report on investment prospects in city gas distribution

Investment Prospects in City Gas Distribution in India

TABLE OF CONTENTS

Natural Gas Overview in India______________________________________________________3

Introduction:________________________________________________________________________3

Existing State of Affairs of Natural Gas in India:____________________________________________13

City Gas Distribution Overview____________________________________________________38

Fundamentals of City Gas Distribution:__________________________________________________38

Evolution and Development of City Gas Distribution in India:________________________________46

City Gas Distribution Market in India_______________________________________________52

Profile of Players in City Gas Distribution_________________________________________________52

Bidding Strategies of Players___________________________________________________________76

Trends and Future Demand Estimates of CGD_____________________________________________77

Demand side issues in CGD Business____________________________________________________79

Sources of Supply and Future Supply Outlook for CGD______________________________________80

Supply side issues in CGD______________________________________________________________81

Regulatory Aspect of City Gas Distribution___________________________________________83

Regulatory Framework of PNGRB Act____________________________________________________83

Source: PNGRB & Infraline_____________________________________________________________88

Pricing of CNG and PNG_______________________________________________________________88

Legal Framework of Natural Gas Sector in India___________________________________________92

Taxation Issues Related to City Gas Distribution_____________________________________100

Fiscal aspects in CGD________________________________________________________________100

Global Practices in City Gas Distribution____________________________________________102

List of Tables

Table 1: Comparative Primary Energy Consumption of India and China__________________14

1


Table 2: Estimated Sector-Wise Demand____________________________________________19

Table 3: Industry-wise Offtakes of Natural Gas in India_______________________________20

Table 4: Source-wise Availability of Natural Gas as on________________________________22

Table 5: Natural Gas Production for India, China and Pakistan_________________________23

Table 6: Demand Scenario of Natural Gas in India___________________________________25

Table 7: Expected Domestic Availability of Natural Gas as on June 2010__________________26

Table 8: Expected R-LNG Availability______________________________________________26

Table 9: Domestic Gas Supply Outlook (billion cubic meters)___________________________27

Table 10: India LNG Imports by Country (bcm)______________________________________27

Table 11: India LNG terminals, existing, under construction and planned_________________28

Table 12: Details of CNG supplied by JVs of GAIL (As on July 2009)____________________39

Table 13: List of 13 Cities identified by GAIL under the directives of Supreme Court________41

Table 14: Growth in PNG consumers in last 5 years___________________________________43

Table 15: Benefits of CNG and PNG_______________________________________________44

Table 16: Timeline of City Gas Distribution Business in India___________________________47

Table 17: Authorization Status of Entities___________________________________________47

Table 18: Entities Other Than Gail JVCs in CGD Business_____________________________48

Table 19: Investments made by GAIL/JVCs for CGD Projects (As on April 2009)___________49

Table 20: CGD Likely Roll Out Plan (as in April 2009)________________________________50

Table 21: Present City Gas Consumption in India (As in April 2009)_____________________51

Table 22: CGD Infrastructure of Key Player in India__________________________________53

Table 23: Year-wise commitment during exclusivity period – Delhi_______________________56

Table 24: Year-wise commitment during exclusivity period – Mumbai & Greater Mumbai____58

Table 25: Year-wise commitment during exclusivity period – Kanpur & Bareilly____________59

Table 26: Year-wise commitment during exclusivity period – Hyderabad & Vijayawada______61

Table 27: Year-wise commitment during exclusivity period – Indore & Ujjain City__________63

Table 28: IGL’s Year-wise commitment during exclusivity period – Agra__________________64

Table 29: Year-wise commitment during exclusivity period – Mathura____________________65

Table 30: Snapshot of Winners in Round One CGD Bidding____________________________68

Table 31: Winners of Round 2 Bidding4_____________________________________________71

2


Table 32: Sector Wise Gas Demand Projections (2007-012)_____________________________79

Table 33: The total cost of gas sold suffered by ONGC on supplying APM gas (2006-09)_____82

Table 34: Gas Price Differentiation on the Indian Gas Market (2010)____________________82

Table 35: CNG Price as on April 2009______________________________________________90

List of Figures

Figure 1: World Primary Energy Demand by Fuel__________________________________4

Figure 2: World Fossil Energy Production by Region in the Reference Scenario__________5

Figure 3: CO2 Emission per Fossil Fuel__________________________________________6

Figure 4: U.S. Energy Related Carbon Di-oxide Energy Related Emissions by Fuel_______7

Figure 5: Non – OECD Industrial Sector Energy Consumption________________________7

Figure 6: Crude Oil Price Trajectory During January 2005 – January 2009_____________8

Figure 7: Total Investment Plans of 50 Leading Oil and Gas Companies_______________10

Figure 11: Energy Policy Administration in India__________________________________18

Figure 12: Natural Gas Reserves in India, China and Pakistan_______________________19

Figure 13: Break-up of Industry-wise Offtakes of Natural Gas in 2008-09 for___________21

Figure 14: Sector-wise average daily supply (MMSCMD)___________________________23

Figure 15: Evolution of Gas Demand____________________________________________24

Figure 16: Gas Pipelines in India_______________________________________________29

Figure 17: Comparison of CNG with other fuel____________________________________39

Figure 18: A typical City Gate Station___________________________________________44

Natural Gas Overview in India

Introduction:

3


Natural gas1 is the fastest growing component of primary energy consumption of the world

and a preferred fuel among its alternatives due to environment and cost advantage. Natural

gas is cleaner than other fossil fuels like coal and oil and cheaper than other renewable

energy sources like solar, wind, hydro and so on. Also Reserve-to-Production ratio2 of gas

is 63 as compared to oil which is 463. Natural gas is regarded to be the fuel of this century

due to its multifarious benefits to various stakeholders. In case of India the ratio comes to

about 28.4, while that of world is 62.8.

As shown in Figure 1 below fossil fuels have a maximum shared in world’s primary

energy demand, with coal, oil and gas increased by almost 77 percent during 2007-30

period. The increase in natural gas demand after 2007 is more than that of in oil.

Figure 1: World Primary Energy Demand by Fuel

1980 2000 2007 2015 20300

1000

2000

3000

4000

5000

6000

CoalOil Gas Nuclear HydroBiomass & WasteOther Renewables

Source: World Energy Outlook, 2009

These fossil fuels will be more produced and consumed by Non-OECD countries than

OECD countries (Figure 2). More than 95% of the increase in production, in energy value

terms, comes from non-OECD regions (where most low-cost resources are located),

compared to about 94% over the previous quarter of a century4.

1 Natural Gas is a gaseous form of petroleum consisting of mixtures of hydrocarbon gases and vapours, the more important of which are methane, ethane, propane and butane; gas produced from a gas well.2 Reserves-to-production (R/P) ratio – The ratio is arrived at by dividing the reserves remaining at the end of any year by the production in that year. The resultant figure will be the length of time those remaining reserves would last if production were to continue at that rate.3 BP’s Statistical Review of World Energy 20104 World Energy Outlook 2009

4


Figure 2: World Fossil Energy Production by Region in the Reference Scenario

Reference scenario of International Energy Outlook 2010 (IEO-2010), indicates the

consumption of natural gas been increased worldwide from 108 trillion cubic feet in 2007

to 156 trillion cubic feet in 2035. Though there was a fall in total natural gas consumption

and production during 2009 due to recession resulting from slowdown in manufacturing

activities. As the world is starting to recover from the memories of oil shock during July

2007 and economic downturn, the demand for natural gas worldwide has started showing

an upward trend, mostly in Non-OECD countries like India, China and Middle East.

Lesser emission from natural gas (Figure 3) as compared to other fuel like coal and crude

will also play a significant role widespread use of natural gas in most of the economic

activities in industries, vehicles and household. This rising trend will mostly be seen in

developing nation where there will be a significant shift from fuels like petrol, diesel,

naphtha; coal etc to a cleaner fuel like piped natural gas used in households and

compressed natural gas to be used in vehicles. So there is a market available for natural

gas in developing nations to penetrate deeper and compete with its counterparts.

Figure 3: CO2 Emission per Fossil Fuel

5


Source: US EPA, EIA

World’s energy related carbon emission according to reference scenario in IEO-2010

indicates a rise from 29.7 billion metric tones in 2007 to 42.4 billion metric tones in 2035.

This rise is mostly due to economic growth and growing dependency on fossil fuels.

Emission from natural gas (Figure 4) is regarded to be the least5 among all other fossil

fuels making it an attractive choice of Greenfield power plants, which also help it to save

upon its capital cost. The carbon emissions from coal and oil are 12.5 billion metric tones

and 11.3 billion metric tones respectively, while that for natural gas it is 5.9 billion metric

tones in 20076.

Figure 4: U.S. Energy Related Carbon Di-oxide Energy Related Emissions by Fuel

5 International Energy Outlook – 2010, EIA6 Ibid

6


in IEO 2009 and IEO 2010, 2007, 2015, 2035 (Billion Million Tones)

Source: International Energy Outlook – 2010, IEA

The growth of natural gas consumption in Industrial sector will be the maximum in Non-

OECD nations, if reference case scenario (IEO – 2010) is to be considered7 (Figure 4).

Figure 5: Non – OECD Industrial Sector Energy Consumption

by fuel, 2007 and 2025

Source: International Energy Outlook - 2010, EIA

Impact of financial crisis was seen across the sectors, including oil and gas sector. Energy

companies in upstream started to drill less oil & gas fields, which resulted in cutbacks in

refining and pipeline business too. But at the same time there was a fall in fossil fuel

consumption which resulted in lesser emission of carbons, hence cleaner environment,

particularly in developing nations. The investment climate in all sub-sectors in oil and gas

7 Ibid 7

Cfude oil prices: Dated Brent ($/bbl)

95

145

115

99

45

73

42

53

120

135

93

44

77

0

20

40

60

80

100

120

140

160

Jan-05

Apr-05

Jul-05

Oct-05

Jan-06

Apr-06

Jul-06

Oct-06

Jan-07

Apr-07

Jul-07

Oct-07

Jan-08

Apr-08

Jul-08

Oct-08

Jan-09


value chain was low, though the raw materials were available at cheaper prices. This

falling investment had its impact on global oil and gas companies, resulting into negative

financial performance, forcing them to cut down more on their capital investment. There

was a sense of energy insecurity and energy poverty all around, resulting from slack in

demand of various sectors. Rising crude oil prices during 2007 (Figure 5) was also

considered to be one of the crucial factors beside the housing bubble playing a spoil sport

in economic development. Speculations in oil commodities were citied to be the reason

behind the rising crude prices. Since October 2008, over 20 planned large-scale upstream

oil and gas projects, involving around 2 mb/d of oil production capacity, have been

deferred indefinitely or cancelled and a further 29 projects, involving 3.8 mb/d of oil

capacity, have been delayed by at least 18 months8.

Figure 6: Crude Oil Price Trajectory During January 2005 – January 2009

8 World Energy Outlook – 2009, IEA8

Speculations resulting into volatile market…

…& then a global meltdown


Energy investment was restricted during this period mainly due to three factors viz. tighter

credit availability, lower profitability of various entities and less demand for new capacity

creation9.

During this period most of the projects were funded off the balance sheet as financing

options in the market was restricted to great extent. The burden was clearly visible in the

profitability of various companies. Many Initial Public Offers (IPOs) underperformed like

that of Reliance Power in India. This crisis on energy investment varied across fuels and

nations, which resulted into varying risk and its mitigation strategies and differing

corporate responses resulting into varying set of future projection to deal with the crisis.

The stimulus packages too were country specific, taking care of adaptability and

affordability of its citizens to cope of with this crisis.

According to World Energy Outlook analysis, the investments of top 50 leading oil and

gas companies in 2009 will fall by 16 percent from $ 524 billion in 2008 to $ 442 billion

(Figure 7), as they had to rely more on self financing due to credit crunch. This resulted

into higher borrowing cost. National Oil Companies were insulated by the regional

governments due to favorable borrowing terms and continued oil bonds as in the case of

India.

9 Ibid 9


Figure 7: Total Investment Plans of 50 Leading Oil and Gas Companies

10


Source: Company reports and announcements; IEA analysis

The impacts of slowdown on investment climate continued till first quarter of the year

2010. New investments in the form of private equity, debt offerings, mergers and

acquisitions deals in oil and gas sector, notably declined by 10 percent during this period.

Investments declined from $39.7 billion in Q4 2009, to $39.5 billions in Q1 201010. The

number of oil and gas deals also fell short from 106 deals to 89 deals during the same

period11. Uncertainties all around with respect to oil and gas prices, coupled with lower

energy demand toppled the future plans of most of the companies. Off late the things

started to change not only world-wide but also in Asia-Pacific regions including that of

India and China. According to IEA’s, World Energy Outlook, 2009, the cumulative

10 Globaldata Analysis11 Ibid

11


investment in gas supply-infrastructure by activity, under Reference Scenario, 2008-2030,

the share of transmission and distribution accounts for 31 percent, while 51 percent of the

investment will be under exploration and development activity. The balance 10 percent

will be accounted to be in Liquefied Natural Gas (LNG), of which 63 percent will be in

liquefaction, 25 percent in regasification and the balance of 12 percent in transporting

LNG.

But advances made in hydraulic drilling and a hydraulic fracturing technology has made

exploitation of shale gas (a natural gas produced from shale) possible, which has led to an

increase in production of natural gas in United States during 2009. The more and more use

of shale gas will reduce the greenhouse gas emission, which will certainly increase the

current production of natural gas.

Natural gas, an important form of world’s energy supply is one of the cleanest and safest

fuels, which is odorless, colorless and shapeless in its pure form. It is a combustible

mixture of hydrocarbon gas, formed primarily from methane, which can also include

butane, propane, ethane and pentane. The typical composition of natural gas and its

applications is shown in Table 1 above.

Natural gas is like fossil fuel, which is formed when organic matter is compressed down

the earth at a very high pressure for a long time. The benefits of this gas are as under:

Advantages

More environment-friendly compared to oil & coal, due to lesser carbon element,

resulting in lesser emissions. With the same amount of heat, natural gas emits 30%

less carbon dioxide than burning oil and 45% less carbon dioxide than burning

coal. Thereby, improving the quality of air.

It is cheap (less expensive than gasoline) therefore, very cost effective.

It can be safely stored and burned.

Most of the natural reserves are untapped

Due to clean burning process, doesn’t produce ashes after energy release.

Has a high heating value of 24,000 Btu per pound.

Disadvantages

Natural gas is a finite source on the Earth and leaves crater in its surface.

12


It is highly volatile (highly flammable) and can be dangerous, if handled carelessly.

It is colorless, odorless and tasteless that makes detection of its leak very difficult.

In gas pipelines, a substance (contains carbon monoxide) that has a strong odor is

added to help detect a leak. But, these substances may be harmful and cause deaths;

in fact, natural gas use is the most common cause of carbon monoxide deaths.

Constructing and managing such pipelines cost a lot

Gas is produced either as natural gas or in the form of liquefied petroleum gas (LPG).

Natural gas can be associated gas (wet gas) as well as non-associated gas (dry gas).

Associated gas is produced along with crude oil and so it is called a wet gas while non-

associated gas is produced without oil or with oil which has no commercial value.

Associated gas rich is in hydrocarbon, while Non-Associated gas has mostly used in power

plants.

The natural gas is either transported through natural gas pipelines or by tankers (LNG). Its

mode of transportation basically depends on the source of its availability and market. The

longer distance is covered by tankers while the shorter one through the trunk pipelines. To

this trunk pipelines, city gas distribution pipelines is attached so as to make it available to

the end consumers like industries, like power plants, fertilizer companies, commercial

units, transportation and for domestic purpose. Both associated and non-associated gas

goes to refinery in the form of oil and natural gas liquids respectively for further

processing and refining. Hence after this process various kinds of petroleum products like

petrol, diesel, naphtha, LPG, are produced and marketed to the consumers through retail

outlets. Similarly under LNG value chain there are three sub-sectors viz. upstream

(production & liquefaction), midstream (transportation through tankers) and downstream

(terminals with associated facilities). Again from this downstream, LNG is re-gasified and

transmitted to the end users.

Existing State of Affairs of Natural Gas in India:

India’s Share of Natural Gas in Energy Basket

India’s share of natural gas stood at 10 percent (Figure 11) as compared to the global

average of 24 percent in 2009. The main reason for this was slow pace of gas discoveries

coupled with poor pipeline infrastructure. It was only after natural gas finds of Krishna

13


Godavari – D6 Basin, the situation seems to change for a good, as reserves increased along

with the record production in 2009. This development will surely result into better gas

pipeline and city gas distribution infrastructure.

Surprisingly natural gas consumption declined world-wide except in the regions of Asia-

Pacific and Middle East. Russia and Turkmenistan saw the decline in production by 12

percent and 44 percent respectively resulting from a slump in manufacturing activity. U.S.

was an exception as its production was the largest in the world for third successive year. In

Asia-Pacific, there was an increase by 25.9 percent in the consumption of natural gas,

which was one of the highest in the world. And with expected market expansion in

downstream sector, will attract more and more investors in upstream sector, despite the

later being a gamble.

Nations like India and China have started framing strategies to curb on energy emissions

or energy intensity, mainly due to the fact of higher price paid for fuel in industries like

steel and cement producing companies. The world is just coming out of recessionary

period and energy consumers will prefer natural gas among other alternatives, which could

be a driving force for entities to invest more into the exploration and production of such

fuel. Growth in natural gas consumption was the maximum among all primary energy

sources with 25.54 percent in 2009, which was one of the largest in the world (Table 2).

While the growth in coal and oil consumption was 6.48 percent and 3.41 percent

respectively. The favorable policy and investment climate with regulators in both

upstream and downstream segment of this value chain has contributed to this growth.

There has been a growing worldwide acceptance to the fact that the sustained development

of any entity or for that matter of a country is possible only if its economic activity takes

care of the local environment, which requires collective and collaborative efforts on the

part of various stakeholders like government, industries, entities and people at large.

Table 1: Comparative Primary Energy Consumption of India and China

Primary Energy

Consumption India China

(MTOE) 2008 2009 % Change 2008 2009 % Change

Oil 143.6 148.5 3.41 380.3 404.6 6.39

14


Natural Gas 37.2 46.7 25.54 73.2 79.8 9.01

Coal 230.9 245.8 6.48 1406.1 1537.4 9.33

Nuclear Energy 3.4 3.8 11.76 15.5 15.9 2.58

Hydro Electric 26 24 -7.69 132.4 139.3 5.21

Total 441.1 468.8 6.28 2007.5 2177 8.44

Source: BP’s Statistical Review of World Energy, 2010

The prospects of natural gas scenario in India seems to be getting brighter due to reasons

like recent Ambani truce, hike in Administered Price Mechanism (APM) price of gas to

the tune of $4.2 / mBtu, government allowing downstream regulator to authorize

companies for laying natural gas pipelines and permitting oil upstream Public Sector

Undertakings (PSUs) to sell gas in market.

Investment Trends in India Since Global Recovery

India too struggled to cope up with economic crisis but came up well to recover fast than

many developed nations. The impact of economic slowdown was felt is oil and gas sector

largely because of high capital intensive nature. NELP-VIII, could be one of the example,

where impact of the global crisis been felt. There was a sudden fall in investments by

foreign players as well as private players in India as they found the same un-rewarding.

Their aspirations were also dented due to continued Administered Pricing Regime of the

government as well as the ongoing conflict between Ambani brothers on pricing of gas

price, resulting from unclear policy framework of the government. But thereafter things

started changing amid global recovery as India’s economy was one of the first countries to

recover from this economic crisis in the world12. Year 2009 also marks the turning point

for the Indian Gas Market. Before 2009, the estimated potential gas demand was higher

than the actual use due the lack of supply, leading to less consumption. To overcome this

limitations government came out with some reforms including the New Exploration

Licensing Policy (NELP), of which eight rounds has been completed and the last round

(NELP-IX) is been announced just few days back. There after regulator was introduced for

both upstream sectors (Director General of Hydrocarbons) as well as in downstream sector

(Petroleum and Natural Gas Regulatory Board), in order to regulate and function these part

12 India Rebounds, Needs to Return to Reform Agenda, International Monetary Fund, February 5, 201015


of value oil and gas value chain. Director General of Hydrocarbons was established

through government resolution on April 8, 1993, while Petroleum and Natural Gas

Regulatory Board was constituted under The Petroleum and Natural Gas Regulatory Act,

2006.

Then in April 2009, NELP VIII was launched, with a limited success as 76 bids were

received for only 36 blocks out of 70 blocks offered. Investors were least attracted mainly

due to KG-D6 gas and the 7-year tax holiday issue. But in 2009 clouds on uncertainty

started clearing as the government cleared the KG-D6 gas and the prices were fixed by the

government, the dispute between Ambani brothers resolved. There was better forecasting

done for India’s GDP growth. IEA too raised the gas demand forecast for India at 5.4

percent per annum over 2007-30, (IEA, 2009). The government raised the price of

Administered Price Mechanism (APM) from $ 1.8 / MBtu to $ 4.2 / MBtu while allowing

oil and gas public sector companies to sell their gas in the market. This was again an

important step to encourage further investment in upstream sector. On September 01,

2010, Minister of State for Petroleum and Natural Gas, Mr. Jitin Prasad, in order to attract

upstream investment more, said that India is moving towards the Open Acreage Licensing

System (OALP) from current NELP. Under OALP the bidder can bid for blocks on offer

during any time in a year and would certainly expected to spur crude investment and they

will start getting investment based tax holiday rather profit based.

Indian gas market which has seen an unprecedented rise in production and consumption of

natural gas in 2009 is at a yet another turning point.

The consequence of just increased price of natural gas has to be keenly observed in sector

like power and fertilizers which have a priority of allocation among remaining users like

city gas distribution, industrial and commercial sectors according to Gas Utilization

Policy. This policy was an arrangement by the government resulting from Ambani dispute

on gas utilization, ownership of resources and gas pricing. So the issues and concerns are

manifold given the recent developments in oil and gas upstream sector, which will

certainly set the pace and structure of investment climate in the downstream sector.

Reforms process has brought in private investments in both upstream and downstream

sectors, which can remain sustainable and attractive if the regulatory framework is more

16


transparent and obvious. India needs to investment more on energy infrastructure to match

the expected energy demand including that of natural gas. India’s transport and energy

infrastructure are in a state of disrepair (76th)13. Though public spending is on rise on

infrastructural developments but the same has to be improved and overall policy structure

should also address this concern. The quality of overall infrastructure ranking for India has

got better in 2009-10 than in 2008-09, but still find itself in a competitive disadvantage

position ranking 89 in the world14. India is certainly looking up to be placed much better in

the Competitive Index in future.

Potential market prospects of NG in India

According to BP’s Statistical Review of World Energy 2010, natural gas production in

India has rose by 28.9 percent from 30.5 billion cubic meters (BCM) to 39.3 (BCM) in

2009, registering highest growth in Asia Pacific, far ahead of China which stood at 6.4

percent only. Natural Gas consumption showed the record decline world-wide except

Middle East and Asia Pacific. It was highest in India in percentage terms with 25.9 percent

increase since 2008 among all other nations. This statistics is a clear indication of growing

popularity of this fuel in India and the huge potential of natural gas demand in foreseeable

future.

The government has announced Ninth offer for exploration blocks under NELP on

October 2010. The companies are invited to bid for 34 blocks of which 19 are Onland

blocks, 7 are Shallow water blocks and 8 are Deepwater blocks. Though through this

round of bidding government is trying to woo foreign investors, but from an investor’s

point of view, model production sharing do not have much for them in store as government

has already planned to abolished 7-year tax holiday on natural gas, while making Direct

Tax Code is likely to also abolish this holiday from mineral oil too, replacing it with

investment-linked incentive schemes for newly awarded blocks. There how the

prospective investors perceive this policy of the government has to be closely monitored.

Stakeholders in NG industries:

There are five ministries / departments in India’s energy sector, handling policy

administration. These are the Ministry of Petroleum and Natural Gas, the Ministry of New

13 The India Competitiveness Review 2009, World Economic Forum14 Ibid

17


and Renewable Energy, Ministry of Coal, Ministry of Power and Department of Atomic

Energy (Figure 10). While natural gas sector in India is mostly handled by the Ministry of

Petroleum and Natural Gas (MoPNG), the Directorate General of Hydrocarbons (DGH)

and the Petroleum and Natural Gas Regulatory Board (PNGRB).

- The MoPNG oversees exploration and production of oil and gas, refining, including

distribution, marketing, import, export and conservation of petroleum products and

LNG. This ministry also formulates policies with respect to pricing of petroleum

product, bio-fuels, auto fuel, production sharing contract and gas utilization policy.

- The DGH is broadly responsible for managing the various activities with regard to

Indian E&P acreages. They are in terms of awarding blocks, executing production

sharing contracts, monitoring developments etc. to promote exploration and

management of petroleum and natural gas resources, including non-conventional

hydrocarbon resources.

- The PNGRB, is to regulate refining, processing, distribution, transportation, marketing

and sale of petroleum, petroleum products and natural gas excluding exploration and

production of crude and natural gas so as to ensure smooth supply of the same to the

consumers, while promoting competitive markets to the players engaged in this

business. Though the board is independent of ministry but the later can give directions

to the former with respect to sovereignty and to maintain or increase the supply.

Figure 8: Energy Policy Administration in India

18


Source: World Energy Outlook 2007, IEA

Note: PSU: Public Sector Undertaking, CEA: Central Electricity Authority, BEE: Bureau

of Energy Efficiency, PPAC: Petroleum Planning and Analysis Cell, DGH: Directorate

General of Hydrocarbons, PCRA: Petroleum Conservation and Research Association,

PNGRB: Petroleum and Natural Gas Regulatory Board

Gas Availability

According to the oil minister, Murli Deora, India’s total availability of natural gas,

including liquefied natural gas is around 167.8 mmscmd, which is projected to be around

202.97 mmscmd, 256.6 mmscmd and 271.92 mmscmd during 2011-12, 2012-13 and 2013-

14 respectively15. Most of the increase would come when Reliance Industries hikes output

from its eastern offshore KG-D6 fields to over 80 mmscmd and the commissioning of

LNG import terminal at Kochi in Kerala16. Proved natural gas reserves in India increased

by 2.75 percent from 1.12 trillion cubic metres (tcm), to 1.09 tcm in 200817, mainly due to

recent findings in KG-D6 basin by Reliance Industries.

15 Natural Gas Availability in India to increase 52 % by 2013-14, Business Standard, August 26, 201016 Ibid 17 BP Statistical Review of World Energy – 2010

19

Government of India

Planning Commission

Ministry of Coal

3 PSUs15 PSUs, PPAC,

DGH, PCRA, PNGRB*

1 PSU and Several

Research Institutes

1 PSU and Several

Research Institutes


Figure 9: Natural Gas Reserves in India, China and Pakistan

Source: BP Statistical Review of World Energy – 2010

Natural gas demand in India is influenced by cost factor and the price of the competitive

fuels in various sectors like power, transportation, household, fertilizer etc. In power sector

the natural gas has to compete with coal & hydropower, providing subsidized electricity.

In transportation petrol and subsidized diesel are immediate competing with natural gas,

beside electricity charged vehicles, which just got a huge subsidy incentive in India. In

household sector there is subsidized Liquefied Petroleum Gas (LPG). The sector-wise

estimated demand for natural gas is show in Table 3 below:

Table 2: Estimated Sector-Wise Demand

Sector 2010-11 2011-12 2012-13 2013-14

Fertilizers 1.11 3.43 13.44 46.78

Power 8.22 8.3 0 60

Petrochemicals 0.95 0 0 3.6

Refineries 22.6 13.2 11.6 2.96

Steel 1.48 1.51 4.861 7.279

CGD 1.47 6 6 6

Total 35.83 32.44 35.901 126.619

Total (Cumulative including present supply of 140

mmscmd of indigenous gas)

175.83 208.27 244.171 370.79

Source: Infraline

Power and fertilizers are core consumers of natural gas (Table 4), with Offtakes 12603

MCM and 9082 MCM respectively during 2008-09. Offtakes in city gas distribution

companies was 1535 MCM.

20


Table 3: Industry-wise Offtakes of Natural Gas in India

Industry-wise Offtakes of Natural Gas in India(1999-2000 to 2008-2009)

(Million Cubic Metres)

Year

Energy Purposes Non-Energy Purposes % to Grand Total

Power

Genera

-

tion

Indus-

trial

Fuel

Tea

Plan-

tatio

n

Dome

-

stic

Fuel

Captiv

e use/

LPG

Shrink-

age

CGD

$Total

Ferti-

liser

Indus-

try

Petro-

Chemi

-

cals

CN

G

Spong

e Iron Total

Gran

d

Total

Energy

Purpose

s

Non-

Energy

Purpose

s

1999

-008829 2329 140 250 4840 36

1642

48592 666 0 1203

1046

126885 61.1 38.9

2000

-018801 2870 151 335 5004 38

1719

98480 779 0 1402

1066

127860 61.7 38.3

2001

-029214 2979 147 485 5339 70

1823

47957 909 0 937 9803 28037 65.0 35.0

2002

-0310510 2939 119 654 5409 136

1976

77955 1027 0 1215

1019

729964 66.0 34.0

2003

-0411478 3099 142 93 4865

126

3

2094

07889 1128 1 948 9966 30906 67.8 32.2

2004

-0512099 3569 142 343 4944 231

2132

88173 1236 0 38 9447 30775 69.3 30.7

2005

-06*11878 3780 151 75 5048

112

0

2205

2 7762 1175 0 36 8973 31025 71.1 28.9

2006

-07* 11963 3205 170 443 5034 40 20855 8497 1377 0 639 10513 31368 66.5 33.5

2007

-08* 12037 3324 160 39 5618 1258 22436 9822 1432 0 638 11892 34328 65.4 34.6

2008

-09* 12603 5912 154 102 5706 1535 26012 9082 1105 0 6761 16948 42960 60.5 39.5

Note : * : Provisional

@: Excludes Offtakes of Natural Gas by ONGC.

: Excludes Gas Supplied to IGL, MGL, Bhagyanagar Gas, TNGCL, BMC & GGCL and sponge iron

$ : Sales of City Gas Distribution Companies like IGL, MGL, Bhagyanagar Gas,

TNGCL,BMC Green Gas, CUGL & GGCL. Includes Industrial sale, Domestic sale and CNG sale.

Source: Ministry of Petroleum & Natural Gas, Govt. of India. (11014)

21


On consolidating natural gas Offtakes for industrial and non-industrial purpose by adding

petrochemicals, fertilizers and sponge iron the following scenario is reflected as show in

Figure 11. The chart shows the maximum uptakes by power sector and fertilizer sector

with 30 per cent and 22 per cent respectively, during the period 2008-09, while for City

Gas Distribution (CGD) it was a meager 4 per cent. And accordingly the government has

framed a Gas Utilization Policy given the limited reserves of gas particularly from KG-D6

basin.

Figure 10: Break-up of Industry-wise Offtakes of Natural Gas in 2008-09

Source: Ministry of Petroleum and Natural Gas

With expected increase in the production of KG-D6 basin and new findings the share of

these sector will grow, provide government keeps up the pace of reforms not only in

upstream sector but also in downstream sector.

22

12603; 30%

5912; 14%

154; 0%102; 0%

5706; 14%

1535; 4%

9082; 22%

1105; 3%5761; 14%

PowerIndustrialTea PlantationDomestic FuelCaptive Use / LPG ShrinkageCity GasFertilizerPetrochemicalSponge Iron


Table 4: Source-wise Availability of Natural Gas as on

June 2010

Source Daily Average Availability

(mmscmd)

ONGC 52.83

OIL 5.19

Panna –Mukta 14.59

Other JVs 4.07

R-LNG 32.35

KG-D6 60.00

Total 169.03

Source: Infraline

Natural Gas Consumption

The trajectory of Indian gas market has seen a sudden up-swing during the year end 2009,

with 25.9 percent growth in its consumption, among all major countries in the world in

percentage terms (Table 1). The global natural gas consumption during this period fell by

2.1 percent, mainly due to Russia and other OECD nations, to the tune of 6.1 percent and

3.1 percent respectively.

Natural Gas - Consumption (MTOE) 2008 2009 % Change

China 73.2 79.8 9.4

India 37.2 46.7 25.9

Pakistan 33.8 34.1 1.3

Total Asia Pacific 433.2 446.9 3.4

World 2717.3 2653.1 -2.1

Source: BP’s Statistical Review of World Energy, 2010

23


Natural Gas Production and Supply

Table 5: Natural Gas Production for India, China and Pakistan

Source: BP Statistical Review of World Energy – 2010

Natural gas production in India grew by 28.9 per cent from 27.5 mtoe in 2007 to 35.3 mtoe

in 2009. While that of China and Pakistan was by 6.4 per cent and 1.3 per cent respectively

(Table 8). As far as supply of natural gas is concerned the sector-wise average daily

supply as on June 2010 for power is 69.82 mmscmd, for fertilizers it is 38.50 mmscmd, for

petrochemicals it is 7.75 mmscmd, while for CGD it is 9.73 mmscmd (Table 9).

Figure 11: Sector-wise average daily supply (MMSCMD)

Sector Average daily Supply (mmscmd)

Power Sector 69.82

Fertilizers 38.50

Refineries 16.61

Petrochemicals 7.75

Sponge Iron 8.00

City or Local Natural Gas Distribution Network 9.73

International Consumption - pipeline system 3.64

Shrinkage for Liquid extraction - LPG etc. 7.32

Others 7.66

24

01020304050607080

72.3 76.7

27.5 35.333.8 34.1

Natural Gas Production for India, China & Pak-istan (mtoe)

China India Pakistan

2008 2009

Prod

uctio

n


Total 169.03

Source: Infraline

Figure 12: Evolution of Gas Demand

25

MOVERS AND SHAPERS OF GAS MARKET…where NELP played the most

important role in bringing INVESTMENTS & the market moving

towards market driven prices.

1974Gas

Demand Picked with

ONGC’s Bombay

High Productio

1981OIL

became State

Owned Company

1984GAIL was

formed to promote

gas & develop midstrea

m and down-stream

1991Gas

Market de-

regulated in

Liberali-

1993DGH

formed to oversee

the upstream

sector

2006PNGRB was created to regulate down-stream

1997 NELP

Started to attract more

private players


Demand scenario for natural gas

Table 6: Demand Scenario of Natural Gas in India

Source: Integrated Energy Policy

India’s gas market is still regarded to be supply constrained, though the future looks bright

in terms of gas demands. Long terms demand projection of natural gas (Table 5) is done

by Energy Information Administration (EIA), India Hydrocarbon Vision 2025, Integrated

Research and Action for Development (IRADe), Price Waterhouse Coopers (PWC), India

Vision 2020 and International Energy Agency (IEA) which has been explained by the

expert committee on Integrated Energy Policy. Accordingly, their projections are

interpolated or extrapolated to bring them to common years, which have been converted in

million metric standard cubic meters per day (MMscmd). But Planning Commission found

gross errors in some of the projections, which also failed to consider price sensitivity of

gas. Planning Commission’s demand estimates on gas was therefore based on following

assumptions18.

- 20 per cent of power would be generated using gas by 2031-32

- The projected fertilizer capacity by 2031-32 would be gas based

18 Integrated Energy Policy, Planning Commission of India, August 200626


- The remaining end uses of gas will continue to grow at 7 per cent or 8 per cent per

annum depending upon GDP growth.

Natural Gas Demand and Supply Projections

Table 7: Expected Domestic Availability of Natural Gas as on June 2010

2010-2011 2011-2012 2012-2013 2013-2014 2014-2015 2015-2016

Small Size (A) 2.03 1.78 2.44 2.05 2.03 1.65

Medium Size (B) 14.31 11.62 9.55 8.21 7.29 6.85

Pre-NELP (C) 2.11 1.83 1.39 1.19 1.15 1.15

NELP (D) 59.6 60.29 90.95 95.02 98.7 106.68

CBM (E) 0.1 0.41 3.37 5.8 7.36 8.59

ONGC Nominated Firm (F) 58.86 68.74 73.1 67.57 61.34 55.77

ONGC (Nominated) Additional

Indicated (G)

7.53 13.21 15.23

OIL (Nominated) (H) 5.8 5.8 5.8 5.8 5.8 5.8

Total (Firm)

(A+B+C+D+E+F+H)

142.81 150.47 186.6 185.64 183.67 186.49

Total (Optimistic) (Domestic)

(A+B+C+D+E +F+G+H)

142.81 150.47 186.6 193.17 196.88 201.72

Source: Infraline

Table 8: Expected R-LNG Availability

2011-2012 2012-2013 2013-2014

PLL(Dahej Terminal) 10 10 10

HLPL Hazira 2.5 2.5 2.5

Dhabol 2.5 5 5

Kochi 0 2.5 5

Total LNG (mmtpa) 15 20 22.5

Total LNG (in

mmscmd)

52.5 70 78.75

Source: Infraline

27


Table 9: Domestic Gas Supply Outlook (billion cubic meters)

Source: MoPNG, Report of the Working Group on Petroleum and

Natural Gas Sector for the XI Plan (2007-12), November 2006.

Liquefied Natural Gas (LNG) Imports in India

Table 10: India LNG Imports by Country (bcm)

Source: IEA, Natural Gas Information, 2010

28


Table 11: India LNG terminals, existing, under construction and planned

Source: Source: IEA, company reports, press releases.

29


Natural Gas Transportation and Distribution

Figure 13: Gas Pipelines in India

30


Source: PNGRB

Major Players in Natural Gas Industry

Gas Players Nature of Key Operations Natural Gas related 31


Company Business

BP International Ltd One of the largest

energy companies in

world

Lubricants, Coal Bed

Methane, Deepwater

E&P, Trading and Solar

Energy

Take care of development of

gas infrastructure for Dabhol

project

British Gas India (BG

India)

It is a business of BG

Group engaged in

exploration &

production, LNG,

transmission and

distribution and

power generation

Developing upstream

hydrocarbons and

downstream

infrastructure

UPSTREAM – Tapti Gas Field

& Panna / Mukta Oil and Gas

Field

DOWNSTREAM –

Distribution of gas through its

subsidiary GGCL in Surat,

Ankleshwar and Bharuch in

Gujarat

Bharat Petroleum

Corporation Limited

Government Public

Sector Undertaking –

Basically refining

company

Refining of crude and

marketing of petroleum

products

Having JVs through Petronet

LNG Ltd, IGL and Central UP

Gas Limited

Cairn Energy Independent oil &

gas co.

Exploration & Production Stakes in Ravva field, Krishna

Godavari Assets, Cambay

Basin, Rajasthan Basin

ExxonMobil Leading oil & gas

company

Exploration & Production Stakes in RasGas, a JV with

Qatar Petroleum

Gaz de France National French Gas

Co.

Natural Gas Market

covering upstream,

infrastructure and trading

Has 10 per cent stake in

Petronet LNG Limited

GAIL (India) Limited Natural gas

transmission and

marketing company

Gas and LPG

transmission

Gas based

Petrochemicals

City Gas Projects

Telecommunications

Exploration & Production

Natural gas transmission &

marketing

Gas Players Nature of

Company

Key Operations Natural Gas related

Business

Gujarat Adani Energy Wholly owned Natural Gas Distribution City Gas Distribution

32


Limited subsidiary of Adani

Group, into natural

gas business

Gujarat Gas Company

Limited

India’s largest private

natural gas

distribution company

Natural Gas Distribution,

transmission system,

CNG

Have a contract with GAIL,

GSPCL-NIKO, Cairns for gas

distribution

Gujarat State Petroleum

Corporation Limited

State Owned

Company in GSPC

Group

Exploration &

Production, CNG

GSPC is catering PNG in

Gandhinagar and natural gas

requirement of the industrial,

commercial and residential

sector.

Hindustan Oil

Exploration Company

Limited

Private E&P

Company

Exploration and

Development of oil and

gas

Have stakes in NELP blocks in

shallow water exploration

block

Hindustan Petroleum

Corporation Limited

Integrated refining

and marketing oil

company in India

Refining, distribution and

exploration

JV with Bhagyanagar Gas

Limited for distribution &

marketing of CNG and Auto

LPG

Indian Oil Corporation

Limited

India’s national oil

company

Refining, petrochemicals Importing LNG from Iran

Indraprastha Gas

Limited

Formed as a result of

MoU singed between

BPCL & GAIL

City Gas Distribution CNG, PNG, commercial and

industrial gas

Mahanagar Gas Limited A JV of BG and

GAIL

City Gas Distribution Distribution of CNG, PNG and

gas to industries and

commercial units

Niko Resouces Limited Canadian oil company E&P business, marketing

of natural gas

Largest customer in gas sale

agreement

Oil and Natural Gas

Corporation Limited

Upstream oil and gas

company

E&P business Distribution of gas and CBM

exploration

Oil India Limited Upstream oil and gas

company

E&P business Distribution of gas

Gas Players Nature of

Company

Key Operations Natural Gas related

Business

Petronet LNG Limited LNG Supply Transmission of LNG Has signed LNG Sale and

33


Company Puchase Agreement with

RasGas

Reliance Industries

Limited (RIL)

Vertically integrated

private oil and gas

company

Upstream , midstream

and downstream

Exploration of gas: KG-D6

basin,

CBM Blocks

Shell Hazira LNG It is a largest of Shell

Group ventures in

India

Terminal infrastructure LNG receiving and storage

terminal infrastructure

development

Reliance Gas

Transportation

Infrastructure Limited

A Special Purpose

Vehicle set up by RIL

To lay pipelines to

interconnect RIL’s oil

and gas sources to their

markets

Transmission & Distribution of

gas through its pipelines

GAIL Gas Limited A wholly owned

subsidiary of GAIL

(India) Limited

City Gas Distribution

Network in Dewas, Kota,

Sonepat and Meerut

Implementation of CGD

projects in India

Source: Infraline and Company Websites

Allocation & Pricing of Natural Gas - Upstream

Natural gas is a scarce resource in India and GoI plays an important role in its allocation.

Historically, gas has been allocated in priority to end-users such as fertiliser producers and

power plants. In 2007, the GoI started working on a new Gas Utilisation Policy. This was

mostly a consequence of the dispute between the Ambani brothers (see further in the Domestic

Production section) and the related issues on gas pricing and utilisation, which created a very

hot debate in India. This and the large gap between demand and available supplies prompted

the government to develop a Gas Utilisation Policy and to go back to administrative control

over prices (GoI introduced a price formula for all discoveries under the first six NELP

rounds) and over volumes to be allocated to end-consumers. Therefore, in 2008, the

government introduced new guidelines called the Gas Utilisation Policy, which effectively

took away gas producers' rights to sell the gas they discover on the open market. These

guidelines would be applicable for the next five years and be reviewed afterwards. The recent

ruling of the Supreme Court in May 2010 regarding the dispute between RIL and RNRL,

reaffirms the role of the government in the allocation and pricing of gas.

34


Currently, the rules of the General Policy for the gas market imply that gas will be allocated

according to sectoral priorities set up by the government. This does not imply that the gas is

“reserved”: if one customer is not in a position to take the gas, the next one on the list becomes

eligible. Existing users have priority over Greenfield users. The gas is allocated as follows:

For existing consumers For Greenfield consumers

Fertilizers Fertilizers

LPG and Petrochemicals Petrochemicals

Power Sectors CGD

City Gas Distribution Refineries

Refineries Power Plants

Others

The above lists clearly show the preference for fertilizer producers, petrochemicals and power

plants as first category customers. CGD usually comes in second position.

India has a rather unusual dual gas pricing and supply policy, with APM gas produced by

state-owned companies and non-APM gas from private companies and joint ventures (JVs).

Until May 2010, prices differed widely from around USD 2/MBtu for APM gas to almost

USD 6/MBtu for the most expensive non-APM gas. Such a gap was pushing towards changes.

Increasing private supply of gas has been indeed a major policy challenge for the government

as the pooling of gas prices was limited by the declining availability of APM gas. Moreover,

any effort to keep domestic gas prices low would act as a disincentive for more upstream

investment.

Two major changes took place in May 2010. APM prices were increased from USD 1.8/MBtu

to USD 4.2 MBtu, and ONGC and OIL were allowed to market gas discovered in new fields

allocated to them at market prices. This decision will have consequences for producers, and is

an important step forward in order to encourage further investments in the upstream sector.

Furthermore, if India wants to attract additional LNG in the long term, it would have

increasingly to compete on global gas markets at prices potentially higher than the current

ones. Meanwhile, the Supreme Court announced its verdict on the five-year battle between

Reliance Industry (RIL) and Reliance Natural Resources (RNRL) regarding the price at which

RIL was to sell its KG-D6 gas to RNRL: the Court decided that only the government had the

35


right to fix the price in the Production Sharing Contract (PSC) (fixed at USD 4.2/MBtu) when

an arm-lengths price is impossible to find. It remains to be seen whether or not such a decision

could deter private or foreign upstream investment.

Pricing is also key for the demand side due to some sectors’ limited ability to absorb high

prices: gas-fired plants compete with coal-fired plants while fertiliser producers depend on

international urea price and government subsidies. A market approach based on comparison

with alternative fuels should be taken. Issue of pricing remains crucial both in upstream and

downstream development.

Pricing of downstream market

Historically, gas markets were entirely serviced by PSU with prices determined by the central

government. From 1987 to 2005, production and transport prices were fixed by the

Empowered Group of Ministers (EoGM). The APM mechanism for oil was formally phased

out in 2002, but most of the gas produced by ONGC and OIL and distributed by GAIL

continues to be sold at APM prices. In 2006, the regulator PNGRB was created to set up the

bases for a competitive market and has been developing regulations since then.

Following table shows the complete set of data on producer and consumer price and

transportation charges of Natural Gas/RLNG for the period from January to June 2010 in

respect of GAIL, ONGC & OIL is enclosed. In respect of RIL it is stated that the KG D6 gas

sold during January to June 2010 to all the customers was @ the price $ 4.205/mmbtu at gas

delivery point at Gadimoga, Kakinada. However, the transportation of gas beyond the

delivery/ point® are arranged by the customers and transportation charges are paid by them

directly to the respective gas transporters.

Source of

Natural

Gas/RLNG

Effective

Date

Producer Price Consumer Price Consumer

Price for Power

Sector**

Transportation

Charges along AVJ

pipeline® 10,000

Kcal/SCM (avg.)

HVJ

General

Price

North

East

General North

East

ONGC AVG prices

for period

Jan-

June'2010

3917 3917 4117 4500 4117 954

OIL 3917 3918 4117 4501 4117

PMT Gas 11296 N.A 3917 N.A 3917 954

36


Ravva l-KG

Basin

6860 N.A 3917 N.A 3917 404

Ravva Sattelite-

KG Basin

8428 N.A 8628 N.A 8628 404

RLNG Dahej & 9791 N.A 11450 N.A 11450 954

RIL Gas^ 8333 HA 8666 N.A 8666 3389***

* Gas price is Indicated above in units of Rs/MSCM

* Gas price for APM has been revised w.e.f 01.06.2010 to S4.2/MMBTU for general consumers and North East $2.52/MMBTU

* Gas price for APM for the period Jan-May'2010 was Rs 3200/MSCM for general consumers

** Power sector in the mentioned list comprises of PMT gas out of 5 MMSCMD and remaining sold to Torrent at $4.75/MMBTU and

RRVUNL @$4.6/MMBTU

* The consumer prices indicated above are basic process including marketing margin and excludes components like

transportation and taxes

^ RIL Gas prices assumed as $4.2/MMBTU at Kakinada at calorific-Value of 8100 Kcal/SCM & RLNG Dahej producer price indicated

above is ex-ship price while consumer price also includes re-gasification charges, guj VAT etc. Exchange rate considered as 46

* Transportation charges are as per PNGRB notified tariffs for HVJ/DVPL (Rs 25.46/MMBJU) and present applicable tariffs for other

regions

** Tpt charges include RGTIL charges @ Rs 65/MMBTU and HVJ/DVPL-Rs 25.46/MBTU

Source: Infraline

37


Producer and consumer prices and transportation charges on Natural gas/ RLNG for the period

from January to June 2010

Price in Rs are per 1000 SCM with NCV of 10.000 kcal/SCM.

Price in US$ are per MMBTU (NCV basis)

Source

of Gas/

RLNG

Effective

date

Producer

price

APM

Consumer

Price

Consumer

price for

Power sector

Transportatio

n charges

along HVJ

Pipeline @

10,000

kcal/SCM

Remarks

Genera

l

NE Genera

l

NE Genera

l

NE

ONGC 01.4.200

6 till

31.5.201

0

Rs

3200

Rs

192

0

Rs

3200

Rs

192

0

Rs

3200

Rs

192

0

Does not

pertain to

ONGC

Royalty @

10% of

Producer

price

payable

extra by

Consumer

.

1.6.2010

onwards

$ 4.20 (*) $ 420 $

2.52

$ 4,20 $

2.52

Price

inclusive

of Royalty

Consumer

not to Pay

extra.

OIL Does not pertain to ONGC

Panna-

Mukta

01.4.08 $ 5.73 Not

appl.

May be obtained from GAIL, who is marketing JV

gas and administering the Gas Pool Account.

ONGC is a

JV Partner

in these

JVs. Price

are

inclusive

Tapti 01.4.08 $ 5.57 Not

appl.

Ravva-

1

01.4.06 $ 3.50 Not

appl.

38


of Royalty

Consumer

not to pay

extra

Ravva

Satellit

e

$ 4.30 Not

appl.

RLNG

Dahej

Does not pertain to ONGC

RIL

(*) As per Gol order dated 31.5.2010, the producer price of ONGC in NE w.e.f. 1.6.2010 is same as

general producer price, i.e. US$ 4.2/MMBTU. Gol to compensate the difference from Central Budget.

However, formal instructions on modalities still awaited.

Source: Infraine

Producer and Consumer price and Transportation charges of Natural Gas for the period Jan'10 to

June'10

Mont

h

Producer

Price-

General

Producer

Price -NE

States

Consumer

Price-

General

Consumer Price - NE States Transportati

on Charges

For Power &

fertilizers

sectors

For Power &

fertilizers

sectors

Rs./'0

00'SC

M

$/

MM

BTU

Rs./'0

00'SC

M

Rs./'0

00'SC

M

Rs./'0

00'SC

M

$/

MM

BTU

Rs./'0

00'SC

M

$/

MM

BTU

Rs./'0

00'SC

M

$/

MM

BTU

Rs./'0

00'SC

M

$/

MM

BTU

Janu

ary'1

0

1600.

00

2.19 3200.

00

1.75 1600.

00

2.19 1920.

00

1.05 2304.

00

1.26 53.1 0.02

Febr

uary'

10

1600.

00

2.18 3200.

00

1.74 1600.

00

2.18 1920.

00

1.04 2304.

00

1.25 53.1 0.02

Marc

h' 10

1600.

00

2.22 3200.

00

1.77 1600.

00

2.22 1920.

00

1.06 2304.

00

1.28 53.1 0.02

April

' 10

1600.

00

2.27 3200.

00

1.81 1600.

00

2.27 1920.

00

1.09 2304.

00

1.30 56.3 0.03

39


May'

10

1600.

00

2.20 3200.

00

1.76 1600.

00

2.20 1920.

00

1.06 2304.

00

1.27 56.3 0.03

June

'10

3142.

80

4.20 7633.

33

4.20 3142.

80

4.20 4580.

00

2.52 4580.

00

2.52 56.3 0.03

Notes:

1. Transportation of Natural Gas is provided only to IOCL (AOD).

2. General price is applicable in Rajasthan

3. Rajasthan prices are as per 4000 K Cal and NE prices are as per 10000 K Cal

4. Above prices are without adjustment of Calorific Value, however for the purpose of billing

prices are being adjusted with actual calorific value.

5. For calculating price in $/MMBTU, average monthly RBI reference rate has been taken.

Source: Infraline

City Gas Distribution Overview

Fundamentals of City Gas Distribution:

Overview of CNG and PNG

CNG Overview:

CNG stands for compressed natural gas. It is a gaseous fuel, with a mixture of

hydrocarbons mainly methane. It is an automotive fuel, which helps in increasing fuel

efficiency. This fuel is been promoted by government of India through various tax

incentives, so as to cut down on vehicular pollution, thereby making air less polluted

(Figure 16). According to Petroleum and Natural Gas Regulatory Board Act, 2006, “CNG

means natural gas used as a fuel for vehicles, typically compressed to pressure ranging

form 200 to 250 bars in gaseous state.” The running cost of CNG is less than diesel and

petrol. The best e.g. of is that of Delhi, where on the directives of the Supreme Court, all

public transport were converted to CNG in a set time frame by Indraprastha Gas Limited

(IGL). Till mid 2010 IGL has fueled almost 3.50 lakh private and public vehicles in Delhi

and its satellite towns. Moreover this company has been invited by IGU (International Gas

Union) to a conference that is being conducted on the sidelines of the climate change

40


summit to promote use of gas as green fuel19. Delhi has the largest fleet of public transport

vehicles running on CNG in the world. The upswing of 30 per cent rise in CNG vehicles

is also seen across India from 2009 to 10.1 lakh in 201020.

Figure 14: Comparison of CNG with other fuel

Fuel/Emissions

(gm / 100 km)

CO2 UHC CO NOx Sox PM

Petrol 22,000 85 634 78 8.3 1.1

Diesel 21,000 21 106 108 21 12.5

LPG 18,200 18 168 37 0.38 .029

CNG 16,275 5.6 22.2 25.8 0.15 0.29

PNGRB has estimated the number of CNG vehicles to increase around 5.10 million by

2020, whereas Gas Authority of India Limited (GAIL) estimated the same to be 5 million

by 2015. Total number of CNG vehicles is well complemented by the number of CNG

stations in Delhi / NCR and Mumbai / Suburbs with 181 and 131 CNG stations as on July

2009 (Table 13). But this has to be increased in the line with projections made by PNGRB

and Ministry of Petroleum and Natural Gas (MoPNG), under VISION-2015, wherein 200

more cities are to be provided CNG by 2015.

Table 12: Details of CNG supplied by JVs of GAIL (As on July 2009)

Company Cities Stations No. of

Vehicles

Source of Gas

Indraprastha Gas Limited (IGL) Delhi 172 297194 APM21

GAIL+RLNG

from GAIL &

BPCL

Noida & Greater Noida 9

Mahanagar Gas Limited (MGL) Mumbai 123 192395 APM-GAIL

Thane 8

Mira Bhayandar 3

Navi Mumbai 2

19 http://timesofindia.indiatimes.com/india/Delhis-CNG-rings-bell-at-climate-summit/articleshow/5328774.cms 20 http://www.blonnet.com/2010/11/16/stories/2010111652820200.htm 21 APM price now been increased to $/4.2 MBtu from June 2010, resulting into costlier CNG.

41

http://www.blonnet.com/2010/11/16/stories/2010111652820200.htm

http://timesofindia.indiatimes.com/india/Delhis-CNG-rings-bell-at-climate-summit/articleshow/5328774.cms


Maharashtra Natural gas

Limited (MNGL)

Pune 7 1365 APM-GAIL

Central UP Gas Limited

(CUGL)

Kanpur 7 8203 APM-GAIL

Bareilly 1 1735

Green Gas Limited (GGL) Lucknow 4 7412 APM-GAIL

Agra 3 6214 R-LNG-GAIL &

IOCL

GAIL (India) Limited Vadodara 3 3411 APM-GAIL

Bhagyanagar Gas Limited

(BGL)

Vijayawada 6 2911 APM-GAIL

Hyderabad 4 2156

Rajahmundery 1 42

Tripura Natural Gas Company

Limited (TNGCL)

Agartala 1 909 APM-GAIL

Aavantika Gas Limited (AGL) Indore 5 800 RLNG22-GAIL

Ujjain 1

Source: Infraline

The cost of CNG is still below petrol and diesel, after the APM prices were raised in June

2010. It is about 62 per cent cheaper than petrol and 30 per cent cheaper than diesel. The

cost of running a car on CNG per kilometer would be Rs. 1.31 as compared to Rs. 3.43 on

petrol in Delhi. Till CNG is able to compete well with alternate fuels like petrol and

diesel, its growth prospects are high and the future looks bright. The recent increase in

CNG price by IGL (Delhi / NCR) and MGL (Mumbai & Suburbs) was during mid June

2010. The last increase in CNG price was to the tune of Rs. 27.50 / kg by IGL and Rs.

31.47 / kg in Mumbai. At present there are 76 cities with PNG / CNG infrastructure, in the

states of Andhra Pradesh, Assam, Delhi, Gujarat, Haryana, Madhya Pradesh, Maharashtra,

Rajasthan, Tripura, Uttar Pradesh, West Bengal and Daman & Diu.

Accordingly, GAIL has incorporated JVCs to implement city gas projects in 13 cities

(Table14), wherever pipeline connectivity is available. CNG is being supplied to Agra,

Lucknow, Kanpur, Pune and Hyderabad. This decision of Supreme Court was due to the

rising pollution levels in these cities.

22 RLNG –Regasified Liquefied Natural Gas42


Table 13: List of 13 Cities identified by GAIL under the directives of Supreme Court

Cities JVCs / other entities Current Status

Agra Green Gas Limited CNG is being supplied

Lucknow Green Gas Limited CNG is being supplied

Kanpur Central U.P. Gas Limited CNG is being supplied

Pune Maharashtra Natural Gas Limited CNG is being supplied

Faridabad Indraprastha Gas Limited MoP&NG has authorized IGL for

implementation of CGD projects.

However, State Government has not

given permissions to IGL and instead

issued NOCs to M/s Adani Energy.

Hyderabad Bhagyanagar Gas Limited CNG is being supplied by transporting

gas in mobile storage cascades from

Vijayawada

Ahmedabad CNG being supplied by HPCL and

Adani Energy

EoI submitted by RGCL to PNGRB.

Cities JVCs / other entities Current Status

Varanasi - EoI submitted by RGCL to PNGRB.

Pipeline connectivity from proposed

GAIL's Jagdishpur- Haldia pipeline.

Patna - Pipeline connectivity from proposed

GAIL's Jagdishpur- Haldia pipeline.

Sholapur - EoI submitted by RGCL to PNGRB.

Pipeline connectivity from Reliance East

West P/L.

Bangalore - EoI submitted by RGCL to PNGRB.

Pipeline connectivity from Reliance East

43


West P/L.

Kolkata - EoI submitted by RGCL to PNGRB.


Reliance Kakinada - Haldia P/L.

Chennai - EoI submitted by RGCL to PNGRB.


Reliance Kakinada - Chennai P/L.

Source: Infraline

It has been self evident from the (Table 15) that the rise in CNG activities in India from

April 2005 to April 2009 has been manifold, justifying that this sector has a robust

market, which can boom in next five years at least. Since 2005, new states, cities and

companies have increased till now. There has been an addition of Uttar Pradesh, Andhra

Pradesh, Tripura and Madhya Pradesh in 2009 to an old list covering 11 more cities.

These cities were Lucknow, Agra, Kanpur, Bareilly, Vijayawada, Hyderabad,

Rajahmundry, Agartala, Indore and Ujjain covered by GAIL, whereas Pune was covered

by Maharashtra Natural Gas Limited. Also the number of vehicles increase from 252,188

in 2005 to 605,156 in 2009 and CNG stations increased from 249 in 2005 to 377 in 2009.

These stations included mother, online, daughter booster and daughter types. Also the

price in 2005, which was in the range of Rs. 16.88 / kg and Rs. 22.55 / kg, increase in

2005 in the range of Rs. 18.90 / kg and Rs. 33 / kg in 2009. The average consumption of

three old CGD majors viz. IGL, MGL and GGCL was 1252.71 TPD, 770.25 TPD and

179.74 TPD respectively during April 2009.

PNG Overview:

PNG is mainly methane – CH4 with a small percentage of other higher hydrocarbons. The

ratio of carbon to hydrogen is least in methane and hence it burns almost completely

making it the cleanest fuel. It is procured from the oil / gas wells and transported through

a network of pipelines across the country. The supply of PNG is regular and in Delhi it is

supplied through Hazira-Bijapur-Jagdishpur (HBJ) pipeline of GAIL. The pipeline

network system is an online system, which consists of safety valves and regulators that

control and monitor the gas supply and pressure, and assist is supplying system leaks.

44


A domestic PNG connection includes, conversion of one LPG appliance to PNG, laying

of associated galvanized iron (GI) pipeline network, along with necessary fittings,

pressure regulator and a meter. The cost of getting PNG connection depends on the type

of house and includes installation charges at the time of registration. The minimum

amount as fixed charge is paid each month is Rs 100 only for non-usage of gas by

consumer after the installation of meter. This fixed charge gets abolished the day the

connection is done, thereby the amount to be paid will be based on actual consumption by

the consumers, as specified in the meter. The billing is made on meter reading, which is

done by IGL staff (Delhi) in every two months. Alternatively a minimum charge of Rs

2500 is placed by the consumer, which gets reduced by bill amount every two months and

consumer continues to earn @ 5 % p.a. on reducing balance. Another easier option is to

authorize IGL to debit the bill amount directly to your bank account by signing the ECS.

The rate of PNG in NCR varies from Rs 16.85 / standard cubic meters (scm) in Delhi to

Rs. 18.32 / scm in Ghaziabad. The waiting time for new PNG connection is 6 months after

completing pipeline and other infrastructure in NCR while 3-4 months in Mumbai. During

the year 2008-09, the number of PNG consumers in Mumbai is 32,000 as compared to

15,000 in Delhi. The growth of PNG consumers in last five years is shown in Table 14

below.

Table 14: Growth in PNG consumers in last 5 years

Area 2005 2006 2007 2008 2009

Mumbai 2,22,000 2,55,000 2,95,000 3,48,000 3,80,000

Delhi 28,000 46,000 79,000 1,20,000 1,35,000

Source: Infraline

The cities covered under the Piped Natural Gas (PNG) network in the country are Delhi,

Mumbai, Agartala, Surat, Hazira, Junagam, Vasva, Mora, Damka, Bhatlai, Kawas, Rajgiri,

Suwali, Icchapore, Ankleshwar, Bharauch, Vadodara, Ahmedabad, Vidyanagar, Anand,

Morbi, Gandhinagar, Duliajan, Digboi, Dibrugarh, Moran, Naharkatiya, Sivasagar, Nazira,

Simaluguri and Tinsukia. The benefits of both CNG and PNG is as under: (Table15)

45


Table 15: Benefits of CNG and PNG

S. No. CNG PNG

1. Economical Safe and assured supply of gas to domestic,

commercial and industrial sectors

a. Cheaper than conventional fuel Convenient to use

b. Pay back period is short Economically more viable compared to other fuels

in same sector

2. Technical No traffic disruption as supplied through pipelines

a. Very high antiknock power (more than

120 ON) allows greater performance

compared to petrol one

Continuous supply

b. Does not require refining plant or

additive adding and can be used

immediately after its extraction

No wastage, no under weight cylinders, no hassle

for replacement of cylinder, no need for cylinder

booking

c. It has no evaporation leaks and spills

of fuel, both during refueling and

feeding of the car

No advance payment for consumption of gas,

billing will done in once in two months based on

consumption

d. Its combustion produces a very low

quantity of carbon deposits (permits a

longer life of lubricant oil)

Source: Infraline

Infrastructure of CGD

City Gate Station:

Figure 15: A typical City Gate Station

46


Source: www.best98.com

According to the Petroleum and Natural Gas Regulatory Board (Determination of

Network Tariff for City or Local Natural Gas Distribution Networks and Compression

Charge for CNG) Regulations, 2008, “City Gate Station” means the point where custody

transfer of natural gas from natural gas pipeline to the city or local natural gas distribution

network (hereinafter referred as CGD Network) takes place. 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 tales place. Different types of odorants are

used, so that the “smell” makes the presence of the escaping, un-burnt 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%.

Pressure Pipelines: 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.

47

http://www.best98.com/


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.

CGD network consist of steel pipeline and PE (polyethylene) pipes. City Gas Station are

the tap-off’s at the main pipeline. These are the termination station for a city where the

various processes like pressure reduction, filtration, and odorisation is done. The gas from

the main pipeline is brought down to a pressure of 19-22 bars and then transferred through

steel pipeline to DRS.

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

industrial area and domestic/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.

The control valve is placed at the height of 5 ft which controls the flow and 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.

Last Mile Connectivity (LMC): It is connectivity between the riser isolation valve

before the metering unit and the Suraksha hose pipe connecting the burner in the domestic

PNG customer’s premises.

Evolution and Development of City Gas Distribution in India:

City gas distribution business dates back to 1857, when Calcutta Gas Company and

Bombay Gas Company commenced its operations with coal gas as primary input.

Thereafter various Urban Local Bodies (ULBs) came into picture in drawing the chart of

gas distribution business. In Vadodara it was Vadodara Municipal Corporation and in

Delhi it was Delhi Municipal Corporation which initiated this business during 1972-1980.

48


It was only during late 1980s, when Oil and Natural Gas Corporation (ONGC) and Assam

Gas Company was formed, the gas industry emerged. And the momentum of natural gas

distribution business was certainly provided by two public sector undertakings viz.

Indraprastha Gas Limited (IGL) in Delhi and Mahanagar Gas Limited (MGL) in Mumbai

in late 1980s and mid-1990s (Table 18).

Table 16: Timeline of City Gas Distribution Business in India

S. No Year City Company

1 1880 Kolkata Calcutta Gas Company

2 1900 Mumbai Bombay Gas Company

3 1972 Vadodara Vadodara Municipal Corporation

4 1980 Delhi Delhi Municipal Corporation

5 1982-86 ONGC Colony at Mehsana &

Sibsagar

ONGC

6 1985 Duliajan Assam Gas Company

7 1986 Sibsagar Assam Gas Company

8 1989-91 Surat, Ankleshwar, Bharuch Gujarat Gas Company Ltd.

9 1994 Mumbai Mahanagar Gas Ltd.

10 1995 Delhi Indraprastha Gas Ltd.

11 2004 Vadodara & Ahmedabad Adani Energy Ltd.

12 2005 Hyderabad Bhagyanagar Gas Ltd.

13 2006-07 Gandhinagar, Kadi, Mehsana,

Rajkot, Morbi, Vapi

GSPC Gas/Sabarmati Gas

14 2006 Kanpur, Lucknow CUGL & GGL

As in April 2009 the Authorization Status of Entities is as follows:

Table 17: Authorization Status of Entities

Authorized Entity Geographical Area Authorized by

MoP&NG

Authorization accepted

by PNGRB & Grant of 5

years exclusivity period

Indraprashtha Gas Ltd. Delhi & its suburbs, viz. NOIDA

(Gautam Budh Nagar), Gurgaon &

01.01.2009

49


Faridabad

Mahanagar Gas Ltd. Mumbai, Distt. Thane including

Navi Mumbai & Mira Bhayander

21.01.2009

Avantika Gas Ltd. Indore, Gwalior & Ujjain 30.09.2009

Bhagyanagr Gas Ltd. Hyderabad & Vijayawada 09.10.2009

Maharashtra Natural Gas

Ltd.

Pune including Pimpri-Chinchwad

area

01.06.2009

Central UP Gas Ltd. Kanpur & Bareilly 22.04.2009

Green Gas Ltd. Lucknow, Agra 12.11.2009

Tripura Natural Gas

Company Ltd.

Agartala, Tripura -

GAIL (1) Ltd. -

Vadodara

Vadodara -

Source: Infraline

Table 18: Entities Other Than Gail JVCs in CGD Business

Sate City Company

Gujarat Ahmedabad Adani & HPCL

Surat, Ankleshwar & Bharuch Gujarat Gas Co. Ltd.

Hazira, Rajkot, Surendranagar GSPC Gas

Vadodara VMSS

Gandhinagar Sabarmati Gas

West

Bengal

Asansol Great Eastern Energy

Corp. Ltd.

Assam Duliajan, Digboi, Dibrugarh, Moran,

Naharkatiya, Sivsagar, Nazira, Simaluguri,

Tinsukia

Assam Gas Company Ltd.

Source: Infraline

India currently has a CGD network in 21 cities with 0.85 million household connected and

0.45 million vehicles on compressed natural gas (CNG). But the total pipeline

50


infrastructure, including 8,000 km of natural gas pipelines and 10,000 km of product

pipelines, is inadequate to meet the country's requirements except oil.

Recent Developments in Gas Infrastructure and Investments in CGD (April 2009)

Total Gas Consumption : 3.688 MMSCMD

Total Investment : Rs 1,673.93 crore

No of CNG vehicles catered: 458804

No of household connected: 511709

Tentative replacement of fuel in quantity as well as in monetary terms:

o Petrol = Rs 2,909 crore

o Diesel = Rs 2,244 crore

o LPG = Rs 183 crore

Table 19: Investments made by GAIL/JVCs for CGD Projects (As on April 2009)

Company City Investment Made (Rs. Cr.)

IGL Delhi & Noida 750

MGL Mumbai, Thane, Mira Bhayandar, Navi Mumbai 695.6

MNGL Pune 88

CUGL Kanpur 115

Bareilly

GGL Lucknow 104

Agra

BGL Vijayawada 24

Hyderabad

TNGCL Agartala 9.9

AGL Indore 27

Ujjain

GAIL Vadodara 8.5

Agra & Ferozabad 144.8

Total 1966.8

Source: Infraline

51


Table 20: CGD Likely Roll Out Plan (as in April 2009)

State No. of Potential

Cities

Projected

Demand

MMSCMD

Projected Investment (in

Rs/Cr)

Andhra Pradesh 37 5.02 2510

Assam 8 5 2500

Bihar 17 1.91 955

Punjab & Himachal

Pradesh

13 3.66 1830

Haryana 17 2.61 1305

Gujarat 25 19.16 9580

Jharkhand 5 0.5 250

Karnataka 26 3.89 1945

Kerala 14 2.52 1260

Madhya Pradesh 5 0.97 485

Maharashtra & Goa 12 8.08 4040

Orissa 6 1.28 640

Rajasthan 4 1.67 835

Tamil Nadu 28 5.95 2975

Uttar Pradesh &

Uttarakhand

31 7.5 3750

West Bengal 50 4.62 2310

Total 298 74.34 37170

52


As in February 2009, the cities for which Expressions of Interests (EOI) have been invited

for CGD projects by Petroleum & Natural Gas Regulatory Board are Kota (Rajasthan),

Sonipat (Haryana), Mathura (Uttar Pradesh), Kakinada (Andhra Pradesh), Meerut (Uttar

Pradesh), Dewas (Madhya Pradesh), Ghaziabad (Uttar Pradesh), Allahabad (Uttar

Pradesh), Jhansi (Uttar Pradesh), Rajahmundry (Andhra Pradesh), Yanam (U.T. of

Pondicherry), Shahdol (Madhya Pradesh) and Chandigarh (Union Territory).

PNGRB has also formulated a Roll-out Plan for the development of CGD networks in

various other geographical areas in the years to come.

Years Geographical Areas

By 2010 85+

By 2013 125

By 2018 250

Ministry of Petroleum & Natural Gas has finalised ‘Vision-2015’ of the Oil sector for

‘Consumer Satisfaction and Beyond’, wherein efforts would be made to provide

CNG/PNG facilities to 200 more cities by the year 2015. As the natural gas is supplied to

CNG stations through pipes at high pressure and to PNG consumers without any

intermediate handling using equipments of international standards, there is no pilferage of

CNG and PNG.

Table 21: Present City Gas Consumption in India (As in April 2009)

Cities Company Avg,

CNG

Gas

Sales

Avg. Gas

Sales

Domestic

Avg. Gas Sales

Commercial &

Industrial

Total Sales

(MMSCMD)

Delhi IGL 1.692 0.047 0.103 1.842

Mumbai MGL 1.036 0.165 0.263 1.464

Thane 0.080 0.080

Mira Bhayandar 0.033 0.033

Navi Mumbai 0.006 0.006

Pune MNGL 0.000 0 0 0.000

Kanpur CUGL 0.054 0 0 0.054

53


Bareilly 0.005 0 0.005

Lucknow GGL 0.054 0 0 0.054

Agra 0.034 0 0.037 0.071

Vadodara GAIL 0.040 0 0 0.040

Vijayawada BGL 0 009 0 0 0.009

Hyderabad 0.005 0 0 0.005

Agartala TNGCL 0 003 0.013 0.009 0.025

Indore AGL 0.000 0 0 0.000

Surat Bharuch &

Ankleshwar

GGCL 0.15 0.090 3.850 4.090

Ahmedabad AEL 0.2 0.011 0.190 0.401

Gandhinagar SCL 0.04 0.002 0.012 0.054

Total 3.441 0.3286 4.464 8.2336

City Gas Distribution Market in India

City gas distribution certainly is an emerging market in India, which has just took up the

pace with recent positive developments like KG-D6 starting production and APM gas

price hiked. With the increase in gas supply and development of transmission and

distribution network, India foresees vibrant market in near future. The revision in the gas

price will bring into level playing field for both private and public sector undertakings,

helping in enhanced investment in gas sector both at upstream and downstream level.

There has to have a clear co-ordination of government agencies and regulators at these

levels as more risk is involved in exploration business.

Profile of Players in City Gas Distribution

Key Players’ Profile in City Gas Distribution Business

The snapshot of CGD infrastructure of key city gas distribution companies (Table 22)

shows classification of gas consumption in transportation (CNG), domestic household 54


(PNG Connections), industrial and commercial sectors. Each city has a different share of

gas distributed among various sector depending on their unique business characteristics.

For e.g. in IGL it was under Supreme Court directives, which made CNG available to all

public transport, while for MGL it was Mumbai High Court directives. In Mumbai it was

domestic sector which had maximum number of connections with a compound annual

growth rate of 8.09 per cent till mid 2010.

Table 22: CGD Infrastructure of Key Player in India

CGD Infrastructure 2007 2008 2009 2010 3 year

CAGR (%)

Mahanagar Gas Limited (Mumbai)

CNG vehicles 179720 185918 190296 204832 4.46

Domestic 293302 345793 373210 404000 8.09

Commercial / Industrial 1000 1032 1100 NA

Indraprastha Gas Limited (New Delhi)

CNG vehicles 133436 227957 287851 344250 22.89

Domestic 78000 121695 138000 182000 22.29

Commercial / Industrial 296 304 317 355 8.06

Gujarat State Petroleum Corporation 23

CNG vehicles NA

Domestic 19000 44000 168711 NA

Commercial 713 NA

Industrial 230 480 907 NA

Gujarat Gas Company Limited (Surat, Bharuch,

Ankaleswar)

CNG vehicles 63000 86000 109000 119000 17.63

Domestic & Industrial 230000 252000 280875 296000 8.38

Adani Gas Limited (Ahmadabad)

CNG vehicles 44000 49000 56000 73000 22.06

23 Note: GSPC 2010: Updated till August 201055


Domestic 6500 22000 45000 75000 84.65

Commercial 90 200 400 625 76.78

Industrial 255 315 365 445 18.86

Assam Gas Company Limited (Duliajan, Digboi,

Tinsukia, Dibrugarh, Naharkatia, Moran, Nazira,

Sivsagar, etc)

CNG vehicles

Domestic 20758 21782 NA

Commercial 569 628 NA

Industrial 332 343 NA

Tripura Natural Gas Company Limited (Agartala)

CNG vehicles 335 853 1445 107.69

Domestic 6646 7213 7429 5.73

Commercial 104 115 133 13.09

Industrial 22 30 33 22.47

CGD Infrastructure 2007 2008 2009 2010 3 year

CAGR (%)

Charotar Gas Sahakari Mandali Limtied (Anand, Gujarat)

CNG vehicles 2000 2500 3000 22.47

Domestic 7500 9000 10600 18.88

Commercial 250 300 350 18.32

Industrial 70 85 100 19.52

Total 1328339 1568581 191678

1

20.12

Source: Indian Infrastructure Magazine, October 2010

Authorized by MoPNG and PNGRB

INDRAPRASTHA GAS LIMITED

IGL, a joint venture of GAIL, BPCL and Government of Delhi, is the only supplier and

distributor of CNG and PNG in Delhi. The project work has been going on 21 new CNG

56


sites, with allotment of 12 more sites is shortly expected. The number of CNG stations in

Delhi and NCR is 184 and 12 respectively. Till 2010, GAIL is the sole supplier of gas to

IGL. The number of vehicles running on CNG as on August 2010 is as under:

Buses RTV's Private cars Autos Taxies Other Total

14764 5917 209813 54944 11560 55849 352847

Key Developments

The significant growth in CNG business of IGL is observed during 1999-00 to 2008-09

Parameter As on Unit 1999-

2000

2003-

2004

2006-

2007

2007-

2008

2008-

2009

No. of CNG Stations As at year

end

Nos. 30 120 153 163 181

Compression Capacity As at year

end

(Lakh

kg/day)

0.20 16.13 20.18 20.76 26.92

CNG Sale Daily

Average

(Lakh

kg/day)

0.08 7.72 9.42 10.58 12.61

Source: PNGRB

Number of CNG stations served by IGL in Delhi is shown in Table27

Statio

n

I

G

L

D

T

C

O

M

C

TOT

AL

Moth

er

53 24 0 77

Onlin

e

15 0 37 52

Daug

hter

1 1 2 4

Daug

hter

3 0 45 48

57


Boost

er

Total 72 25 84 181

The total number of PNG connections of IGL as on August 2010 is shown as under

Area Total No. Of PNG Connection

Domestic Commercial Small Industries Total

Delhi 187195 385 15 187595

Noida 3051 5 3 3059

Greater Noida 621 0 15 636

Ghaziabad 1048 1 2 1051

Total 191915 391 35 192341

Financial Performance:

According to the Audited Financial Results ending 31st March 2010, the turnover was Rs.

107,811.85 lakh as compared to Rs. 85,277.07 lakh in 31st March 2009, increasing by 26

per cent. Whereas the net profit increased by 25 per cent from Rs. 17,247.43 lakh in March

2009 to 21,549.65 lakh in March 2010. The share capital of the company is Rs. 14,000

lakh, while reserve and surplus rose from Rs. 54,341.7 lakh in March 2009 to Rs. 68544.9

lakh in 2010. Earning per share too increased from Rs. 12.32 in previous year to Rs. 15.39

in 2010.

Future Plans: Year-wise planned committed during 3 years exclusivity period is given in

Table 23

Table 23: Year-wise commitment during exclusivity period – Delhi

Year PNG (Nos.)

Additional

Steel Pipeline (Inch

Km.)

CNG (Lac Kg / Day)

Cumulative

Commissioned as on date

(2008-09)

1,32,000 824 23.76

2009-10 35,000 884 30.0

2010-11 35,000 956 33.5

58


2011-12 35,000 1100 36.0

Source: PNGRB

IGL plans to invest Rs. 9, 150 lakh during 2010-11 for CNG expansion given the rising

demand across Delhi and NCR. For PNG and CNG infrastructure IGL has planned a

capital investment of Rs 24,000 lakh for NCR towns, beside covering prospective

industrial consumers in these areas.

MAHANAGAR GAS LIMITED

It was in May 1995, when MGL, a joint venture of GAIL, BG India and Government of

Maharashtra, was incorporated in order to set of CGD business. MGL is the 2nd largest

CGD company in India, fueling more than 2 lakh CNG vehicles and more than 4 lakh

household consumers. GAIL signed a contract with MGL on with the provision that

initially the company would draw gas only to cater to domestic, commercial and transport

sectors until it achieved sale of 0.778 mmscmd of gas to these sectors, thereafter the

allocation was to be increased to 1.5 mmscmd out of which MGL could sell some gas to

industrial consumers24.

Key Developments: MGL in February 2009 launched 2nd phase of piped natural gas

supply. In the second Phase MGL plans to extend its PNG supply in Peddar Road, Marine

Lines, Cuffe Parade, Mantralaya, Colaba areas of South Mumbai and in the third Phase till

Navy Nagar. During the second Phase, MGL has laid its steel pipeline network up to Oval

Maidan and has already been connected Victoria Memorial School for the Blind and the

Taj Mahal Hotel. Mahanagar Gas Limited (“MGL”) (BG Group

49.75%), the gas distribution business in Mumbai, saw2009 volumes rise 5.8% to 587

mmcm25. To support this volume growth,MGL has signed long-termgas supply agreements

for additional gas fromthe RIL D-6 and ONGC C Series fields and framework agreements

to source spot LNG26. The number of vehicles served as on April 2010 by MGL in

Mumbai and suburbs are 2, 01,060 through 144 stations. The breakup of total PNG

connection is as under:

Total No. of PNG Connection

24 Natural Gas in India 2006, A Reference Book, GAIL-Infraline25 Annual Report of BG 200926 Ibid

59


Domestic Commercial Small Industries Total

4,42,417 1017 27 4,43,461

Due to excess installed compression capacity, MGL is almost double the CNG demand in

Mumbai and its suburbs, making it strategically placed better. This excess capacity can be

utilized by state transports authorities to open CNG outlets in their depot premises to cater

the needs of transport buses.

Financial Performance: BG has 49.8 per cent stake in MGL.

Future Plans Year-wise planned committed during 3 years exclusivity period is given in

Table 24

Table 24: Year-wise commitment during exclusivity period – Mumbai & Greater Mumbai

Year PNG (Nos.)

Cumulative

Steel Pipeline (Inch Km.) CNG (‘000 Kg / Day)

Cumulative


(2008-09)

3,22,000 As MGL has already

reached all charged areas of

steel pipeline of sufficient

capacity (1580 Inch-KM) in

GA-1. No specific target has

been fixed for this

milestone. However MGL

would commensurate with

emerging demand in GA-1

1476

2009-10 3,50,000 1591

2010-11 3,78,000 1693

2011-12 4,06,000 1795

Source: PNGRB

Investment Requirements: MGL has already invested over Rs.100 crores in development

of pipeline network in South Mumbai area and by next year another Rs.50 crores would be

invested to create the requisite infrastructure. MGL plans to augment its City Gas

Distribution infrastructure with an investment of Rs.1500 crore in the next five years. With

this investment, we will reach 10 lakh customers from four lakhs now27.

27 http://www.hindu.com/thehindu/holnus/006200902151711.htm

60

http://www.hindu.com/thehindu/holnus/006200902151711.htm


CENTRAL U.P. GAS LIMITED

Central UP Gas Limited incorporated on 25.02.2005, is a JV of Bharat Petroleum

Corporation Limited, holding 22.5 per cent of equity share. The remaining share is with

GAIL with 22.5 per cent, State Government with 5 per cent and 50 per cent with foreign

institutional investors and public.

Key Developments: GAIL had signed JVA with BPCL on 26th July 2004 for formation of

Joint Venture Company to implement City Gas Distribution in the city of Kanpur, Uttar

Pradesh. Land for first CNG station acquired at Fazalganj. Subsequently, lands have been

acquired for two more Mother / Online Stations at Makarikhera & Juhi. RoU / permission

for laying pipelines were taken from State Authorities. Feeder pipeline upto City Gate

Station at Fazalganj has already been laid and commissioned.

Approx. 25 KM Steel Pipeline laid within city as part of City Gas Distribution Project.

Financial Performance: GAIL has signed Gas Supply Agreement with M/s CUGL for

supply of 0.1 MMSCMD gas for Kanpur City Gas Distribution project.

Future Plans Year-wise planned committed during 3 years exclusivity period is given in

Table 25

Table 25: Year-wise commitment during exclusivity period – Kanpur & Bareilly

Year PNG (Nos.) Additional Steel Pipeline (Inch

Km.)

CNG (Lac Kg / Day)

Additional


(2008-09)

Kanpur – 35

Bareilly – Nil

Kanpur – 219.62

Bareilly – Nil

Kanpur – 80000

Bareilly – 16000

2009-10 Kanpur – 5000

Bareilly – 3000

Kanpur – 96.90

Bareilly – 120.00

Kanpur – 64000

Bareilly – 16000

2010-11 Kanpur – 10000

Bareilly – 4500

Kanpur – 101.20

Bareilly – 48.00

Kanpur – 48000

Bareilly – 24000

2011-12 Kanpur – 15000

Bareilly – 6000

Kanpur – 108.00

Bareilly – 48.00

Kanpur – 48000

Bareilly – 24000

2012-13 Kanpur – 20000

Bareilly – 7000

Kanpur – 112.80

Bareilly – 60.00

Kanpur – 48000

Bareilly – 16000

2013-14 Kanpur – 20000

Bareilly - 7000

Kanpur – 150.00

Bareilly – 80.00

Kanpur – 32000

Bareilly - 16000

61


Source PNGRB

Demand Projections for Bareilly:

SectorConsumers

Projected

Distribution

Planned

Projected

Demand

(MMSCMD)

Consumers

Projected

Distribution

Planned

Projected

Demand

(MMSCMD)

Domestic 1000 1000 0.004 81000 81000 0.083

Commercial 30 30 0.002 144 144 0.020

Industrial 2 2 0.008 72 72 0.042

CNG 450 450 0.002 7800 7800 0.036

Total 0.016 0.181

With Gas Allocation of 0.05 mmscmd, the feeder pipeline is being laid by GAIL Augmentation

Plan (as per DFR) is one Mother and Daughter Station each in Bareilly. In case of Kanpur with

gas allocation of 0.1 mmscmd following demand projection is done.

Sector

Phase-I (3rd year) (mmscmd) Phase-II (10th Year) (mmscmd)

Projected Demand Distribution Planned Projected Demand Distribution Planned

Consumers Demand Consumers Demand Consumers Demand Consumers Demand

Domestic 130900 0.0746 1000 0.0006 375000 0.2142 300000 0.1713

Commercial 421 0.0046 20 0.003 421 0.0056 421 0.0056

CNG 148 0.1960 8 0.0337 148 0.2763 148 0.2763

Ind. 22000 0.1075 220000 0.1075 28000 0.1391 28000 0.1391

Total 0.3827 0.1448 0.6352 0.5923

The augmentation plans for Kanpur is as under:

YearMother

Station

On Line

Station

Daughter

Booster

Station

Total

62


Phase I 4 3 4 11

Phase II 1 2 2 5

Total 5 5 6 16

Investment Requirements: Rs 32 crores of investment has already been made aligning with the

plans and projections set for Kanpur.

BHAGYANAGAR GAS LIMITED

Bhagyanagar Gas, a joint venture of two GAIL (India) Ltd and Hindustan Petroleum Corporation

Ltd. (HPCL) emerged as the winner for Kakinada (Andhra Pradesh) in the first round of bidding

in October 2008.

Key Developments: BGL, which has been in existence for almost 7 years in AP, has launched

CNG in the cities of Vijayawada (in August 2005) and Hyderabad (in August 2006). Five CNG

stations, including a mother station, are under operation in Vijayawada, while three stations are

present in Hyderabad. In addition to CNG, BGL is also marketing Auto LPG through 4 outlets

(one in Tirupati and three in Hyderabad). The natural gas to Vijayawada mother station is being

supplied by GAIL from the KG basin production, utilising the existing gas pipeline transportation

network between Tatipaka to Kondapalli (Vijayawada). GAIL has constructed an exclusive spur

line from Kondapalli to BGL's mother station in Vijayawada of approximately 9 km length.

Presently there is no gas pipeline from KG basin to Hyderabad. However CNG has been launched

in Hyderabad by BGL by feeding CNG from its mother station at Vijayawada through mobile

cascades. GAIL and Hindustan Petroleum joint venture Bhagyanagar Gas is looking forward to

sign an agreement for 100,000 cm/d D6 gas supplies from Reliance. This would be in in addition

to the 75,000 cm/d supplies it has already secured from GAIL for its city gas operations at

Kakinada, Hyderabad and Vijayawada in Andhra Pradesh. On February 10, 2010, the company

also invited price bids to buy dispensers for five new ‘daughter’ CNG stations. Bhagyanagar has

already constructed a ‘mother’ CNG station at Kakinada, which is expected to be inaugurated very

soon.

Future Plans Year-wise planned committed during five years exclusivity period is given in Table

26

Table 26: Year-wise commitment during exclusivity period – Hyderabad & Vijayawada

Year PNG (Nos.) - Additional Steel Pipeline (Inch Km.) CNG (Kg / Day)

63


Additional


(2008-09)

Hyderabad – Nil

Vijayawada – 500

Hyderabad – Nil

Vijayawada – Nil

Hyderabad – Nil

Vijayawada – 47000

2009-10 Hyderabad – 1000

Vijayawada – 500

Hyderabad – 90

Vijayawada - 18

Hyderabad – 35410


2010-11 Hyderabad – 31000


Hyderabad – 2350

Vijayawada – 377

Hyderabad – 212459


2011-12 Hyderabad – 101000

Vijayawada - 24900

Hyderabad – 1602

Vijayawada – 240


Vijayawada - 54000

2012-13 Hyderabad – 176000


Hyderabad – Nil

Vijayawada – Nil



2013-14 Hyderabad – 266000

Vijayawada - 26867

Hyderabad – Nil

Vijayawada – Nil


Vijayawada - 0

Source: PNGRB

With the new gas discoveries in the KG basin, the availability of gas had doubled in the

country and Vijayawada had the advantage of receiving CNG at a cheaper price because of

its nearness to the gas fields. Gas would be available at a cheaper rate in AP because of the

lower cost of transportation in view of the location of gas fields here itself. Now it would

all depend on creating demand and infrastructure to use as much gas as possible in the

state.

BGL was under an obligation to give 97,000 piped gas domestic connections in the

Vijayawada Municipal Corporation limits by 2014. It was now for the people to demand

and put pressure on the BGL to lay the necessary network fast and deliver service

Investment Requirements: BGL will have to develop infrastructure worth Rs 500 crore

in Vijayawada in the next five years for supply of CNG and piped natural gas (PNG) for

domestic users and other products.

AVANTIKA GAS LIMITED

Avantika Gas Limited, a JV of GAIL and HPCL, was set up for executing city gas

distribution networks in the cities of Indore, Gwalior and Ujjain in Madhya Pradesh.

Key Developments: Infrastructure of Avantika till date is 1 CNG Station each of mother

and daughter, a steel pipeline of 1 km, number of vehicles converted till date is 475 and

the first CNG sales happens to be from September 2008, which has now reached to 64


154865.80 kg as on January 31, 2009. Land has been identified and applied for setting up

of yet another mother station at Indore. The first CNG mother station in Gwalior is going

to get ready by August 2011. Besides mother station, it has also planned to set up three

daughter CNG stations in Gwalior and expects to sell up to 0.033 MMSCMD of gas in the

first year of operations to 20,000 cars and 6,000 auto rickshaws. The gas supply source

would be from nearby GAIL’s 87 km long pipeline from Kailaras town to Malanpur city.

Avantika is also planning to have 10 more CNG stations in Indore which is expected to be

ready by March 2011. But Ujjain and Gwalior is not as progressive as Indore in terms of

CNG infrastructure which AGL should take care.

Future Plans Year-wise planned committed during five years exclusivity period is given

in Table 27

Table 27: Year-wise commitment during exclusivity period – Indore & Ujjain City

Year PNG (Nos.) - Additional Steel Pipeline

(Inch Km.)

CNG (Kg / Day)

Additional

Commissioned as on date (2008-09) Nil 10 21648

2009-10 500 100 64944

2010-11 7500 136 151566

2011-12 17500 120 162363

2012-13 32000 132 227307

2013-14 50000 42 259782

Source: PNGRB

Investment Requirements: Funds will be raised though equity and debt in next financial

year. The future expansion plan for next one year will cost Rs.82.70 cores.

GREEN GAS LIMITED

Green Gas is authorized to implement city gas distribution in Agra, Lucknow and cities of

Western UP.

Key Developments: As in July 2009, GAIL’s JVC M/s. Green Gas Ltd. is operating in

Agra city by supplying CNG. GGL has set up 3 CNG stations in Agra and is catering to

nearly 6,195 vehicles by selling 0.03 MMSCMD of gas. The cumulative gas sales in Agra

stood as under:

65


Detail

s

Total CNG

Stations

Sales up to 31.01.2009 (in

MT)

CNG vehicles converted up to

31.01.2009

Agra 3 16423 6195

The status of City Gas Distribution in Agra was as follows;

Are

a

Facility Classification Planned Actual

Agr

a

CNG Station Mother Station 2 1

Online Station 3 Nil

Daughter Booster Station 5 2

No. of Vehicles 6195

Steel Network Length 17 km 7.0 km

MDPE Network Length 39 km Nil

Domestic Connection 1000 Nil

Commercial Connection 20 Nil

Industrial Connection Nil Nil

Future Plans: Year-wise commitment during 5 years exclusivity period is given in Table

28

Table 28: IGL’s Year-wise commitment during exclusivity period – Agra

Year PNG (Nos.) -

Cumulative

Steel Pipeline

(Inch Km.)

CNG (Kg / Day)

Cumulative

Commissioned as on date (2008-09) Nil 56 36000

66


2009-10 2000 84 72000

2010-11 6000 198 90000

2011-12 10000 312 108000

2012-13 16000 388 108000

2013-14 22000 388 108000

Source: PNGRB

Green Gas has asked the oil ministry for 110,700 SCMD of subsidised gas for Lucknow,

where it is gearing up to commence its first piped gas supplies in August 2010. Green Gas

presently has a subsided gas allocation of 0.1 MMSCMD for Lucknow, which can only be

sold as CNG to vehicles or as piped gas to households. The company expects to sell its

total allocation by December, 2010 owing to its rapidly growing CNG and PNG customer

base in Lucknow.

In the month of January 2010, green gas pushed its piped gas plan in Lucknow and Agra

till March 2010.

Investment Requirements: It has made a total investment of Rs 26.15 crores in Agra.

DSM INFRATECH

Saumya DSM Infratech, incorporated in 2008, is progressing with its project plans of

setting up a gas network at Mathura in Uttar Pradesh, for which it won a license in May

2009. The oil ministry allocated 20,000 cm/d gas to Saumya in December 2009, which

seems to be enough for the company for the first year of operations.

Key Developments: Saumya also signed a MoU with Shell late in 2009 to source R-LNG

from the Hazira LNG terminal. Gas allocated by the government can be sold only as CNG.

Mathura has emerged as a ready market for Saumya as the city is severely affected with

electricity shortages. The company claims factories, hotels and restaurants are lining up

and are ready to pay any price for gas to fuel their power generators. By April 2010, the

company had two CNG stations ready to start selling CNG.

Future Plans: Year-wise commitment during 5 years exclusivity period is given in Table

29

Table 29: Year-wise commitment during exclusivity period – Mathura

Year PNG Domestic

Connections

City Gate CNG Online Steel Grid (Inch

67


(nos.) Stations Stations (nos.) Km.)

1st Year 10000 0 0 160

2nd Year 18000 1 2 150

3rd Year 17000 0 0 30

4th Year 12000 0 2 50

5th Year 8000 0 1 2

Source: PNGRB

Authorizations issued by Government to entities and cities for CGD

Entities authorized by MoPNG for City Gas Distribution

S.

NoJVC AREA OF OPERATIONS

1. Mahanagar Gas LimitedMumbai and district Thane including Navi Mumbai and

Mira- Bhayender.

2. Indraprastha Gas LimitedDelhi and its suburbs, viz., NOIDA (Gautam-budh Nagar),

Gurgaon and Faridabad

3. Bhagyanagar Gas Limited Vijaywada and Hyderabad

4.Tripura Natural Gas

Company LimitedAgartala

5.Maharashtra Natural Gas

LimitedPune including Pimpri & Chinchward

6. Aavantika Gas Limited Indore, Ujjain and Gwalior

7. Sabarmati Gas Ltd. Gandhinagar, Mehsana and Sabharkantha

8. Green Gas Limited Lucknow. Agra

9. Gujarat Gas Company Surat, Bharuch and Ankleshwar

68


Limited

10. Central U P Gas Limited Kanpur and Bareilly

11. GAIL (India) Ltd. Vadodara

Other entities supplying CGD to the cities:-

S.

No.JVC AREA-OF OPERATIONS

1 Adani Energy Limited. Ahmedabad

2 HPCL Ahmedabad

3Vadodara Mahanagar Seva

SadanVadodara

4 GSPC Rajkot, Murbi, etc.

5Assam Gas Company

Limited

Duliajan, Digboy, Tinsukia, Dibrugarh, Naharkatia, Moran,

Nazira, Sivasagar etc.

In first two rounds of bidding

First Round of Bidding for CGD Network Projects (As on 23.10.08)

Petroleum & Natural Gas Regulatory Board (PNGRB), India’s downstream and gas

regulator, issued bid document for the first round of bidding for City Gas Distribution

(CGD) network projects on October 23, 2008. The cities that were put to bid include Kota

(Rajasthan), Sonepat (Haryana), Mathura (Uttar Pradesh), Kakinada (Andhra Pradesh),

Meerut (Uttar Pradesh) and Dewas (Madhya Pradesh). The results of the first round of

bidding were declared in April 2009, in which GAIL subsidiary GAIL Gas emerged as the

winner of four out of six cities namely Meerut, Kota, Sonepat and Dewas, and was also the

sole bidder in a fifth city, Mathura. But DSM Infratech bid and won this town, defeating

GAIL Gas' low network tariff, after the gas regulatory board extended the deadline for

69


Mathura by one month. Bhagyanagar Gas won Kakinada, defeating Reliance, the natural

choice for this city as landfall point for D6 gas. Other companies that participated in the

first round of bids, include Gujarat State Petroleum Corporation (GSPC) Gas Company,

Reliance Gas, Bharat Petroleum Corporation (BPCL) and Indraprastha Gas Ltd (IGL).

Indian Oil Corporation formed a joint venture with Adani Energy to bid for CGD network.

Table 30: Snapshot of Winners in Round One CGD Bidding

City States Bidders Winners Populat

ion

(Censu

s-

2001)

No, of

Househ

old

in CGD

Total

Munici

pal

Area

No. of

Vehicles

(2007-08)

Primary

Potentia

l

of Gas

Demand

Trunk

Pipelin

e

Conne

ctivity

Kakina

da

Andhr

a

Prades

h

Reliance

Gas

Corporati

on,

Bhagyana

gar Gas

Limited

Bhagyana

gar

Gas

0.35

lakh

90000

175 km2 Bus - 6235

Three

Wheelers -

8921

Four

Wheelers -

8263

Domesti

c: 0.012

mmscmd

Commer

cial:

0.006

mmscmd

Industria

l: 0.1

mmscmd

CNG:

0.017

mmscmd

Likely

Tap-

off

point

will be

at

Jagoti-

Pitamp

ur

pipelin

e of

GAIL

70


Dewas

Madhy

a

Prades

h

Gail Gas

Limited ,

IOC-

Adani

Energy,

Gujarat

State

Petroleu

m

Corporati

on

Gail Gas

2.31

lakh

38500*

*

46 km2

Bus - 210

Auto - 120

Four

Wheelers -

6000

Domesti

c: 17046

scmd

Commer

cial:

2520

scmd

Industria

l:

516500

scmd

Automo

bile:

10650

scmd

Jagoti-

Pitamp

ur

Meerut Uttar

Prades

h

Gail Gas

Limited ,

IOC-

Adani

Energy,

Indraprast

ha Gas

Limited

Gail Gas

11.6

lakh

180000

499 km2 Bus - 3150

Three

Wheelers -

2856

Four

Wheelers -

27465

Domesti

c: 0.05

mmscmd

Commer

cial:

0.02

mmscmd

Industria

l: 0.36

mmscmd

CNG:

0.07

mmscmd

East

West

Pipelin

e

Sonepat

Harya

na

Gail Gas

Limited,

IOC-

Adani

Energy,

Cairn-

BPCL,

DCM

Gail Gas

2.25

lakh

37512*

*

30 km2

3-Wheelers

(Petrol) -

2833

3-Wheelers

(Diesel) -

813

Car (Petrol)

- 6080

Domesti

c: 1234

scmd

Commer

cial: 631

scmd

Industria

l: 59945

Tap-

off

cum

Dispat

ch

Termin

al at

SV-8

71


Infrastruc

ture

Car (Petrol)

- 1520

Taxis

(Petrol) -

112

Taxis

(Diesel) -

169

City Bus -

225

School

Busses -

300

scmd

Automo

bile:

2741

scmd

to

Bahalg

arh

Chowk

along

NH-1

Kota Rajast

han

Gail Gas

Limited,

Cairn-

BPCL,

IOC-

Adani

Energy

Gail Gas

6.94

lakh

130000

56 km2 Bus - 250

Auto - 7002

Car - 19947

Jeep - 7122

Domesti

c: 26749

scmd

Commer

cial: 378

scmd

Industria

l: 72100

scmd

Automo

bile:

24267

scmd

HVJ

Mathur

a

Uttar

Prades

h

Gail Gas

Limited,

DSM

Infratech

DSM

Infratech

*

3.23

lakh

51845*

*

40 km2

Auto - 2113

Pvt. Vehicle

3 W - 394

Pvt. Vehicle

3 W (Cars) -

394

Taxi Cab -

158

Bus -

Passenger -

Domesti

c: 19429

scmd

Commer

cial: 930

scmd

Industria

l: 22159

scmd

Automo

Likely

Tap-

off

point

will be

at

GREP

trunk

pipelin

e at

72


Stage

Carrier - 26

Private Bus

- 36

Heavy

Vehicles -

Trucks &

Lorries -

928

Tempos

(LCV) - 894

Maxi - Cab

- 40

bile:

26286

scmd

Lalpur

village

(SV-9)

on the

Saunkh

Road

Notes

* Though Gail Gas Limited was the sole bidder for Mathura, but DSM Infratech bid and

won this town, defeating Gail Gas low network tariff after PNGRB extended the deadline for

Mathura by one month

** Assuming average proposed household size of 6

*** Standard Cubic Metres Per Day

**** RGCL - Reliance Gas Corporation Limited is now Reliance Gas Transmission and

Infrastructure Limited

Second Round of Bidding for CGD Network (As on 25.02.09)

As a part of the on-going exercise of bidding rounds for new CGD networks across India, the

Petroleum & Natural Gas Regulatory Board (PNGRB) had initiated second round of bidding in

February 2009 for which the last date of submission was 25th June, 2009. A total 7 Geographical

Areas (GA) - Allahabad (Uttar Pradesh), Chandigarh (Union Territory), Ghaziabad (Uttar

Pradesh), Jhansi (Uttar Pradesh), Rajahmundry (Andhra Pradesh), Shahdol (Madhya Pradesh) and

Yanam (UT of Puducherry) - were put-up for bidding. A total of 18 bids were received within the

due date from 8 entities i.e. IOC and Adani Energy Ltd., HPCL, GAIL Gas Ltd., RGCL, IGL, Siti

Energy Ltd., GSPL and Bhagyanagar Gas Ltd. The details of GA wise details of bids received

within the scheduled time are as under:

73


Table 31: Winners of Round 2 Bidding4

City

States

Bidders

Winners

Population

(Census-

2001)

No, of

Household

in CGD

Total

Municipal

Area

No. of

Vehicles

(2007-08)

Primary

Potential

of Gas

Demand

Trunk

Pipeline

Connect

ivity

Allahabad

Uttar

Pradesh

IOC-Adani

Energy,

Gail Gas

Limited

IOC-

Adani

Energy

10.50 lakh

1.60 lakh

429 km2

Bus - 5815

3-Wheelers

- 35768

4-Wheelers

- 59550

Domestic:

0.06

mmsmd

Commerci

al: 0.02

mmscmd

Industrial:

0.10

mmscmd

CNG:

0.07

mmscmd

RGTIL

Chandigarh Punjab

IOC-Adani

Energy,

Gail Gas

Limited,

HPCL &

GSPL

IOC-

Adani

Energy

303 km2 Bus - 2250

3-Wheelers

- 13495

4-Wheelers

- 17892

Domestic:

0.08

mmsmd

Commerci

al: 0.02

mmscmd

Industrial:

0.10

mmscmd

CNG:

0.09

mmscmd

RGTIL

74


Ghaziabad

Uttar

Pradesh

IOC-Adani

Energy,

Gail Gas

Limited,

Indraprasth

a Gas

Limited,

Siti Energy

Ltd, GSPL

Indraprast

ha Gas

Limited

9.68 lakh

1.80 lakh

217 km2

Bus - 7228

3-Wheelers

- 11165

4-Wheelers

- 50479

Domestic:

0.05

mmsmd

Commerci

al: 0.02

mmscmd

Industrial:

0.36

mmscmd

CNG:

0.07

mmscmd

RGTIL

Jhansi Uttar

Pradesh

Gail Gas Not

Applicabl

e1

4.6 lakh 75650

30 km2 Auto -

3272

Pvt.

Vehicle 3

W - 1103

Pvt.

Vehicle 3

W (Cars) -

11115

Taxi Cab -

178

Bus -

Passenger -

Stage

Carrier -

103

Bus-

Passenger-

contract

Carrier -

143

School Bus

Domestic:

20758

scmd

Commerci

al: 911

scmd

Automobi

le: 23550

scmd

(2008-09)

Tap-off

point

will be

at

HVJ

pipeline

75


- 14

Private Bus

- 45

Police

Vans - 19

Heavy

Vehicles -

Trucks &

Lorries -

1896

Tempos

(LCV) -

2134

Tempos - 3

Wheelers

(6+1

Seater) - 26

Ambulance

s - 28

Rajahmundr

y

Andhra

Pradesh

IOC-Adani

Energy,

Reliance

Gas Ltd,

Bhagyanag

ar Gas

Limited

RIL

3.15 lakh

63000

47 km2

Bus - 250

3-Wheelers

- 6900

4-Wheelers

- 9744

Domestic:

0.0164

mmscmd

Commerci

al: 0.0073

mmscmd

Industrial:

0.2250

mmscmd

CNG:

0.0176

mmscmd

RGTIL

76


Shahdol Andhra

Pradesh

Reliance

Gas

Limited

Not

Applicabl

e2

0.8 lakh 15000

52 km2 Bus - 427

3-Wheelers

- 535

4-Wheelers

- 1774

Domestic:

0.01

mmscmd

Commerci

al: 0.01

mmscmd

Industrial:

0.15

mmscmd

CNG:

0.03

mmscmd

RGTIL

Yanam

Andhra

Pradesh

Reliance

Gas

Limited

Not

Applicabl

e3

0.32 lakh

6400

7 km2

Bus - 15

3-Wheelers

- 50

4-Wheelers

- 100

Domestic:

0.016

mmscmd

Commerci

al: 0.010

mmscmd

Industrial:

0.31

mmscmd

CNG:

0.0050

mmscmd

RGTIL

Note:

77


1. Since only one bid received in respect of GA of Jhansi, the Board extended the date of bid submission for one

month till July 24, 2009

2. Since only one bid received in respect of GA of Shahdol, the Board extended the date of bid submission for one


3. Since only one bid received in respect of GA of Yanam, the Board extended the date of bid submission for one


4. The second auction was not completed as IGL challenged PNGRB’s authority to issue CGD licences.

Since only single bids have been received in respect of GAs of Jhansi, Shahdol and Yanam, the

Board has extended the last date of bid submission for these GAs by one month in line with the

Regulation 5(9) of the Petroleum and Natural Gas Regulatory Board (Authorising Entities to Lay,

Build, Operate or Expand City or Local Natural Gas Distribution Networks) Regulations, 2008.

Accordingly, the last date for sale of bid document for these three GAs has also been extended up

to 17th July 2009. All the interested parties may submit bids for development of CGD network in

the geographical area of Yanam, Shahdol, and Jhansi by 24th July, 2009. PNGRB is

simultaneously proceeding for inviting bids in 3rd round of bidding for the next batch of cities.

Bidding Strategies of Players

All the bidders were required to bid as per the key regulatory framework of PNGRB, but still most

of them had confusions and queries regarding the procedure of their bidding. Since the strategies

of the bidding which they implemented in winning the bid is not something which is in public

domain. But they strictly had to follow the regulations.

Code of Practice for Quality of Service for City or Local Natural Gas Distribution

Networks

Technical Standards and Specifications including Safety Standards for City or Local

Natural Gas Distribution Networks

Exclusivity for City or Local Natural Gas Distribution Networks

Determination of Network Tariff for City or Local Natural Gas Distribution Networks and

Compression Charge for CNG

Authorizing Entities to Lay, Build, Operate or Expand City or Local Natural Gas

Distribution Networks

78


The issues which the bidders raised before their bidding exercise were broadly related to

connectivity issue, bidding issues and regulations.

For e.g. in case of connectivity issue one of the prospective bidder asked –

In case there is a delay in providing the connectivity by the Transmission operating company to a

CGD operator, will the exclusivity period be extended? For many cities, the pipeline networks for

transmission of gas is yet to be developed. Since the exclusivity period starts from the day of

authorization, there shall be a mismatch between CGD development and pipeline network.CGD

operator shouldn't be penalized in this situation28.

All the queries raised by them were accordingly answered giving reference to the appropriate

regulatory aspects.

Trends and Future Demand Estimates of CGD

CGD Likely Roll Out Plan (as in April 2009)

State No. of Potential

Cities

Projected

Demand

MMSCMD

Projected Investment (in Rs/Cr)

Andhra Pradesh 37 5.02 2510

Assam 8 5 2500

Bihar 17 1.91 955

Punjab & Himachal

Pradesh

13 3.66 1830

Haryana 17 2.61 1305

Gujarat 25 19.16 9580

Jharkhand 5 0.5 250

Karnataka 26 3.89 1945

Kerala 14 2.52 1260

Madhya Pradesh 5 0.97 485

Maharashtra & Goa 12 8.08 4040

Orissa 6 1.28 640

Rajasthan 4 1.67 835

Tamil Nadu 28 5.95 2975

28 PNGRB website79


Uttar Pradesh &

Uttarakhand

31 7.5 3750

West Bengal 50 4.62 2310

Total 298 74.34 37170

PNGRB has also formulated a Roll-out Plan for the development of CGD networks in various other

geographical areas in the years to come.

Years Geographical Areas

By 2010 85+

By 2013 125

By 2018 250

Assessment of by government (11th 5 Year Plan)

The demand for CGD has moved proportionately to the gas demand. From just 2 cities at

the beginning of X Five Year Plan to …..

Use of natural gas in the domestic sector, especially in the urban areas, would gain further

importance during the XI Plan period due to the flexibility and the advantage of natural

gas over competing fuels. Safety of such distribution systems would need to

beemphasized. Besides adhering to the international codes and practices for the design

and operation of such systems (such as ASME/ANSI B31.8), it would be desirable to

develop indigenous safety codes for city gas distribution and follow the same.

This is another sector which has a high growth potential. World-wide, city gas distribution

has grown hand in hand with the gas sector development in terms of supply infrastructure

and transmission infrastructure. With the expected growth in the gas supply and the

simultaneous creation of gas inter-state transmission infrastructure in India, this sector is

bound to grow in the XI Plan period. With the emphasis on clean environment, this sector

would get the necessary thrust in the coming years. In line with this, various players,

primarily led by GAIL, have drawn up ambitious plans to roll out city gas infrastructure

across a number of cities in the country. From the existing coverage of 10 cities, the

coverage is expected to grow to 40 cities in the next 5-7 years. This sector can be

expected to grow at double digit rates in the later part of the XI Plan period. The current

80


demand estimates in this sector is about 11 MMSCMD in 2006-07 and 12.08 MMSCMD

in 2007-08. Assuming a conservative annual growth of 8 percent, the demand would go

up to about 12.93 MMSCMD, 13.83 MMSCMD, 14.8 MMSCMD and 15.83 MMSCMD

in 2008-09, 09-10, 10-11 and 2011-12 respectively.

The overall sector-wise natural gas demand is shown in table below:

Table 32: Sector Wise Gas Demand Projections (2007-012)

Source: Report of the Working Group on Petroleum and Natural Gas for XI Plan Period (2007-2012)

The IEP has projected gas demand of 682 MMSCMD by 2031-32 in an 8 percent growth

scenario with the assumption that power sector would have 20 percent power generation

based on gas (from current 12 percent level), 100 percent urea production based on gas

and 7 percent growth of other sectors. But the policy also qualifies the projection by

saying that relative prices of fuels would decide the growth trend. Indian gas market is

still in a stage of transition. The Working Group has assumed that the gas sector would

move towards a market determined pricing mechanism during the XI plan period. At this

point in time when gas is still under controlled prices for power and fertilizer sector and is

expected to move through a period of transition, it would not be reasonable to assume a

growth trend and project gas demand beyond 2011-12. So after careful consideration, the

81


projections for gas demand have not been made for 2012-17 and 2017-22. As the market

attains a certain degree of maturity with transition towards market determined prices and

competing alternate fuels lead to a more realistic market price, which is expected to take

place during the XI plan, a detailed study could be carried out to project demand for the

longer term.

Demand side issues in CGD Business

Issues and concerns related to demand side management

The demand of natural gas is the most in power and fertilizer sector, and CGD cannot compete

with them at current scenario given that with respect to domestic consumption of energy is most a

biomass and only with rapid urbanization these regions will develop in order to have some

demand in CGD. But the first thing to be done here is the mass awareness among people residing

in villages to opt for piped natural gas options rather going for typical LPG connections. And if

the volume of the business has to be raised then the capital cost of installation will surely come

down leading to economies of scale. Therefore in order to promote gas among those who have not

even seen an LPG cylinder will be a step towards right direction. The condition of infrastructure

connectivity will be the same as in case of an urban area and surely the availability of gas.

But here postal tariff needs to be followed because the end consumers will not be in a position to

bear the cost. And if the subsidy can be provided to LPG, which further gets diverted and black

marketed then why not for natural gas, which is anytime better than LPG.

As far as creating a demand for vehicle running on CNG, the process will move as it is moving.

The maximum number transport depots should be connected with CNG stations starting with the

main source of supply moving from larger cities to smaller and then to towns and villages. India

regarded to be having fifth largest natural gas vehicles to the tune of around 7,00,000 in nos. after

Pakistan, Argentina, Brazil and Iran. This is the case in India’s still evolving natural gas market

which after getting mature will surely lead the world sooner than later.

Creation of demand should go parallel with more and more investments in exploration and

production of natural gas as one cannot always depend on LNG since India hardly has a long

terms contract in LNG trade. Most of the transactions happens to be on spot basis. Despite the rise

in the price in APM in order to attract investment in upstream and specially the public sector

companies, the natural gas price will still remain below the price paid for LNG purchase.

82


Sources of Supply and Future Supply Outlook for CGD

Supply of Gas to CGD Projects

Gas Supply to CGD Projects (As in April 2009)

CGD Projects Cities Estd. Addl.

Demand

Best

Endeavour

(MMSCMD) 2009 Basis-2009

IGL Delhi, Noida, Gurgaon, Faridabad &

Greater Noida

0.20 0.20

MGL Mumbai, Navi Mumbai, Thane, Mira

Bhayander

160 1.60

CUGL Kanpur & Bareilly 0.50 0.50

GGL Lucknow & Agra 0.40 0.40

MNGL Pune, Pimpri, Chinchwad 0.40 0.40

BGL Hyderabad & Vijayawada 0.20 0.20

AGL Indore, Gwalior & Ujjain 0.66 0.66

TNGCL Agartala - -

GAIL Vadodara 0.03 0.03

GAIL Gas Ltd.- New

Proj.

Various Cities 0.04 0.04

Total 4.03 4.03

Excludes CGD project other than GAIL

GAIL/JVCs of GAIL are augmenting the CNG infrastructure and number of CNG stations

in the respective cities to meet the increased requirement of conversion of vehicles to

CNG. Further, the Ministry of Petroleum & Natural Gas (MoPNG) has formulated the gas

utilization policy for utilization of natural gas produced from NELP blocks and has

allocated 5 MMSCMD of natural gas to the city gas projects from 40 MMSCMD natural

gas expected to be available from Reliance KG Basin fields in the first quarter of 2009.

Supply side issues in CGD

83


On supply aspect of natural gas till 2010, the prices of APM was kept quite low resulting

into investors staying away from this business, as the same was not viable to them. Many

companies specially upstream companies suffered a huge loss (Table). But the time when

price raised to $4.2 / mmbtu the investment climate seemed to be more positive.

Current Gas Price US $ /mmbtu Rs. /mscmAPM1

Customers outside

North-East

3.82 6818

Customers in North-

East

2.29 4091

Non-APM Pre-NELP2 5.24 9354 NELP 4.20 7500LNG

Long term agreement36.53 11660

4 Spot cargo 5.40-6.15 9642 - 10982

Table 33: The total cost of gas sold suffered by ONGC on supplying APM gas (2006-09)

SI. No

.

Particulars Unit 2006-07 2007-08 2008-09

1. Total Cost (ONGC excl TVs) As

per CARR*

Rs./mscm 3490 3426 4,559

2. ROCE** as per TC***

recommendation

Rs./mscm 1083 1205 1311

3. Total Cost incl. ROCE (1+2) Rs./mscm 4573 4631 5,8704. Sales Realisationf Rs./mscm 3164 3147 3,1915. Loss (4-1) Rs./mscm -326 -279 -1,3686. Under-recoveries (4-3) Rs./mscm -1409 -1484 -2,6797. Quantity sold (ONGC excl JVs) BCM 17.99 17.76 17.71

8. Loss (without return) (5*7) Rs. Crore -587 (-9.34%)

-496 (-8.14%)

-2,423 (-

30.01%)9. Under-recoveries (with return)

(6*7)

Rs. Crore -2535 (-40.37%)

-2,636(-43.31%)

-4,745 (-

58.76%)

Source: www.indiapetro.com

The gas price differentiation in India’s gas market is shown in table below

Table 34: Gas Price Differentiation on the Indian Gas Market (2010)

84

http://www.indiapetro.com/


Source: IEA

The previous wide disparity between APM prices and non-APM prices, whether for gas from pre-

NELP or NELP, has narrowed. Under long-term contract, LNG is at a middle point between APM

and non-APM prices but gas sold under the new long-term contracts is likely to be more

expensive. Spot LNG prices are usually the highest but depend on global market conditions29.

Regulatory Aspect of City Gas Distribution

Regulatory Framework of PNGRB Act

It is believed that the Central Government is proposing the following amendment in

PNGRB Act, 2006.

Reference

paragraph

of the Note

Section(s) Proposed Amendment

2.1 16 Only the entities authorized or approved by the

Central Government, immediately before the

appointed day, shall be deemed to have

authorization. Further, the Central Government, in

consultation with PNGRB, will take appropriate

decisions regarding CGD entities, which have

undertaken certain work before the appointed day

without being authorized by the Central

Government.

2.2.1 to 2(d), 11(c), 16, 17, 19, 20 Removing authorization of trunk natural gas 29 Natural Gas in India, IEA, 2010

85


2.2.8 21& 61 (2) (r) pipelines from the purview of the Act.

2.3 2(zc) (Definition)

Sections 1(4) 2 (j), 2 (m),

2(q), 2(x), 2(zi), 2 (zn)

ll(b)(iii), 11(h), ii(i), 12(l)

(a), 12(l)(b), 14(1) (a)

(iii), 15 (l)(c), 18, 20(1),

20(5), 21(1) 24(2), 49, 51,

52,61(2) (d) & 61(2) (h)

Petroleum products and natural gas could be

notified for different Sections of the Act from time

to time. Further, any reference to "Notified

petroleum products and natural gas" in any such

provision shall be construed as being effective

from the date of such notification.

It is also proposed to prefix "notified" to

"petroleum products and natural gas" in various

Sections

2.4.1 &

2.4.2

12 & Chapter V PNGRB should not adjudicate upon Government

Policy & decisions and actions taken by entities in

compliance of Government policy & decisions.

The

Board's power to settle disputes and complaints

should be limited to the functions of the Board as

provided under Section 11 of the Act.

2.5.1 &

2.5.2

H(g) & 61 (2) (g) The Board will levy fees and other charges to be

determined by Rules to be framed by the

Government and not through Regulations notified

by PNGRB.

2.6 Inclusion of Section 42 A To include the following provision for

supersession of Board in line with Section 17 of

the SEBI Act, 1992, Section 19 of the IRDA Act,

1999 and Section 56(1) of the Competition Act,

2002:-

Power of Central Government to supersede the

Board 42 A (1) If at any time the Central

Government is of opinion-

(a) that on account of grave emergency, the Board

86


is unable to discharge the functions and duties

imposed on it by or under the provisions of this

Act; or

(b) that the Board has persistently made default in

complying with any direction issued by the Central

Government under this Act or in the discharge of

the functions and duties imposed on it by or under

the provisions of this Act and as a result of such

default the financial position of the Board or the

administration of the Board has deteriorated; or

(c) that circumstances exist which render it

necessary in the public interest so to do, the

Central Government may, by supersede the Board

for such period, not exceeding six months, as may

be specified in the notification.

(2) Upon the publication of a notification under

sub-section (1) the Board,

(a) all the members shall, as from the date of

supersession, vacate their offices as such;

(b) all the powers, functions and duties which may,

by or under the provisions of this Act, be exercised

or discharged by or on behalf of the Board, shall

until the Board is reconstituted under sub-section

(3), be exercised and discharged by such person or

persons as the Central Government may direct; and

(c) all property owned or controlled by the Board

shall, until the Board is reconstituted under sub-

section (3), vest in the Central Government.

(3) On the expiration of the period of supersession

specified in the notification issued under sub-

87


section (1), the Central Government may

reconstitute the Board by a fresh appointment and

in such case any person or persons who vacated

their offices under clause (a) of sub-section (2),

shall not be deemed disqualified for appointment:

Provided that the Central Government may, at any

time, before the expiration of the period of

supersession, take action under this sub-section.

(4) The Central Government shall cause a

notification issued under sub-section (1) and a full

report of any action taken under this section and

the circumstances leading to such action to be laid.

before each House of Parliament at the earliest.

2.7.1 to

2.7.3

Section 40(2) The Explanation in Section 40(2) is as follows:-

"For the removal of doubts, it is hereby declared

that the decisions of the Board taken in the

discharge of its functions under this Act, being

matters appealable to the Appellate Tribunal, shall

not be subject to audit under this section."

As the above Explanation curtails the scope of

CAG's audit and CAG has also complained about

the same, it is-proposed to amend the said

Explanation as follows:-

"Orders of the Board under Section 12 and Chapter

V of the Act shall not be subject to audit under this

Section".

2.8.1 &

2.8.2

2(d), 11(b) and 15 Section 11(b)- The Board shall -

(b) register entities only by obtaining information

to

88


(i) market notified petroleum products or natural

gas;

(ii) establish and operate liquefied natural gas

terminals;

(iii) establish storage facilities for notified

petroleum products or natural gas exceeding such

capacity as may be prescribed by the Central

Government Suitable modifications in sub-section

(3) & (4) of Section 15. Further, Section 2(d) of

the Act needs to be amended, so that "authorized

entity" means only an entity authorized by the

Board under Section 16 and not an entity

registered by the Board under Section 15.

2.9 ll(i) & 61 (2) (h) Proposed to be deleted, since OISD is to be

empowered to handle the complete functions of

laying, down of technical standards &

specifications, including safety standards.

2.10 Preamble & Sections

1(4), 2(b) & 24.

Refining and Processing activities to be deleted

from the provision. (Safety issues are proposed to

be brought under the purview of Oil Industry

Safety Directorate).

2.11 Preamble and Sections 1

(4), 2 (d) (A) (0, 2 (j), 2(j)

0), 2 (m), 2 (p), 2(q), 2(x),

2(w), 2(zc), 2 (zk), 2(zi)

(ii), 2 (zn), 11(b), 11(f),

11(h), ll(i),12(l)(a), 12(l)

(b), 14 (1), 18,20(1),

20(5),. 21(1) 24(2)(a),

24(2)(b) 42(2), 43(1)

The word "Petroleum" to be deleted, since, as

defined in the Act, "Petroleum" means crude oil.

Transportation of crude oil is an upstream activity

and, as such, does not fall within the purview of

the downstream regulator.

89


46,49,51(1), 52(/) (d) (i),

61 (2) (d), 61(2) (h),

63(1).

2.12 58 (Delegation) Delegation of powers of PNGRB should not

extend to core powers of the Board to issue

authorizations and to settle complaints, apart from

the exceptions already provided. Further,

amendment of typographical error, as settlement of

disputes is covered under Chapter V of the Act.

2.13 25(3) (Filing of

complaints)

Amendment for a typographical mistake; to be

read as sub-section (2) of section 24 in place of

sub-section (2) of section 27.

2.13 4(2) '...selecting the Chairperson and other members of

the Board...' in place of '...selecting the

Chairperson and after members of the Board...'.

Source: PNGRB & Infraline

Pricing of CNG and PNG

International oil prices have been volatile in the recent past. The Indian basket of crude oil had

gone up to an unprecedented level of 142.04 US$/bbl on 3.7.2008 before declining sharply to

35.83 US$/bbl on 24.12.2008. However, during the recent months, the price of the Indian Basket

of crude oil has shown an upward trend and has increased from 40.61 US $/bbl in December 2008

to 69.03 US $/bbl in June 2009 (up to 26.6.2009).

As informed by City Gas Distribution (CGD) Companies, prices of CNG have been increased in

the last twelve months as follows:

Name of the

entity

Name of cities Price of

CNG (prior

to revision)

Price of

CNG (after

to revision)

Increas

e

Year/month

of revision

90


(per kg) (per kg)

Indraprastha

Gas limited

(IGL)

NCT of Delhi Rs 18.90 Rs 21 11% June 2009

Central UP Gas

Ltd. (CUGL)

Kanpur and Bareilly Rs 27 Rs 29 7.4% January 2009

Green Gas Ltd.

(GGL)

Lucknow Rs 27 Rs 29 7.4% January 2009

Agra Rs 28 Rs 33 17.8% December

2008

Bhagyanagar

Gas Ltd. (BGL)

Vijaywada Rs 24 Rs 25 4.2% January 2009

Hyderabad Rs 33 Rs 35 6% January 2009

CGD Companies have informed that the increase has been necessitated on account of sourcing of

non-APM gas and increase in operating expenses. Prices of CNG have not been increased in the

last twelve months in Mumbai (and suburbs), cities/towns in Gujarat, ONEIDA, Pune, Indore and

Ujjain.

Government policy is to encourage supply of CNG to large number of cities, so as to improve the

quality of air and to bring down air pollution. Ministry of Petroleum & Natural Gas has finalized

'Vision-2015' of the oil sector for 'Consumer Satisfaction and Beyond', wherein 200 cities are to

be provided CNG by the year 2015. CNG has been available in the cities of Delhi and Mumbai for

quite a few years. Delhi has the largest fleet of public transport vehicles running on CNG in the

entire world. A few years back, Delhi had a serious problem of smog and pollution. The

comparatively clear skies of Delhi are, in a large measure, because of the use of CNG fuel.

Further, CNG is available in a large number of cities in Gujarat, including inter alia Ahmedabad,

Bharuch, Ankleshwar, Vadodara, Gandhinagar, Rajkot and Surat. CNG is also being supplied in

Vijayawada, Hyderabad, Bareilly Kanpur, Lucknow, Agra, Indore, Ujjain, Pune and Agartala.

International oil prices have been volatile in the recent past. The Indian basket of crude oil had

gone up to an unprecedented level of 142.04 US $/bbl on 3.7.2008 before declining sharply to

35.83 US $/bbl on 24.12.2008. However, during the recent months, the price of the Indian basket

91


of crude oil has again started showing an upward trend and has increased from 40.61 US $/bbl in

December 2008 to 69.03 US $/bbl in June 2009 (up to 26.6.2009).

There is no direct linkage between crude prices and prices of CNG. The price of CNG is

determined more by the category of natural gas sourced. At present, there are broadly two pricing

regimes for gas in the country - gas priced under Administered Pricing Mechanism (APM) and

non-APM or free market gas. The price of APM gas is set by the Government. As regards non-

APM/free market gas, this could also be broadly divided into two categories, namely, imported

LNG and domestically produced gas from New Exploration Licensing Policy (NELP) fields and

pre-NELP Joint Venture (JV) fields. While the price of Liquefied Natural Gas (LNG) imported

under term contracts is governed by the Sale Purchase Agreement (SPA) between the LNG seller

and the buyer, the spot cargoes are purchased on mutually agreeable commercial terms. As

regards pre-NELP JV gas, its pricing is governed in terms of the provision of Production Sharing

Contracts (PSC). Substantial gas production has commenced from the gas fields given by the

Government under the NELP. Empowered Group of Ministers constituted by the Government to

consider inter alia issues pertaining to pricing of natural gas produced under the NELP has

approved the price of gas produced from NELP fields.

CNG is sold by City Gas Distribution Companies, none of which are Central Public Sectors

Undertakings (CPSUs), and approval of the Government is not needed for determining the prices

of CNG. However, IGL has informed that it had to increase the price of CNG, because, on

account of increase in demand, it had to source relatively expensive gas, over and above 2

mmscmd gas made available at APM rates. Further, there was increase in operating expenses in

the last three years, since the last increase in CNG prices by IGL. Similarly, other CGD

Companies have also informed that the increase in CNG prices has been necessitated on account

of sourcing of non-APM gas and increase in operating expenses.

Table 35: CNG Price as on April 2009

City CNG Price (Rs/Kg)

Agra 28

Ahemdabad 28.62

92


Anand 28

Bareilly 29

Chotila 28

Delhi 21

Dhaban 28

Greater Noida 22.1

Hazira 28

Hyderabad 35

Indore 32

Kalol 28

Kanpur 29

Khambhat 28

Lucknow 27

Mira Bhayandar 21.82

Morbi 28

Mumbai 21.7

Nadiad 28

Navi Mumbai 22.23

Navsari 28

Noida 22.1

Pune 28

Rajahmundery 27

Rajkot 28

Surat 27.5

Thane 22.14

Ujjain 33

Vadodara 27.33

Valsat 28

Vapi 28

93


Vijayawada 25

Price of CNG in Delhi:

At present, CNG is being sold in Delhi at a consumer price of Rs 21.00/kg with the following

break-up.

Particulars Rs

Basic Price 16.52

Excise Duty @ 14% 2.31

Education Cess @ 3% of the Excise Duty 0.07

Increase in Gas Cost due to purchase of Non-APM Gas 1.45

Increase in operating cost 0.38

Excise duty and Education Cess @ 14.42% 0.26

Total Cost 21.00

Legal Framework of Natural Gas Sector in India

Regulatory Framework under the PNGRB Act, 2006

Under PNGRB Act, regulatory framework is summarized as under:

PNGRB (Determination of network tariff for city or local natural gas distribution

networks and compression charge for CNG) Regulations, 2008

PNGRB (Exclusivity for city or local natural gas distribution network)

Regulations, 2008

PNGRB (Authorizing entities to lay, build, operate or expand city or local natural

gas distribution network) Regulations, 2008

PNGRB (Technical Standards and Specifications including Safety Standards for

City or Local Natural Gas Distribution Networks) Regulations, 2008

PNGRB (Determination of network tariff for city or local natural gas distribution

networks and compression charge for CNG) Amendment Regulations, 2008

94


PNGRB (Authorizing entities to lay, build, operate or expand city or local natural

gas distribution network) Amendment Regulations, 2008

Regulation for CGD

Policy for Development of Natural Gas Pipeline and City or Local Natural Gas

Distribution Networks, December 2006

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

Local Natural Gas Distribution Networks, December 2007

Regulation for Pipelines

Gas Utilisation Policy - MoPNG

Pricing and commercial utilization of natural gas under new exploration licensing

policy – MoPNG

The Oilfields (Regulation and Development) Act, 1948

The Petroleum and Natural Gas Rules, 1959 amended by the

Petroleum and Natural Gas (Amendment) Rules, 2003,

The Petroleum Act, 1934

The Petroleum Rules, 2002

Figure 16: Timeline of PNGRB Regulations

Source: Source: Presentation by Nitin Zamre, Director – Consulting, CRISIL Infrastructure Advisory – 8 th

Petro India, November 25, 2009

95


Brief Overview of Various PNGRB Gazette Notifications

Following are some of the PNGRB Gazette Notifications for City Gas Distribution Network

No. NIL

19/03/2008

Attachment for CGD network tariff

No. G.S.R. 197(E)

19/03/2008

Determination of network tariff for city or local natural gas

distribution networks and compression charge for CNG

No. G.S.R. 198(E)

19/03/2008

Exclusivity for city or local natural gas distribution network

No. G.S.R.196(E)

19/03/2008

Authorizing entities to lay, build, operate or expand city or local

natural gas distribution network

No. G.S.R.340(E)

06/05/2008

Authorizing entities to lay, build, operate or expand Natural Gas

Pipeline

No. G.S.R. 197(E)

19/03/2008

Determination of network tariff for city or local natural gas

distribution networks and compression charge for CNG

No. G.S.R.541(E)

17/07/2008

Access code for common carrier or contract carrier natural gas

pipelines.

Role of PNGRB in CGD

Further, the Government of India has enacted the Petroleum & Natural Gas Regulatory Board Act,

2006(PNGRB Act, 2006) via Gazette Notification dated 31st March, 2006. Accordingly, in line

with the provision of the Act, the Petroleum and Natural Gas Regulatory Board (PNGRB) was

constituted with effect from 01st October 2007.

96


The PNGRB is reputable for regulating the refining, processing, storage, transportation,

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

production of crude oil and natural gas. It aims to protect the interest of consumers and entities

engaged in specified activities, ensure uninterrupted and adequate supply and promote competitive

markets for petroleum, petroleum products and natural gas.

As per the regulation, PNGRB will regulate only the city gas pipeline network tariff. The end gas

price to the consumers is not covered in the regulation. Any entity authorized by the Central

Government at any time before the appointment of PNGRB does not require to obtain

authorization from PNGRB. The statutory requirement for such entity is only to furnish the

particulars of its CGD activities to PNGRB.

PNGRB has already issued regulations for growth and expansion of the oil and gas industry and is

further paving the way for growth of this sector, balancing the interest of various stakeholders

such as gas suppliers, manufacturers of equipment, consultants, contractors and users. The Board

notified 13 regulations on October 1, 2007, out of which 7 are related to city gas distribution

(CGD). It was notified to authorize entities to lay, build, operate and expand CGD network and

determine network tariff for CGD on March 19, 2008.

According to the scope of these regulations, a CGD network shall normally operate at a pressure

as per the mandated code/standard by the Board, presently not more than 19 Kg/ cm2 (g) and for

supply of a volume not exceeding 50,000 SCMD per consumer per annum. The consumer shall

have the option to source natural gas for volume exceeding 50,000 SCMD from any entity

(including the entity laying, building, operating or expanding a CGD Network), but not through

the CGD network.

Marketing and Infrastructure 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. The CGD Company will have lifetime exclusivity of 25 years for the

pipeline network.

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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 for firms that will operate in the cities to be authorized by PNGRB now.

Eligibility Criteria

Entities interested in obtaining rights to set up a city gas distribution network would need to meet

the following eligibility criteria:

a. Body Corporate or Company registered under the Companies Act

b. Should have a credible plan for sourcing of natural gas

c. 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

d. 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

Or

The entity should intend to operate and maintain the proposed CGD network through appropriate

Technical Assistance Agreement for at least three years with another party having experience of

operating and maintenance of CGI network for at least a period of three years

Or

The entity should have adequate number of technically qualified persons with 0 ft M experience

of hydrocarbon pipeline and a credible plan to independently take up the 0 & M of CGD network

In the explanatory note to the above in the PNGRB notification, it is further stated that the entity

should have a minimum of three personnel having experience of at least one year in (i) ROU

acquisition, design & execution of pipeline, pre-commissioning and safety aspects and (ii)

operation & maintenance of gas pipeline and compressors, gas measurement & accounting and

safety aspects.

Process of Authorization

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

Interest" to PNGRB with the following documents:

a. Rs 8-12 lakh as fee depending upon population of the city (non-refundable)

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b. Geographical area of the city to be covered in the business plan

c. Market potential of Compressed Natural Gas (CNG) for Automobile/Piped Natural Gas

(PNG) for domestic consumption/industrial consumption

d. Likely business plan without divulging business secret

e. Credible Gas Sourcing Plan

On receipt of EOI from an interested entity, PNGRB shall issue an open advertisement for public

consultation to firm up the authorized area of the city gas project. PNGRB as suo-moto may also

select a city for the city gas project. Upon firming up the area, PNGRB will start the process for

open bidding from interested city gas entities. The interested entities are required to submit bid

with the following:

a. Rs 8-12 lakh as fee for submission of bid (for the bidder other than the entity that has

already submitted the fee along with EOI)

b. Bid Bond (Rs 0.5 crore to Rs 5.0 crore depending upon population of the city)

c. Credible Gas Sourcing Plan

d. Detailed Technical Plan

e. Detailed Financial Plan, which includes network tariff, compression charge for CNG, inch-

km of pipeline network and number of domestic connections over a period of pipeline

exclusivity

The authorization shall be granted to the selected entity within a period of 30 days from the last

date of submitting the bid. The award will be on the overall best offer basis considering the

following criteria:

Parameters Weightage

Lowness of the present value of the overall unit network tariff over the economic life

limited to 25 years from the date of authorisation, for each year of economic life.

40%

Lowness of the present value of the compression charge for CNG over the economic

life of the project, which they have to bid for each year of economic life.

10%

Highness of the present value of the inch-km of steel pipeline during the period of

marketing exclusivity

20%

Highness of the present value of number of PNG domestic connection during the 30%

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period of marketing exclusivity

Post Authorization

a. Assignment/Transfer of the Authorization: The grant of authorization to the entity shall

not be renunciated by way of sale, assignment, transfer or surrender to any person or entity

during the period of three years from the date of its issue.

b. Performance Bond: Upon successful award of the Authorization, the entity shall furnish a

performance bond of an amount equal to Rs 1.10 crore (depending upon population of

city) or 5% of estimated project cost, whichever is higher.

c. Financial Closure: The authorized entity is required to obtain the financial closure of the

project from a bank or financial institution within a period of 180 days from the date of the

authorization In case of internally financed project, (the authorized entity is required to

submit the approval of its Board of Directors for the DFR of the project along with its

financial plan within 180 days of the authorization).

d. Natural Gas Tie-up: The authorized entity is required to enter in to a firm natural gas

supply agreement for the proposed CGD network with an entity owning natural gas for at

least 50% of the volumes considered in the determination of the network tariff bid up to

the marketing exclusivity period (i e 5 years) within 120 days of issue of the authorization.

e. Service Obligations: The authorized entity has the following service obligations:

i. Provide domestic PNG connection as per the bid

ii. Lay and build steel pipeline as per the inch-kilometer bid

iii. Reach all areas or wards in the authorized area through pipelines of adequate size

to meet the demand of the consumers

iv. Provide piped natural gas connection on demand to a domestic consumer for

cooking purposes within a distance of 25 meters of the metering unit at the

consumer's end till the tap-off in the pipeline

f. Penalty: In case of default in abiding by the terms and conditions of regulation/service

obligation, PNGRB has the right to encash 25% of the amount of the performance bond for

the first default and 50% of the amount of the performance bond for the second default. In

case of third default, PNGRB may encash 100% of the amount of performance bond and

simultaneously terminate the authorization of the company.

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Further, PNGRB may also levy civil penalty on the authorized company in addition to the penalty

described above.

Un-bundling of the CGD Business

So far, PNGRB has not made any mandatory provision for un-bundling of the CGD business from

the regular business of an entity However, the authorized entity is required to ensure that

a. there is no cross-subsidization of the costs between the activity of transportation and the

activity of marketing of natural gas in the CGD network;

b. the confidentiality of customer information collected in the course of providing CGD

service is maintained; and

c. there is no preferential access allowed to itself or to any other entity for the activity of

transportation of natural gas in the CGD network.

Grant of Authorization

The entities and cities to which authorizations have been issued by Government for CGD (as on

February 2009) are as follows:-

S.

No

JVC Area of Operation

1. Mahanagar Gas Limited Mumbai and district Thane including Navi Mumbai &

Mira-Bhayander

2. Indraprastha Gas Limited Delhi and its suburbs, viz., Noida (Gautambudh Nagar),

Gurgaon and Faridabad

3. Bhagyanagar Gas Limited Vijayawada & Hyderabad

4. Tripura Natural Gas Company

Limited

Agartala

5. Maharashtra Natural Gas

Limited

Pune including Pimpri & Chinchward

6. Aavantika Gas Limited Indore, Ujjain & Gwalior

7. Sabarmati Gas Ltd. Gandhinagar, Mehsana & Sabharkantha

8. Green Gas Limited Lucknow, Agra

9. Gujarat Gas Company Surat, Bharuch & Ankleshwar

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Limited

10. Central UP Gas Limited Kanpur & Bareilly

11. GAIL (India) Ltd. Vadodara

Other entities supplying CGD to the cities:-

S.

No.

JVC Area of Operation

1 Adani Energy Limited, Ahmedabad

2 HPCL Ahmedabad

3 Vadodara Mahanagar Seva

Sadan

Vadodara

4 GSPC Rajkot, Morbi, etc.

5 Assam Gas Company

Limited

Duliajan, Digboi, Tinsukia, Dibrugarh, Naharkatia, Moran,

Nazira, Sivsagar etc.

PNGRB has considered the authorization granted by Central Government to 3VI/S Indraprastha

Gas Limited (IGL) for city of Delhi to lay, build and operate city gas distribution network, and has

allowed IGL exclusivity for 3 years. IGL has submitted its documents pertaining to the cities of

Faridabad, Gurgaon and Gautambudh Nagar (Cities of Noida and Greater Noida) to PNGRB on

the basis of authorization granted by Central Government. Further IGL has applied to PNGRB for

Ghaziabad, which is being considered by PNGRB.

PNGRB has also considered authorization granted by Central Government to MGL for Greater

Mumbai and allowed exclusivity for 3 years. MGL has submitted document, for district Thane,

including Mira-Bhayendar and Navi Mumbai to PNGRB on the basis of authorization earlier

granted by Central Government. IGL has plans to cover NCT of Delhi, Noida/Greater

Noida/Ghaziabad (U.P.), Faridabad/Gurgaon/Sonepat/Panipat (Haryana) with PNG supplies in

phases spread over next few years subject to necessary approvals from appropriate authorities.

Taxation Issues Related to City Gas Distribution

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Fiscal aspects in CGD

DEVELOPMENT PHASEIncome taxCapitalization of expenditure incurred on construction of pipelines

Interest cost during construction period – eligible for capitalization? Depreciation on capitalized costs for pipelines:

o Depreciation under the Companies Act, 1956 at 13.91 percento Depreciation under Income tax Act, 1961 (IT Act) at 15 percent

Indirect tax Customs duty on imported equipment Imports may qualify as ‘Project imports’ – custom duty leviable at blanket rate of 5

percent, irrespective of rate on individual equipments

FINANCING AND INVESTMENT PHASE

The funding options available are equity shares and preference shares and debt financing through

external commercial borrowings / local debts

Equity

Equity is the most common funding source. Distribution of dividends on (equity / preference)

subject to a dividend distribution tax (DDT) at 16.995 per cent.

Taxability of capital gains on sale of shares:

In case of listed companies: The long term capital gains are exempt while short-term capital

gains are taxable @ 11.33 per cent for residents and @ 10.56 per cent for NRIs.

In case of unlisted companies: Long-term capital gains taxable at 22.66 percent for residents and

21.12 percent for non-residents. Short-term capital gains taxable at 33.99 percent for residents

and 42.23 percent for non-residents.

Non-resident investors may claim treaty benefits

OPERATION PHASE

Income tax

A ten year tax holiday under section 80-IA of the IT Act for laying and operating cross-country

natural gas distribution network. Minimum AlternateTax (MAT) payable at 11.33 percent on

‘book profits’ during tax holiday period.

Key considerations /issues in tax holiday for CGD operation:

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The phrase “cross-country” not defined – whether CGD network would qualify as ‘cross-country

distribution network’

At least 1/3rd of total pipeline capacity to be made available for use on common carrier basis

by persons other than assessee or any associated person

Indirect tax

Excise duty:

Compressed Natural Gas (CNG) – compression’ amounts to manufacture; excise duty

payable; CENVAT credit available in respect of pipelines / other capital goods (whether inside

or outside the factory) / inputs used in relation to transportation / manufacture of CNG

Piped Natural Gas (PNG) – There is no manufacturing involved hence no excise duty payable and

CENVAT credit available in respect of pipelines / other capital goods used exclusively for

transportation/ in relation to PNG

Value Added Tax

1. Sale of natural gas (CNG /PNG) liable to VAT - VAT legislation in the respective State provide

for rate /exemption, if any.

2. Credit of (input) VAT may be available in respect of materials used for the pipeline network

utilized for transporting CNG (since compression on natural gas amounts to manufacture)

3. No VAT credit available in respect of material used for the pipeline network utilized

exclusively for supply /transportation of PNG to end consumers

Key Developments

1. Possibility of availing ‘Declared goods’ status for VAT purposes

2. CST on inter-state procurement

3. Service tax – payable in relation to common carrier capacity, if any

Global Practices in City Gas Distribution

Globally, the use of natural gas in the road-transport sector remains negligible, even though

natural gas vehicle (NGV) technology has been around for a long time and is well established in

some countries. Worldwide, there were an estimated 9.6 million NGVs on the roads in 2008,

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mainly in Pakistan, Argentina, Brazil, India, Iran and Italy.3 The majority are cars, but buses

account for much of the consumption, and two- and three-wheelers powered by compressed

natural gas (CNG) are prominent in Pakistan, India and some Southeast Asian countries. South

America alone accounts for almost 40% of total consumption. Most light-duty NGVs are

converted gasoline-powered vehicles, though an increasing number of vehicles worldwide are

being manufactured to run on CNG.

In most cases, gas as a transport fuel (in compressed or, less commonly, in liquefied form) was

introduced as a means of monetising abundant local supplies, but the environmental benefits of

gas over gasoline and diesel have helped drive up demand in recent years. Compared with

vehicles with a conventional engine, NGVs emit fewer noxious and toxic air pollutants, and

generate lower CO2 emissions on a well-to-wheels basis (Gielen and Unander, 2005). In an effort

to combat local air pollution, some large cities have turned to NGVs. For example, all public

transport vehicles in Delhi are required to be powered by CNG. Interest in promoting NGVs is

growing in the United States, driven by low prices and the perception that indigenous supplies are

ample.

Despite the environmental advantages of NGVs over conventional vehicle and fuel technologies,

expanding the NGV fleet faces several barriers, including fuel storage and making available the

infrastructure for delivery and distribution at existing refueling stations. On the vehicle, natural

gas must be stored in cylinders, thus reducing storage space. The absence of an existing fuel-

distribution network also discourages the uptake of NGVs — a classic chicken-and-egg problem.

For these reasons, public buses and other fleet vehicles, such as taxis, are likely to continue to

dominate the use of gas for road transport. More stringent emissions standards could encourage

faster deployment of NGVs, especially in countries with abundant gas resources and low prices. In

countries with an established distribution network, NGVs are likely to maintain their market

share. But countries that do not yet have an extensive fuel-distribution infrastructure are likely to

favour other alternative fuels, notably biofuels and electricity, in the quest to decarbonise the road-

transport system because the required investments are smaller and the potential environmental

gains greater.

The transport sector accounts for a small share of gas use. At present, oil and gas pipeline

compressors take more than four-fifths of the gas used for transport. This source of demand is

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expected to continue to grow as global gas use rises, but at a much slower rate (0.4% per year

between 2007 and 2030, compared with global primary gas demand growth of 1.5%). This is

because pipeline transportation capacity grows less rapidly than liquefied natural gas (LNG)

capacity (see Chapter 12) and because the efficiency of compressors is expected to improve. In

contrast, the use of gas as a road-transport fuel, which currently accounts for only 1% of total final

gas consumption worldwide, is expected to grow at a brisk 3.7% per year to 2030, with most of

the growth coming from non-OECD countries (which already account for most gas use for road

transport).

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report on investment prospects in city gas distribution

Documents

apm gas

natural gas production

city gas distribution

present city gas consumption

indian gas market

gas price differentiation

demand scenario of natural

total cost of gas