cgd report 12

City Gas Distribution

Submitted To:-

Dr. Pramod Paliwal

Submitted By:-

Saurabh Dubey (20091046)

School of Petroleum Management, Gandhinagar

AcknowledgementI am extremely grateful to Dr. Pramod Paliwal, School of Petroleum Management, for his timely

help, teaching and support throughout the project work.

I am also grateful to Mr. Amit Singh, Assistant Manager, Mahanagar Gas Ltd., Mumbai for his

extended support required for the project work.

Last but not the least; I would also like to express my heartfelt gratitude to all my friends and

library staff for providing me all the available resources which has contributed in this project.

Without help of the persons mentioned above, I would have faced many difficulties while

completing this project.


Executive SummaryCity gas distribution has emerged as an area of rapid growth in the oil and gas industry. CGD has

spread to 36 geographical areas – the petroleum and natural gas regulatory board decided to

call for CGD bids for geographical areas rather than cities or towns. The geographical areas are

not restricted to municipal limits and have been demarcated so as to include a mix of industrial,

commercial and domestic user base. The initial growth of CGD had driven largely by orders

from the Supreme Court to control environmental pollution. The current growth, however, is

being driven by the commercial attractiveness of it.

This report broadly covers all the important aspects of CGD business as such overview of CGD

business, infrastructure, gas transportation, supply chain management, project management,

market development, customer service issues, commercial issues, regulatory framework, QHSE

aspects and international perspectives. The multiple uses of natural gas in the domestic sector

and transportation are being recognized by the country at large. Coupled with greater

availability of natural gas and the presence of several players willing to invest in CGD, the

segment is poised to see explosive growth.


Contents

Acknowledgement.......................................................................................................................................2

Executive Summary.....................................................................................................................................3

Natural Gas Facts.........................................................................................................................................5

Introduction.............................................................................................................................................5

Natural Gas Applications.........................................................................................................................7

Domestic Production...............................................................................................................................8

LNG Terminals.........................................................................................................................................9

Overview of CGD business in India............................................................................................................10

Introduction...........................................................................................................................................10

CGD Basics.............................................................................................................................................10

Evolution................................................................................................................................................11

Profile of Major Players.........................................................................................................................13

CGD Infrastructure....................................................................................................................................15

Gas Transmission & Distribution System...............................................................................................15

Value Chain of CGD................................................................................................................................17

Pipeline Companies...............................................................................................................................22

Regulatory aspects in laying pipelines...................................................................................................22

Natural Gas Transportation Networks in India..........................................................................................23

Supply Chain in CGD..................................................................................................................................26

Project Management aspects of CGD network..........................................................................................28

Project Management Activities..............................................................................................................28

Factors affecting the supply chain business...........................................................................................31

Risk Management..................................................................................................................................32

Market Development for CGD Business....................................................................................................33

Benefits of Market Development for Stakeholders...............................................................................34


Customer Service issues in CGD business..................................................................................................36

Issues in Customer Service....................................................................................................................36

Industrial Customers..............................................................................................................................36

Domestic Customers:.............................................................................................................................37

CNG.......................................................................................................................................................37

Major Commercial Issues..........................................................................................................................38

Objectives..............................................................................................................................................38

Commercial Activities & Issues in City Gas Distribution.........................................................................38

QHSE in CGD..............................................................................................................................................39

Transmission Network...........................................................................................................................39

Distribution network.............................................................................................................................39

CNG.......................................................................................................................................................40

CGD Regulation..........................................................................................................................................42

Objectives..............................................................................................................................................42

Role of PNGRB.......................................................................................................................................43

Regulations for Access Code..................................................................................................................44

Regulations for Exclusivity.....................................................................................................................45

Marketing Exclusivity.........................................................................................................................45

Infrastructure Exclusivity...................................................................................................................45

Need of Regulations..............................................................................................................................46

Challenges and hurdles..........................................................................................................................47

International Perspective…………………………………………………………………………………………… …………………….48

United States.........................................................................................................................................48

United Kingdom.....................................................................................................................................49

Australia................................................................................................................................................49

China......................................................................................................................................................50

Future Outlook..........................................................................................................................................51

References.................................................................................................................................................52


Natural Gas Facts

Introduction

Natural gas is a combustible mixture of hydrocarbon gases. It is primarily composed of

methane, ethane, propane, butane and pentane as shown in exhibit 1. Deposits of natural gas

are often found in conjunction with petroleum and, like oil, natural gas is recovered from wells

drilled into the earth's surface.

Exhibit 1: Composition of Natural Gas

Component Typical Analysis(mole %)

Range(mole %)

Methane 95.2 87.0 - 96.0Ethane 2.5 1.5 - 5.1Propane 0.2 0.1 - 1.5iso – Butane 0.03 0.01 - 0.3normal – Butane 0.03 0.01 - 0.3iso – Pentane 0.01 trace - 0.14normal – Pentane 0.01 trace - 0.04Hexanes plus 0.01 trace - 0.06Nitrogen 1.3 0.7 - 5.6Carbon Dioxide 0.7 0.1 - 1.0Oxygen 0.02 0.01 - 0.1Hydrogen trace trace - 0.02 Specific Gravity 0.58 0.57 - 0.62Gross Heating Value (MJ/m3), dry basis

37.8 36.0 - 40.2

Natural gas is often informally referred to as simply gas, especially when compared to other

energy sources such as electricity. Before natural gas can be used as fuel, it must undergo

extensive processing to remove almost all material other than methane. The by-products of

that processing include ethane, propane, butanes, pentanes and higher molecular weight

hydrocarbons, elemental sulfur and sometimes helium and nitrogen as shown in exhibit 2.


Exhibit 2: Typical composition

The demand for natural gas and to generate electricity has risen steadily. In fact, natural gas is

projected to be the fastest growing primary energy source in the world through 2025. Much of

the supply and production lies in natural gas hydrates around the world. These hydrates hold

great promise, due to their abundance, but more research is required to develop this source to

its potential. The lifecycle of natural gas is shown in exhibit 3.

Exhibit 3: Natural Gas lifecycle


Associated Gas

Comes out along with Crude Oil from the well

Free Gas

Comes out of well with about 5-10% Oil

Rich Gas

Contains Higher Hydrocarbons likePropane, Butane, Propylene, Butane etc.

Different Forms of Natural Gas.

PNGCNG-NG compressed up to 250 Bars for cylindersLNG-NG liquefied at -1620C for tankers

Typical Composition

Methane (CH4): 70-98 %Higher Hydrocarbons: 5 -15%Non Combustibles (N2, CO2 etc): 1-5%

Natural Gas Applications

Domestic Usage: Residential applications are the most commonly known use of natural gas. It

can be used for cooking, washing and drying, water warming, heating and air conditioning.

Domestic appliances are increasingly improved in order to use natural gas more economically

and safely. Operating costs of natural gas equipment are generally lower than those of other

energy sources.

Industrial Usage: Natural gas is used as an input to manufacture pulp and paper, metals,

chemicals, stone, clay, glass and to process certain foods. Gas is also used to treat waste

materials, for incineration, drying, dehumidification, heating and cooling, and cogeneration.

Commercial Purpose: Main commercial users are hotels, food service providers, healthcare

facilities or office buildings. Usage also includes cooling, cooking or heating.

Natural Gas Vehicles: NGVs are natural gas powered vehicles. Natural gas can be used as a

motor vehicle fuel in two ways: as compressed natural gas (CNG) which is the most common

form and as liquefied natural gas. Natural gas vehicles fleet accounts for about one and a half

million vehicles worldwide. Concerns about air quality in most parts of the world are increasing

the interest in using natural gas as a fuel for vehicles. Cars using natural gas are estimated to

emit 20% less greenhouse gases than gasoline or diesel cars. These vehicles are not a new

technology since they have been used since the 1930s. In many countries NGVs are introduced

to replace buses, taxis and other public vehicle fleets. Natural gas in vehicles is inexpensive and

convenient.


Domestic Production

India has natural gas recoverable reserves of 1074 BC. Gross Production of Natural Gas in the

country at 47.51 billion cubic metres during 2009-10 is 44.63% higher than the production of

32.85 billion cubic metres during 2008-09.

Exhibit 4: Domestic production details

Year Production (Bcm) % growth

2005-06 31.24 1.62006-07 30.8 -1.62007-08 31.5 2.32008-09 31.7 0.92009-10 47.7 50

The scenario has changed drastically with the production from RIL KG D6 coming online since

April 2009. It is currently producing 60 mmscmd and is expected to increase to 80 mmscmd in

the near future. Efficiency measures to increase production from existing fields have resulted in

somewhat better than earlier predicted production. ONGC and OIL accounted for 75 percent of

the natural gas supplied in the country until 2008-2009. The share of private players and JVs

was about 25 percent of the gas supplied during the same period. Key private players in the gas

production business include Cairn, British Gas and GSPC.

In 2009-2010, RIL emerged as the largest producer of gas in the country. Soon GSPC is also

expected to supply 2 mmscmd from KG basin block starting 2011. ONGC also expects to supply

25 mmscmd from its KG basin block by 2013. The below diagram shows the current level of

production from various fields and expected scenario of production from various fields in five

years to come.


LNG Terminals

The LNG imports in India in 2008-09 were estimated at 30 mmscmd. This constituted about 29

percent of total natural gas supply total capacity of 12.5 MTPA in India in 2008-09. Out of total

LNG imports, 63 percent was imported on firm contract basis while 37 percent was imported on

the spot basis. The historic demand-supply gap of natural gas has provided an impetus in

setting up LNG terminals. Currently India has operational terminals one at Dahej and other at

Hazira both are located in Hazira. PLL Dahej has a name plate capacity of 10 mmtpa

Exhibit 5: LNG infrastructure

(MTPA) Existing Capacity Expansion Commissioning by

Petro net LNG – Dahej 10

Petro net LNG - Kochi Nil 2.5 in phase 1 to

be increased to 5

Beyond 2012

Shell - Hazira 3.75 ( Nameplate

capacity is 5)

5 2014

Adani and GSPC - Mundra Nil 6 2014

IOCL-Enore Nil 2.5 2014

Ratnagiri Gas and Power

Projects Ltd – Dabhol

Nil 5 2012

ONGC- Mangalore Nil 2.5 2014

Besides the existing terminal at Dahej and Hazira few other LNG terminals with the combined

capacity of 21 MTPA are expected to come before 2015


Overview of CGD business in India

Introduction

The city gas distribution (CGD) segment of the natural gas industry is a small fraction of the

total gas market, but its share is rapidly expanding. The growth in this segment has been

constrained so far because of a lack of a policy focus, and deficient investment in the

distribution infrastructure. However the government intending to connect all the cities over 2.5

million population with city gas within the next three years and a regulatory framework that is

encouraging competition and the investment in the sector, CGD is poised to see tremendous

growth in the coming years.

Even though the current share of CGD within the overall natural gas consumption pie is only 7

per cent, it is worth noting that this has been achieved in the past five years itself. Increasing

demand from commercial and small industrial customers within the city limits, in addition to

the automotive and residential demand, are the key drivers of growth in this segment. Much of

the demand in future will continue to be as a result of customers finding natural gas to be more

competitive than other fuels coupled with ease of handling and lower pollution. On the supply

side expectation of large volumes of gas being made available within the next few years, though

both new domestic finds and imports, has created greater compulsions for developing the CGD

market.

CGD Basics

As the name suggests, CGD is the last component of the natural gas value chain delivering

natural gas to end users in towns and cities. While large customers such as the power and

fertilizer industry receive natural gas directly through the high pressure interstate transmission

pipelines, CGD is provided through the network of medium to low pressure distribution

pipelines by a local distribution company. The tap off point from where the city distribution

network takes its supply from the transmission system for the city distribution system is

referred to as the city gate.


CGD involves movement of small volumes of gas through small diameter, low pressure pipelines

to a large number of retail customers. Typically, the network comprises compressed natural gas

(CNG) dispensing stations throughout the network that supplies natural gas for automotive use,

and a piped natural gas network that provides natural gas as a fuel for city-based

commercial/industrial/domestic purposes. Since natural gas is odorless and colorless,

Mercaptan is added to it and when it enters the CGD network, which gives it a typical smell of

rotten eggs to ease leak detections.

Evolution

CGD is not a new business for India. A review of its history reveals that the gas retail business in

the country started as early as 1880 by the Calcutta Gas Company, which is operating even

today. The company runs on coal gas and faces losses. The other CGD operator, which has now

gone out of business, was the Bombay Gas Company that started way back in 1900 and went

out of business during the 1960s.


The Delhi Municipal Corporation operated a gas distribution system in Okhla with biogas, which

worked for a long time. The system has now been converted to natural gas. Some of the smaller

initiatives in city gas include the networks in ONGC townships in Mehsana, Hazira, etc. Another

such social initiative was by Assam Gas in Duliajan. The big impetus for the CGD network came

in the 1998 when the Supreme Court issued orders to convert all public transport vehicles

plying in Delhi to CNG in response to a public interest litigation on account of rising air pollution

in Delhi. This was followed by a similar initiative in Mumbai. Thereafter, it rolled into other

cities like Agra, Lucknow, Pune, etc, in 2002, and further to Ahmedabad, Kanpur, Mumbai,

Kolkata, Chennai, etc, in 2003. The Gujarat Gas Company Limited started with a few CNG

stations in Surat and Ankleshwar. Adani came in this business in 2002 and GSPC Gas is the latest

entrant in this sector.

Exhibit 6: Evolution of CGD business

Year City Company

1880 Calcutta Calcutta Gas Company

1900 Mumbai Bombay Gas Company

1972 Vadodara Vadodara Municipal

Corporation

1980 Delhi Delhi Municipal Corporation

1982 ONGC colony– Mehsana ONGC

1985 Duliajan Assam gas company

1986 Sibsagar Assam gas company

1989-91 Surat, Ankleshwar, Bharuch Gujarat Gas Company Ltd.

1994 Mumbai Mahanagar Gas ltd.

1995 Delhi Indraprastha Gas

2004 Vadodara, Ahmedabad Adani

2005 Hyderabad Bhagyanagar gas

2006 Kanpur, Lucknow CUGL & GGL

2006-07 Gandhinagar, Kadi, Vapi,

Mehsana, Rajkot, Morbi

GSPC/ SGL


Profile of Major Players

Though CGD has been officially rolled out in at least 30 cities across India, there are some

players who have generated enough volume sales and shown enough momentum that their

operations could be now be considered for defining Industrial Standards in this sector.

This in no way means that other players wouldn’t provide any significant industrial inputs. In

fact some of the other players could help in establishing benchmarks for CGD growth in Tier-II

and Tier-III cities. It’s only that the above three companies should go the extra mile in providing

inputs to policy makers for enhanced roll out of CGD. An analogy with the Computing Industry

might be IBM and Microsoft which established (and still do) industrial benchmarks, but

Computing landscape also has Google, Oracle, Apple and Facebook which have a presence that

as of today overshadows there two forefathers.

Apart from these GAIL, HPCL and BPCL hold significant stake in CGD companies, it also being

speculated that they might venture out on their own. Among the other possible future

contenders is Reliance India Limited (RIL) which after bringing as a partner on board might be

venturing into City Gas Distribution business. RIL-BP combine have made no secret of the fact

that it is Gas marketing which they would their primary focus in the coming years. Given the

RIL’s share in cross country transmission as well as BP’s expertise in deep water gas exploration,

it wouldn’t be a stretch to imagine that this might prove to be a game changer.

Exhibit 7: Major CGD players in India

Sr. no. Entity GA ( Operating) GA (Construction) Total1 MGL 1. Mumbai

2. Thane2

2 IGL 1. Delhi2. Noida(1)

1. Faridabad(1)2. Gurgaon (1)

4

3 Avantika 1. Indore 1. Gwalior2. Ujjain

3

4 CUGL 1. Kanpur2. Bareily

2

5 Green Gas 1. Lucknow (1)2. Agra

2

6 Gujarat gas 1. Surat2. Ankleshwar

3


3. Bharooch7 MNGCL 1. Pune,

chinchwad1

8 TNGCL 1. Agartala 19 BGL 1. VIjaywada

2. Hyderabad1. Kakinada 3

10 Sabarmati 1. Gandhinagar (1)2. Mehsana

2

11 GAIL 1. Vadodara (1) 112 HPCL 1. Ahmedabad (1) 113 Charotar Gas 1. Anand 114 VMSS 1. Vadodara 115 Adani energy 1. Ahmedabad (2)

2. Faridabad (2)1. Khurja2. Lucknow (2)3. Vadodara (3)4. Noida (2)5. Jaipur6. Udaipur

8

16 GSPC Gas 1. Gandhinagar (2)2. Godhara3. Hazira4. Valsad, Vapi,

Navsari 5. Rajkot6. Morbi7. Surender Nagar8. Nadiad

1. Bhavnagar2. Bhuj

10

17 Sity energy 1. Moradabad 118 Haryana City 1. Gurgaon (2) 1. Bhivandi

2. Jhajhar3

19 AGCL Assam 1. Duliajan2. Dilbrugarh3. Sibsagar4. Moran,

Naharkatia

4

20 GEECl 1. Asansol2. Durgapur

2

21 GCGCL 1. Kolkata 122 Gail Gas 1. dewas

2. kota3. Sonepat4. Meerut

4

23 Saumya DSM 1. Mathura 1Total 41 20 61

Source: Gas in India 2010


CGD Infrastructure

Gas Transmission & Distribution System

The natural gas that is received at the City Gate Stations is mostly passed through a cleaner to

remove liquids and dust. The primary function of the city gate station is to measure the amount

(volume) of incoming gas. It is generally measured through orifice meters. Another function is

to reduce the pressure of the gas to be sent for distribution, as the distribution system requires

much lesser pressure than that in long distance transmission. Mechanical devices called

pressure regulators lower the gas pressure and helps to control the flow rate to maintain

desired pressure level throughout the distribution system. With the reduction in pressure, the

natural gas also becomes cooler, so sometimes it has to be heated up in regions where the

temperature is below zero degree. Last but not the least, at the City Gate station, the

odorization of the natural gas takes place. Different types of odorants are used, so that the

“smell” makes the presence of the escaping, unburnt gas recognizable at very low

concentrations. This serves as a warning well before the gas accumulates to hazardous levels; a

mixture of air and natural gas are explosive over the range of 5% to 15% natural gas. To ensure

safety, odorized natural gas is detectable at concentration of just 1%.

The piping system also forms a major part in City Gas Distribution. Mainly there are 4 types of

piping systems other than supply mains:-

a) Feeder mains transport gas from the pressure regulator or supply main to the distribution

mains. Feeder mains might also have some lines connected to large industrial users.

b) Distribution mains supply gas primarily to residential, commercial, and smaller industrial

consumers.

c) Service lines deliver gas from the distribution main in the street to the consumer’s meter.

Service lines are usually the property and responsibility of the utility. However, some utilities

own only the portion of the service lines in the public domain.

d) Fuel lines are customer piping beyond the meter to various appliances. These lines are the

property and responsibility of the building owner.


District Regulation Station are installed where the distribution is to be done like in the industrial

area and commercial segment. Gas to the various consumers is transferred after being

maintained at a pressure of about 4-5 bar. Then the gas is transmitted to Single Stream

Regulator (SR) through 4 bar medium pressure PE pipelines. SR further reduces the pressure

from 4bar to 100 mbar. From SR the gas is supplied through a 100 mbar low pressure PE

pipeline to a G.I. Riser Isolation wall. From this valve the gas is carried through a G.I.

(Galvanized Iron) 100 mbar pipelines to end user as shown in exhibit 9. The control valve is

placed at the height of 5 ft which controls the flow and School of Petroleum Management 18

City Gas Distribution then a regulator are installed which brings down the pressure to 21 mbar

for basic home users. A meter is installed which tells the amount of gas being used depending

on which they are charged.

Exhibit 8: Gas transmission & distribution system


Exhibit 9: Details of pressure regimes

Value Chain of CGD

Gathering lines

Just as crude oil gathering lines collect crude oil from producing areas, gas gathering lines

collect raw gas from same locations. Some gas called associated gas is produced from well in

association with the crude oil. Other gas called non associated gas comes from well producing

only gas.

Gathering station

The gas produced from the wells has enough pressure to enter gathering lines directly without

compression. Sometimes compressors are added to boost the pressure to overcome other

gatherings lines pressure. These stations are called gathering station.


City gate station

At city gas or town border station transmission lines delivers the natural gas to local distribution

stations. At the point pressure regulators reduce pressure down to those allowed in the

distribution system also there are metering facilities, quality monitors, and odorization facilities.

Sometimes heaters are required to warm the gas that cools as a result of pressure reduction at

the station.

The main components of the CGS are

Pressure Reduction System (PRS)

Slam Shut Valve(SSV)

Filtering Unit: To remove the impurities & small particles to maintain gas efficiency.

Piping with metering equipments (mainly orifice meters).

The pressure at which the gas delivers to CGS is 37-90 bar. CGS reduces the pressure to approx

27 bar through the stepwise pressure reduction system.


The various skids in the City Gas Station includes,

a) Gas filtration skid.

b) Pressure reduction skid.

c) Flow metering skid.

Gas filtration skid

The skid has been designed in such a way as to accept a single stream only. High efficiency filter

separators are used for the removal of liquid and solid particles from the incoming gas stream

over the entire operating range. The gas outlet from the processing industry is cautiously

maintained at free of impurities, the filtration skid ensures the pure gas distributed to the line.

The filter is normally designed to withstand a pressure in the range of 30 – 49 bar.

Pressure reduction skid

The pressure reduction skid is installed to reduce the pressure of the incoming gas from the

source from the pressure of 37 bar to 27 bar. Mainly creep relief valve is being installed in this

skid which maintains the downstream pressure.

Flow metering skid

Flow meters are installed to for a single stream. The normal flow meters used in the CGS is

orifice plates. Orifice flow meters find its use as a large pressure drop is required. The various

parameters such as temperature in the various sections of the line pressure at the inlet & outlet

joints, flow inlet & outlet are controlled by the SCADA systems in the control room.

District Regulation Station (DRS)

DRS is a device used to reduce the pressure from 27 bar to 4 bar. It is the interface between the

steel grid network & the medium pressure network. The location the DRS mainly depends on

the requirements of the area i.e., the type of customers to the company. Example, Group of

small industries in an area and areal extent to domestic area


The various components in the DRS include the following,

Slam shut valves for controlling the flow.

Filtering skid.

Pressure reduction skid.

The inlet to the DRS is from the steel line and the outlet is also the steel line, where it’s joined

to the PE line using the Steel – PE convertor.

These Stations are smaller version of CGS

They take gas from Steel Network and reduce the pressure to 4 Bar.

They supply the gas into a Polyethylene pipeline network

Odorizing unit

Odorizing unit is highly essential to ensure the safe distribution of the both CNG and PNG. The

odorants mainly include the mercaptans. These odorant in injected in to the natural gas to

detect leaks if any. The odorant used is Ethyl Mercaptan.

Metering system

Pipeline customers demand to know they receive the same amount of oil or gas they put in.

pipeline companies generally use direct volume meters or inference meters. Some types are as

follows

(1) Positive displacement meters

(2) Turbine meters

(3) Orifice meters

(4) Ultrasonic meters

(5) Coriolis meters


CNG Infrastructure

Mother Station

Mother stations are connected to the pipeline & have high compression capacity. These

stations supply CNG to both vehicles & daughter stations (through mobile cascades). The

Mother station requires heavy investment towards compressor, dispensers, cascades, pipelines,

tubing etc.

Online Station

CNG vehicles storage cylinders need to be filled at a pressure of 200 bars. “On line Stations” are

equipped with a compressor of relatively small capacity, which compresses low pressure

pipelines gas to the pressure of 250 bar for dispensing CNG to the vehicle cylinder. The

investment in an online station is midway between daughter station & mother station.

Daughter Station

The “Daughter Stations” dispense CNG using mobile cascades. These mobile cascades at

daughter stations are replaces when pressure falls & a depleted mobile cascade is refilled at the

“Mother Station”. The investment in a daughter station is least among all types of CNG stations.

There is reduction in storage pressure at daughter stations with each successive filing. Once the

storage pressure drops, the refuelling time increases, while the quantity of CNG dispensed to

vehicle also decreases.


Daughter-Booster Station

Installing a booster compressor can eliminate drawbacks of daughter stations. Daughter

booster (compressor) is designed to take variable suction pressure & discharge at constant

pressure of 200 bars to the vehicles being filled with CNG. The investment in daughter booster

station is slightly higher than that of daughter station.

Pipeline Companies

The major pipeline manufacturing companies in India involved in manufacturing of pipes and

tubes are L&T, Punj Lloyd and PSL. PSL claims to be the largest manufacturer of SAW

(Submerged Arc Welded) technology and has been the biggest supplier of GSPL. Similarly

pipeline material of various thickness and tensile strength are manufactured by Punj Lloyd as

well as L&T.

Regulatory aspects in laying pipelines

Authorization for gas pipeline shall be granted to any entity only if the design pipeline capacity

is at least 33% more than the capacity requirements of the concerned entity plus the firmed up

contracted capacity (termed as total capacity) and this extra capacity is available for use on

common carrier basis by any third party on open access and non-discriminatory basis at

transportation rates laid down by the Board. The capacity available under “open access”

common carrier basis will be allocated in a transparent and objective manner in line with the

regulations to be drafted by the Board in this regard.


Natural Gas Transportation Networks One of the primary infrastructural necessities of having a robust City Gas Distribution across

cities and towns in India is that a network of well developed cross country pipelines exist to

serve the purpose of bringing in gas produced from far off fields to within City limits. India

unfortunately has been lagging behind in development of a robust Gas Infrastructure in this

nation. One of the important reasons being that Natural Gas was never treated at par with

other fuels in solving India’s energy needs, Government policy lacked the imagination and

prescience to tackle India’s energy issues at a macro level. Lack of exploration activity as far as

natural gas is concerned also didn’t help the case much. Although post 2000 there has been

increased activity in this regard. Until Reliance East West pipeline got commissioned in April

2009 India had only one transmission pipeline to speak of the Hazira-Vijaypur-Jagdishpur

pipeline commissioned in 1986.

However the last few years have seen tremendous strides the pipeline infrastructure is

expected to double in 2014. As of today India has effectively 11,402 km length of pipeline with

a carrying capacity of 320 mmscmd. It means that within next 3 years the total pipeline length


should be nearer to 22000 kms. It is an ambitious task which is being met with all due diligence.

The key players who will be playing a major role in the coming three years are

GAIL

RGTIL

GSPL

Exhibit 10: Company-wise pipeline ownership

The gas transmission domain in India has been dominated by the GAIL India Limited. It operates

the Hazira – Vijaipur –Jagdishpur (HVJ), Dadri Vijaipur Pipeline (total 3452 Km long), and a few

other pipelines, connecting the LNG terminal at Dahej to Vijaipur and Uran and the power plant

at Dabhol to Panvel as shown in exhibit 11.

With the recent domestic gas finds KG basin off the East coast of India the transmission of gas

to the demand centres based in the west and north of the country has assumed greater

importance. Reliance Gas Transportation Infrastructure Limited (RGTIL) has implemented the

1385 Km East West Gas Pipeline to carry 80 mmscmd (million standard cubic metres per day )

of natural gas from Kakinada in Andhra Pradesh to Bharuch in Gujarat and traverses through

the states of Karnataka and Maharashtra and it has further planned to construct four new cross

country pipelines. Gujarat state Petronet Ltd. ( GSPL),a GSPC group company involved in gas

transmission arm also has an extensive network of around 2400 Km in Gujarat. The existing

Pipeline capacity of 220 mmscmd is expected to increase to 660 mmscmd in the medium term.

This expansion in infrastructure would lead to better gas availability, better tapping of demand

and thus increase the natural gas demand.


Exhibit 11: Gas network in India


Supply Chain in CGDThe piped natural gas value chain starts from exploration, storage, transportation and

distribution to the various end users as per the regulations in any particular locality as show in

Exhibit 12.

Exhibit 12: Natural gas value chain

The partners of supply chain in CGD business is shown in Exhibit 13.Exhibit 13: Supply chain partners


Business Partners

Gas Producers

Transporter

CGD Entitites

LNG Plants

Customers

It also includes financial operators and feasibility experts examining the viability of projects

both financially and operationally, gas distribution consultants and project designers/engineers

suggesting the best possible design, regulators and authorities regulating the business

standards and finally the gas suppliers who provide the gas for city wide distribution as shown

in Exhibit 14.

Exhibit 14: Details of the various partners

Issues related to the supply chain in CGD business:

Congested city areas

Safe operation

Leak detection

Pigging

Pressure variation base checking

Corrosion

Shortage of skilled staff

Third party risk


Project Management aspects of CGD network

Project Management Activities

The main activities of pipeline consist following aspects:

Conception of Project

It is very important to do a feasibility study before taking any decision for considering the

project. The proper load estimation need to be done so that exact no of consumers and volume

of gas can be determined. The project planning also need to be included future expansion and

requirement of the natural gas in that particular area.

Survey & ROU

Once the project has been conceptualized, the first thing to start is survey and RoU work since

it consumes good amount of time. Reconnaissance Survey is undertaken for pipeline route

giving two to three options. On finalization of the best option of pipeline route, detailed survey

is started on the particular chosen route. Subsequently after detailed survey, RoU / RoW along

the route are taken up.

The following clearances are required for project implementation:

Road & Building department

Forest department

Public health

Water Board

Optical Fiber Utility

Electricity Department

Sewage Department


RFP Document Preparation

Once survey and RoU process has been initiated, the process of basic engineering and RFP

document preparation can be started. It is mainly having two parts:-

Commercial Part: It consists of commercial terms and conditions like Payment Terms, Time

Schedule, Liquidated Damages, Guarantees and Insurances etc

Technical Part: It mainly consists of Scope of Work of the contractor, Design Basis,

Specifications of various items, Construction specifications, Basic Drawings (P&ID’s, Alignment

&Cross Section dwgs, Single Line Diagrams), Survey reports, Soil Investigation Reports etc.

Pre-Qualification Process

The process starts during the RFP document preparation. It depends upon the length and size

of pipeline project to be undertaken, a Pre-Qualification criterion is set for contractors. Past EPC

infrastructure projects of certain value executed by the contractor is also set as a criterion.

Based on above Pre-Qualification documents are invited from parties. After scrutiny of

documents, the list of qualified parties is finalized.

Bidding Process

The qualified bidders get the order after the finalizing of the RFP document. Also a pre-bid

meeting is held in which any queries with respect to the RFP document which the bidders may

have can be answered. After the pre-bid meeting and answering of bidder queries, technical

bids are invited first. The technical bids are reviewed for compliance with all tender conditions

and whether the bidders have agreed to provide the system asked for. Subsequently, price bids

are invited only from the technically qualified bidders. The price bids are opened and the job is

awarded to the lowest bidder.


Project Execution

The phases for the project completion are as follows:-

– Engineering

– Procurement

– Construction

– Commissioning

The following parties are mainly involved in the project implementation:-

– Client

– EPC Contractor

– Project Management Consultant

– Third party inspection agency

The project management aspects of CGD business are:


Preparation of Base map of the city from satellite imagery

Preliminary Reconnaissance survey

Assessment of Consumer requirement

Detailed Engineering Pipeline Route Survey & Geo-technical Investigation

Obtaining Statutory Clearances

Investigations for City Gate Station (CGS)/ CNG Station

Acquisition of Land for City Gate Station

EIA/EMP Study, Risk Assessment and Disaster Management

EPC Contract

Factors affecting the supply chain business

These are the factors affecting the supply chain of CGD business which is need to be faced

during the project execution phase.


Technical FactorsScope ChangeMaterial ProcurementEngineering & Design Change

Financial & Economic FactorsInflationExchange Rate VariationsFunds Availability

Organizational FactorsContractor's CapabilityVendor's CapabilityConsultants Capability

Clearance FactorsOwners obligationsROU/ROWEnvironmental clearances

Force Majeure Normal Calamity Abnormal calamity

Risk Management

Type of Risk DetailsTechnological No such Criteria but Pre-qualification required for bidding.

The 10% Security deposit is deducted from each installment of the payment. It is returned after testing of the work.

Cost Over-run LSTK EPC ContractTime Over-run Liquidated Damages of 0.75% of the Contract Price per week for the

first four weeks of delay and 1.5% of the Contract Price per week thereafter, subject to maximum of 10%.

Legal/Political Risk Approval & ROU (Rights of Use) sought from the authorities in the Feasibility stage

Market Risk Supply Side: Long term gas supply from PLL & NikoDemand Side: Hugh demand at Rajkot-Morbi (Ceramic & Automobile Industries)

Socio-Political Risk N.A.Force Majeure Risk Project Insurance of 5% of Project Cost

The important points related to the risk management are:

Higher Political & social risks in CGD projects lead to more complex project financing.

Project financing in India made mandatory for the projects commissioned after April,

2006. However, the social and political risks perceived are not high and hence all-debt

financing is also witnessed.

In India, the project takes more time in construction & procurement in comparison with

its foreign counter-parts. The international project spends more time on basic & detail

engineering of the project.

The above inference can be extrapolated to the fact that the material imported in Indian

projects stretches the procurement part.

In Indian scenario the pipeline cost that includes materials and etc was 45.33% higher

than the cost in international scenario in the same timeframe. This could be because of

project duration, type of technology used, length of pipeline been laid down, etc.


Market Development for CGD Business

City gas distribution develops largely with the help of four key factors: Gas supply,

infrastructure, regulations, and economics/drivers. The industry has a natural advantage in

building market through replacing existing fuels in domestic, small industrial, commercial, and

transportation markets. However, this will depend on the relative price of gas with respect to

competing fuels. Responding to this market challenge would require discovering and

connecting new supplies in traditional and frontier regions. This in turn would require huge

capital investment. Timing of these investments to perfectly match the market requirements

would be a challenge for the Indian industry. The ability of the market to develop in such timely

phases would determine the health of the gas industry in India. The Indian gas industry needs

to develop the market on the same lines as other nations to meet the supply challenges.

Integration of the gas markets has become a necessity due to the fact that gas has emerged as

an important alternative source of energy. Effective integration of the market will equip the

market with the ability to balance risks and conflicting forces across regions and fuels. This

would lead to flexibility in fuel consumption pattern which, in turn, would lead to market

stability and promote sustainable growth. Asia today accounts for 70 per cent of the total LNG

trade; Japan and Korea are meeting their entire gas requirements through imports.19 Today

India and China together account for about 3.5 per cent of the global gas consumption.20

However, with greater integration of the natural gas markets at a global level, the share of

natural gas consumption in China and India together is expected to account for about 7 per

cent of the total global natural gas consumption in high oil price scenario by the year 2030 as

has been reported in EIA/IEO 2009.21

With growing demand and increased supply options, City Gas Distribution networks have

sparked considerable interest amongst prospective players. However, in order to tap this

opportunity, the developers need to look at the critical aspects of the projects including

demand build up, adequate supply, pricing and risk factors like regulatory

interference/facilitation.


It is necessary that the Central and State taxes on commercial energy supplies are rationalized

to yield optimal fuel choices and investment decisions. Relative prices of fuels may be artificial

(and not necessarily based on the principle of sound economics) if taxes, levies, surcharges, and

subsidies are not comparable across fuels. As per international practices, this equivalence

should be based on calorific value of fuels – say, for example, British thermal unit (Btu). In other

words, they should be such that producer and consumer choices regarding fuel and

technological usage are independent of taxes, levies, and subsidies, etc.

Benefits of Market Development for Stakeholders

The speedy development of CGD networks and ensuing market development offers multitude

of benefits to all the stakeholders concerned, especially the customers. Only a few years back, it

was very normal to see natural gas being flared-up from the wells where it was discovered,

because either its use had not been realized by the industry/users or the industry was not ready

with the supply, processing, and transmission and distribution infrastructure. Market

development efforts ensure that both the aspects are tackled simultaneously.

The prerequisite for market development is sufficient infrastructure for the transportation of

gas and gas should not only be available but should me more in supply than the demand.

However, this is not a situation that India can be into in the near future. Also, with controlled

prices and gas allocation prices, there is no mechanism for price discovery. It has been proven

across the world that where governments tinker with the markets, the markets do not respond

well in terms of market development.


Customer Service issues in CGD businessCustomer service is the at most important in the CGD business although profitable in long term,

but switching to natural gas comes along with quite a few issues which consumers are facing

today, the biggest is that of irregular supply of gas. Even companies like IGL and MGL are not

able to supply gas on a regular basis, and supply disruption actually help all types of customers

to a great extent.

Issues in Customer Service

Industrial Customers

Continuous Supply of Gas: The most common and critical issue faced by, not only the industrial

but by all types of customers. The supply of gas is not continuous, sometime or the other the

supply gets disrupted and it affects the industrial customer in a big way.

Metering Issues: There have also been some issues with the metering, as there has been

complains about meter malfunctioning, and if you are dealing with large volume of gas it really

affects.

Calorific Value of Gas: Since the calorific value of gas is not always the same it affects the

productivity of the customer.

Contracts based on seller side: Since there is almost a monopolistic CGD market in a given

region in India today, the bargaining power of customer is really low. Hence the contracts are

believed to be biased towards the sellers.

Maintenance Problems: There have also been several issues with maintenance and quality of

service and equipments used.


Domestic Customers:

Delay in Registration: There is a long delay since registration is done and gas reaches at home.

Though the condition has improved now, still in some cases customers had to wait for almost 2

years after applying.

Billing Problems: Still there is no efficient billing system for domestic customers. Though rules

have already been passed by PNGRB for billing, yet there is still large scope for improvement.

Long Pay-Back Period: Most of the companies charge around 5 to 10 thousand as installation

charges, which is quite high as compared to that of LPG. And if it is a temporary residence then

the money is even not refunded quickly at the time of submission of connection.

CNG

Long time for queuing : As the number of CNG vehicles have reached nearly .5 million and the

number of CNG filling stations are still low as compared to the amount of vehicles in a city,

there is a long queue at the stations and it creates a lot of problem.

Pressure Drop: Drop in supply pressure affects filing time


Major Commercial Issues

Objectives

The objectives of the commercial activities are:

To operate the business smoothly (Gas sourcing, pricing etc.) and strategic planning for future growth.

To maintain the gas sourcing as per the exact requirement of the company and it is also required to be monitored closely.

To identify new customers and educate them benefits of Piped Natural Gas.

To decide the gas price as per the guidelines of the company.

Strategic planning short term as well as long term assuming all the possibilities.

To update the management workflow as per the latest guideline provided by the regulatory boards.

To maintain gas supply management and preparation of management information system (MIS).

Commercial Activities & Issues in City Gas Distribution

The main commercial activities in CGD are:-

Gas Sourcing – Long term and Short term

Industrial and Commercial Gas Marketing

Pricing of Gas

Business Development Activities

Strategic planning and business planning

Regulatory Compliance

Gas Supply Management

Government Liasoning

The main issues are related with the operating business smoothly and strategic planning for

future for expansion of business need to be addresses effectively on time.


QHSE in CGDThe primary concerns with respect to gas distribution are the safety and security of the pipeline

network. The mesh of pipelines being used to distribute the gas needs to be maintained at the

highest operating level, because any leak can lead to catastrophic accidents. The safety

regulations are given the highest priority while issuing new licenses. The main challenges in

maintaining the quality, health, safety and environment aspect of this business are:-

Transmission Network

• Very high operating pressures > 90 bar

• Networks spread over longer distances with bigger size pipelines.

• Increasing levels of awareness along the pipeline route amongst the general population.

• Operator’s ability to respond to emergency and contain the damages.

• Thorough monitoring to minimize third party interference, leakages through probable use of SCADA.

Distribution network

• Low awareness among the society about the hazards.

• Networks running very close to population, buildings, etc.

• Operator’s preparedness to reach the affected site in case of damages to pipeline and contain the emergency due to congestion on the roads.

• Customers using non-standard appliances, illegal extension of pipelines within their premises.

• Concealing of pipes within the houses in the name of “beautification”.

• Unplanned digging of the pipelines within the customers’ premises leading to gas leakages.

• Gas Ingress issues in the populated areas due to underground leakages


CNG

• Poor maintenance and no yearly mandatory checks on the 200 Bar CNG system

• Use of non-standard cylinders leading to accidents.

• Use of expired cylinders/Non standard fitments from unauthorized retro fitment agencies.

• recertification system for High pressure CNG vehicles

• Strict enforcement of ” NO Mobile” policy at CNG refueling stations

Major oil and gas transmission pipelines are subjected to Safety Audits by OISD, as per its codes

and procedures. City Gas Distribution is not being subjected to any such audit. There is need to

study international codes / procedures /practices and adopt best practices. Responsibility can

be given either to OISD or Regulatory Board. As City Gas Distribution is expected to expand in

near future, Government needs to examine issues related to Safety, Health and Environment

and adopt uniform practices all over the country.

The safety guidelines are coined by the Oil Industry Safety Directorate (OISD), a technical body

under the Ministry of Petroleum and Natural Gas (MoPNG). The functions of the OISD are

elaborated below:-

To oversee the implementation of all the decisions of the Safety Council,

To keep abreast of the latest design and operating practices in the area of safety and

fire fighting in the hydrocarbon processing industry in the developed countries, so as to

develop standards and codes that would be suitable for the conditions in India.

To liaise with the statutory organizations on current views and developments and help

evolve a concerted effort for the industry;

To carry out periodic safety audits, review, suggest procedures for improvements and

report on the implementation of the suggestions to Safety Council;

To collect the relevant information and exchange it with the members of the Oil

Industry including information regarding accidents and disasters occurring in the oil

industry, and also organize industry meetings for exchange of experience.


To carry out enquiries into accidents, whenever required, and provide support to

Enquiry Committees set up by the Government.

To ensure implementation of all approved codes of practices for industrial hygiene.

To review practices in the storage and handling of dangerous chemicals and ensure

compliance with latest standards.

To review disaster control procedures and company preparedness.

To review in plant training programmes with regard to safety.

Thus we see that this body is entrusted by the government of India to look after the technical

standards and specifications that the companies must comply with, to do business in the city

gas distribution industry. The network and specific systems are implemented with the assent of

the Urban Local Body (ULB) present in the city. The company interested in developing the

infrastructure for the distribution of gas, needs to formulate the plan and involve the ULB in the

loop. The ULB ensures that the company has an effective master plan and implements

adequate safety measures. Few of the measures are:-

Leak Detection Equipment (LDE), and also follows industry regulations like adding the

right amount of Mercaptor in the gas for easy detection in case of leakage.

Safety Education Programmes (SEP) are also initiated through different channels public

broadcasting channels and locations for example awareness campaigns in schools,

colleges.

Lastly but not the least, Emergency Preparedness (EP) and disaster management plans are

reviewed by the ULB as in this high risk business, the probability of occurrence of accidents

cannot be ruled out.


CGD Regulation

The Petroleum and Natural Gas Regulatory Board Bill, 2005 establishes the Petroleum and

Natural Gas Regulatory Board (PNGRB) to regulate downstream activities in the petroleum and

natural gas sector . It includes refining, processing, storage, transportation, distribution,

marketing and sale of petroleum, petroleum products and natural gas excluding production of

crude oil and natural gas.

Objectives

The main objectives of PNGRB are:

• To provide level playing field for all.

• To protect the interest of consumer and entities.

• To promote competitive market.

• To ensure uninterrupted and adequate supply in all parts of country.

• To provide clear framework of operating rules.


2006 PNGRB Act

2007 GOI notified the board and the Act

2008 CGD regulations notified by PNGRB pipeline regulations notified

2009PNGRB published EOIs for more than 60 citiesand commenced bidding for 6 cities

2010 Potential refinements in regulations

• To ensure development of essential infrastructure and its optimum utilization.

Role of PNGRB

Registration of entities for:

Marketing petroleum, petroleum products & natural gas.

Establishment and opening LNG terminal

Establishment of storage facilities

Authorization of entities for :

Laying, building, operating or expanding carrier (common or contract) for

transportation of natural gas and petroleum products.

Laying, Building, expanding or operating city or local gas distribution network.

With respect to petroleum, petroleum products and natural gas:

Ensure adequate availability.

Monitor prices and transport rates.

Take corrective measures against restrictive trade practices.

Secure equitable distribution of petroleum and petroleum products.

Enforce retail and market service obligation.

Ensure display of information about the maximum retail prices fixed by the

entity for consumers at retail outlets.

Declaration of pipeline as common carrier or contract carrier.

Specification of access code.

Laying down of technical and safety standards.

Levy fees and other charges as determined.

Maintain databank of information on activities relating to petroleum, petroleum

products and natural gas.

Fostering fair trade and competition.

PNGRB will regulate only the city gas pipeline network tariff. The end gas price to the

consumers is not covered in the regulation.


Exhibit 15: Regulation formation and finalization

Regulations for Access Code

The Regulation for Access Code for Natural Gas Transmission Pipelines and City or Local Natural

Gas Distribution Networks was passed in June 2007. The main objectives of this access code

are:-

1. Promote the development of a competitive gas market by establishing uniform principles

for owners and users of gas pipelines to allow transparent and non-discriminatory access to

the gas pipelines and CGD networks.

2. Prevent abuse of monopoly power.

3. Ensure that a pipeline/CGD owner provides minimum service of access to available capacity

on a "firm service" basis and/or on "interruptible service" basis.

4. Provide basis for resolution of disputes.


In te rn a l D e lib e ra ti o n s in

P N G R B

D ra ft R e g u la ti o n s a p p ro ve d b y B o a rd

D ra ft R e g u la ti o n s p o ste d in p u b lic

d o m a in

O p e n H o u se w ith S ta k e h o ld e rs

C o m m e n ts fro m sta ke h o ld e rs

co n sid e re d

O p e n H o u se o n F in a l D ra ft

R e g u la ti o n s fi n a lize d &

a p p ro ve d b y B o a rdLe g a l V e tti n g

N o ti fi ca ti o n in O ffi cia l G a ze tt e

Regulations for Exclusivity

Marketing Exclusivity

The entity winning the rights to set up CGD network in a city will have five-year marketing

exclusivity. After five years, the network will be thrown open to competition but a fresh entrant

will not be allowed to lay a new pipeline. It will have to use the network for which it has to pay

a fee to the CGD Company. However, a company that has operated the CGD network for three

years or more prior to the appointment of PNGRB i.e. 1st October 2007, will have the marketing

exclusivity for three years compared with five years.

Infrastructure Exclusivity

The CGD Company will have lifetime exclusivity of 25 years for the pipeline network.

Eligibility Criteria

Those who have obtaining rights to set up a city gas distribution network would need to meet

the following eligibility criteria:

Body Corporate or Company registered under the Companies Act

Should have a credible plan for sourcing of natural gas

Should have experience of laying aggregate of over 300 km of oil or gas pipelines or form a joint venture with a company which has that experience

The entity should have experience of at least one year in operation and maintenance of a CGD network or should have a joint venture with 11% holding with another entity having such experience.

Appropriate Technical Assistance Agreement for at least one year with another party having experience of operating and maintenance of CGD network for at least a period of one year

An entity interested in developing a particular city gas project needs to submit "Expression of

Interest" to PNGRB with Rs 8-12 lakh as fee depending upon population of the city (non-

refundable), Geographical area, Market potential of CNG and PNG, business plan.


Need of Regulations

CGD Regulations encourage faster network coverage with benefits to both CGD entity and end-

consumer.

Regulations have been conceptualized considering many parameters:

1. Level playing field to non-energy sector players: Flexibility of entering into technical

tie ups likely to allow entry of non energy sector entities into the CGD space. ‐ ‐

2. Intention to have serious bidders with detailed plans: Time allowed by PNGRB for bid

submission to allow entities to develop a thorough plan before submission of bids

(having 25 year validity).

3. Benefits to new entity (Exclusivity): Five year marketing exclusivity for new cities to

encourage faster network penetration with a view to capture maximum customer base

and enjoy commodity margins.

4. Benefits to consumer (Open Access): Open access of the distribution network after the

exclusivity period to allow competition and choice to consumer.

While the biddable parameters are having strong consumer orientation, scope for a large

number of assumptions exists while bidding for the parameters.

1. Lowness of Network Tariff and Compression Charge:

Regulation’s Intention: To provide consumers lowest possible network tariff &

compression charge. This would eventually reduce the delivered price to

customer.

Question: Will lowest tariff hamper future expansion plans?

2. Highness of Steel Grid and Nos. of Domestic Connections:

Regulation’s Intention: Faster penetration of distribution network and reach to

all segments of consumers.

Question: How does the regulator plan to monitor the actual development?


Regulations to have a significant bearing on investment flow in infrastructure: Board has-

Shown commitment to the spirit of the PNGRB Act

Shown keenness to move with speed

Adopted consultative approach

Laid emphasis on transparency

Shown preference to less intrusive regulation

Signaled independence

Challenges and hurdles

The management needs to take some firm actions for addressing the following issues:-

• Dominance of Central PSUs.

• Heavy subsidization of kerosene and LPG.

• Government continues to determine price of diesel marketed by PSUs.

• PSUs have monopoly over transportation and storage infrastructure.

• Production, supply and distribution of natural gas controlled by govt. with APM price

with allocation on case to case basis.

• New discovery lead to only one supplier.

• Even in this case govt. determined price and allocation.

• Ambiguity related to section 16

• Notification of Petroleum products by MoPNG

• Shortage of manpower with relative experience.

CGD Business: International PerspectivesCity Gas Distribution

United States

Due to intense cold and power requirements US consumes maximum gas in the world. It has be

stand largest infrastructure in the world for the distribution of natural gas. Each day around 70

million consumers depend on national natural gas distribution network for their gas

requirements. Out of these 70 million customers, 92 percent are residential units, 7 percent

commercial and 1 percent large scale industries and power companies. These 1 percent

companies consume more than 60 percent of total gas alone in US. There are more than 1500

distribution companies which include natural gas Local Distribution companies which serve

millions of consumers and other small companies which have consumer base of as low as 100.

It also includes mainline natural gas pipeline companies that provide direct service mostly to

large volume end users, although the bulk of the natural gas transported by pipelines usually

reaches end users via LDCs. The LDCs account for more than 60 percent of total gas distributed.

The remaining 40 percent gas is distributed via main line pipeline systems.

Various Natural Gas Distributors in US

Investor-Owned: These are the LDCs whose stock is publicly traded, and is generally granted

exclusive territorial contracts covering large areas within a State. These are subject to Public

Utility Commission’s regulations.

Privately-Owned: These are the LDCs that are owned by private investors and whose stock is

not publicly traded. Like an investor-owned LDC and it is also subject to the State PUC

regulations and rate-setting guidelines.

Municipal: These LDCs are owned and operated by a municipal government. Most municipal

LDCs were organized in areas located along the long-distance routes of the large interstate

natural gas pipelines that were built during the first half of the 20th century but where the

potential rates of returns on investment were not attractive enough for investor-owned or

privately-owned utilities to build a distribution network. Many municipalities that operate their

own natural gas distribution system contract with investor- or privately-owned utilities.


City Gas Distribution Cooperative: An LDC that operates on a cooperative nonprofit basis for

the mutual benefit of its members. No interest or dividends are paid out of earnings although

the company is obligated to pay, by credits to a capital account for each member, any excess

revenues received beyond annual operating costs and expenses.

Intrastate Natural Gas Pipeline: A large-diameter mainline system that operates totally within

one state. These natural gas pipelines may provide open-access transportation services or

engage in purchasing natural gas from producers and suppliers for reselling to large-volume

customers such as local natural gas distribution companies, electric utility companies, and

industrial customers. They are subject to the jurisdiction of a State PUC or State Energy Office.

United Kingdom

Market of natural gas is regulated by OFGEM which also the electricity market regulator. Large,

Industrial, Commercial and resident users are free to select their gas suppliers. The market has

integrated energy players having presence across value chain. In terms of market development

Market has evolved from being PSU controlled to privatized unbundled units. “Perfect

competition” features with multiple gas sources, multiple producers and consumers and a well

integrated infrastructure network is prevalent in UK. Talking in terms of prices Wholesale and

retail prices are not regulated; transmission and distribution prices are regulated through a five

year regime.

Australia

The average growth rate has been around 2.5 percent over the last five years. The gas

distributor’s supply gas to 3.4 million households and 105 000 commercial and industry

customers, through over 75 000 km of low pressure distribution networks. With a population of

21.5 million residential penetration of gas distribution system is very high at approximately 16

percent.

Some local governments also distribute natural gas, such as at Dalby in Queensland.

Distributors transport large volumes of gas, at high pressure from a number of locations around

the country, including the Carnarvon Basin (NW Western Australia), the Gippsland Basin


(Victoria's SE coast), Bass Strait, the Otway Basin and the Cooper and Eromanga Basins (on the

borders of South Australia and Queensland). These reserves service 3.4 million residential

homes via 75,000 km of underground pipes.

China

China is the fastest growing consumer of the natural gas in the world. But a city gas project in

China also includes coal gas and LPG. The total distance of city coal gas grid is much longer than

that of natural gas grid in China but natural gas grid is expected to outdo coal gas grid in next 15

years. The use of natural gas is increasing rapidly due to environmental factors. There are many

companies involved in city gas business like Towngas, Xinao Gas, Panva Gas, Wah Sang Gas,

Zhengzhou Gas and Beijing Gas. Besides these city gas companies, some local governments are

taking the steps to get the pipeline gas by upgrading their existing grid or developing a new

pipeline network.

The development trends of China city gas industry indicates that in the forthcoming years coal

gas will be eliminated gradually, while the natural gas will develop rapidly, and the LPG, as the

complementary energy for natural gas, will develop steadily. With the increasing proportion of

natural gas in China, the city gas market seems to be promising.


Future Outlook

There are 19 CGD entities operating CGD networks in in 36 geographical areas. This segment

consumed about 11 mmscmd during 2009-2010 as against a total demand of 12-13 mmscmd

from domestic, vehicles, commercial and industrial customers. Within the next three years,

PNGRB predicts that 86 more geographical areas will receive authorization to build and operate

CGD networks. The total vehicular demand from these geographical areas is expected to be 2.5

million up from the current 700,000. In the next 5 years, 125 geographical areas are likely to be

authorized and the vehicular demand from them is likely to be 3.3 million. The growth of this

sector may get limited in the coming years and estimated around 15-16 mmscmd by 2013.


References

(2010). Annual Report. Mumbai: Mahanagar Gas Ltd.

(2008). CGD in India 2008. New Delhi: India .

Dholakia, B. (2009). India Retail Revolution - Challenges & Opportunities for Fuel Retails. Petrotech - 2009. New Delhi.

Draft Regulation. Retrieved March 14, 2010, from Petroleum & Natural Gas Regulatory Board: https://www.pngrb.gov.in

(2010). Gas in India 2010. New Delhi: India Infrastructure Research.

Gas Transmission & Distribution System. Retrieved March 18, 2010, from Mahanagar Gas Ltd.: http://mahanagargas.com

(2010). City Gas India Roundtable 2010. Ahmedabad: Vikalpa Oct- Dec 2010.

City Gas Distribution, March 19, 2010: Presentations and Reports: School of Petroleum Management, Gandhinagar


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