory interventions, all commercial vehicles now run on CNG. Further, given the large difference between the prices of CNG and liquid fuels, the former is becoming the fuel of choice even for the private vehicle owners. Because of the demand, all vehicle manufacturers today are bringing out CNG-run variants of vehicles. Traditional petrol pumps have become multi-fuel retail units with petrol, diesel and CNG being available under the same roof.
Buoyed by the success of CNG and its limitation in carrying vehicles for longer distances, the Government of India (GoI) is now contemplating the introduction of LNG as an automotive fuel. All relevant regulatory aspects have been cleared, and the plan is to introduce LNG as a fuel for heavy-duty vehicles that can travel inter-city and cover long distances. Various recent public pronouncements point to the urgency of setting up LNG dispensing stations. Many state transport units – such as those of Maharashtra and Kerala – have already floated tenders to convert state buses to LNG. This augurs well for the growth of the sector.
The judicial pronouncements against the use of polluting fuels in industrial and commercial units have been another significant enabler of the growth of gas in the CGD segment. The National Green Tribunal has been putting pressure on the Central Pollution Control Board and, through it, on the Pollution Control Boards of the different states, to regularly monitor air pollution levels. Many states have come out with legislation to phase out polluting fuels such as pet coke and furnace oil in a time bound manner.
The CGD sector is poised to grow quickly and outpace the traditional sectors such as fertilisers and power generation to become the largest gas consumer in the next few years. The GoI has a vision to make gas the preferred fuel and to increase the share of natural gas in the primary energy basket from the current 6 per cent to 15 per cent. Given that natural gas has limited growth potential in the other sectors, CGD is the sector that presents the highest potential for gas growth. Many reforms are in the offing –unification of pipeline tariffs, open access to GAs where exclusivity has ended, setting up of LNG dispensing stations, the gas exchange – all these will be great enablers to make natural gas the fuel of choice for the CGD sector. With the pollution control authorities coming down heavily on the use of polluting fuels in the industrial and commercial sub-segments, natural gas can naturally become a fuel of choice.
By Pankaj Wadhwa
Pankaj Wadhwa is senior vice president, commercial and marketing, LNG at THINK Gas Distribution Private Limited. Starting his career in the fertiliser sector in India, he has had stints with both industry as well as consulting. He has handled assignments relating to LNG agreements both on buy and sell sides. He was responsible for raising large sums of money from various domestic and international financial institutions. Gas contracts, pricing and regulation are his areas of interest. In the past he worked with Petronet LNG, Chambal Fertilisers, GAIL (India) and CRISIL Advisory.