The city gas distribution (CGD) segment has shown mixed progress in the past few years. Though a number of geographical areas (GAs) have been bid out, the number of those receiving just one bid or no bids at all is on the rise. Nevertheless, CGD entities operating in the country seem positive about the segment’s future prospects.
Overall, the CGD segment is continuing to grow in terms of market size and network. The pipeline network has grown at a compound annual growth rate (CAGR) of 15 per cent between 2012 and 2016 (till June 2016) while the number of compressed natural gas (CNG) stations has increased at a CAGR of 16 per cent.
In 2015, new CGD bidding rounds were rolled out by the downstream regulator, the Petroleum and Natural Gas Regulatory Board (PNGRB). In the fifth round, bids were invited for 20 cities. However, despite several changes in the bidding parameters to encourage participation, the response remained lukewarm and only eight of the 20 GAs received bids. Tenders for the remaining will be reinvited. In addition, 34 GAs were offered in the sixth round. Of these, no bids were received for 14 GAs. For the remaining, bids are currently under evaluation.
In the meantime, the PNGRB has expedited the process of granting licences. In the past one year, new licences have been issued to lay, build, operate and expand CGD networks in Ernakulam and Belgaum offered in the fourth bidding round; Krishna, Dharwad, Tumkur, Godavari East, Godavari West, Hardwar and Udham Singh Nagar offered in the fifth bidding round; and Rupnagar, Patan, Amreli, Bhatinda and Saharanpur offered in the sixth bidding round.
Network size
The network of distribution pipelines is over 45,900 km, of which approximately 90 per cent comprises polyethylene (PE) pipelines while the remaining 10 per cent are steel pipelines. As of April 2016, there are about 1,071 CNG stations operational in India, serving over 2.55 million vehicles. The customer base for piped natural gas (PNG) stands at over 3.2 million.
About 85 per cent of the CGD network is concentrated in three states – Gujarat, Delhi-National Capital Region (NCR) and Maharashtra. Gujarat is by far the largest city gas consumer in the country accounting for more than 50 per cent share in the total CGD pipeline network, followed by Delhi-NCR (22 per cent) and Maharashtra (11 per cent).
In the northern zone, apart from Delhi-NCR, there are eight GAs in Uttar Pradesh that have been covered by the CGD network. These are Agra, Lucknow, Kanpur, Bareilly, Meerut, Ghaziabad, Noida and Moradabad. The combined pipeline network in Uttar Pradesh is more than 2,328 km, with 90 operational CNG stations.
In Madhya Pradesh, CGD operations are carried out by Aavantika Gas Limited and GAIL Gas Limited in Dewas, Indore, Ujjain and Gwalior. In Assam, Dibrugarh, Tinsukia, Sibsagar and Jorhat have been covered by the CGD network. These GAs are served by Assam Gas Company Limited. Another state that has been covered in this region is Tripura, which is served by Tripura Natural Gas Company Limited.
In the southern zone, four cities in Andhra Pradesh – Vijayawada, Hyderabad, Kakinada and Rajahmundry – have been covered under the CGD ambit by one operator, Bhagyanagar Gas Limited. Among states, Gujarat is the leader in the PNG segment with the highest number of consumers at 1.5 million followed by Maharashtra (0.89 million). In the CNG segment too, Gujarat leads with 0.81 million consumers followed by Delhi (0.8 million).
Market structure
Many of the well-established oil and gas players, both in the public and private sector, have considered the CGD business to be a niche segment and have therefore either created a subsidiary or a joint venture (JV) for this purpose. This includes public sector companies like GAIL (India) Limited, Indian Oil Corporation Limited, Bharat Petroleum Corporation Limited, etc. as well as private sector players such as the Adani Group.
At present, the CGD market is dominated by a few big entities such as Indraprastha Gas Limited (IGL), Gujarat Gas Company Limited (GGCL) and Mahanagar Gas Limited (MGL) that account for over 90 per cent of the total CGD volumes. These companies enjoy the first-mover advantage. The PNGRB is formulating new guidelines to ensure a level playing field for both public and private sector entities.
Apart from GGCL, Gujarat’s pipeline network is run by Adani Gas, Charotar Gas Sahakari Mandali Limited (CGSML), Sabarmati Gas Limited (SGL), Hindustan Petroleum Corporation Limited and GAIL Gas Limited. Now regional players such as Adani Gas and the Gujarat State Petroleum Corporation (GSPC) are expanding their presence outside regional areas. Adani Gas has built a CGD network in Faridabad, Haryana, and Khurja, Uttar Pradesh. Similarly, GSPC is setting up a CGD network in Dadra & Nagar Haveli.
In Delhi-NCR, IGL operates the largest CGD network, while MGL and Maharashtra Natural Gas Limited operate the CGD network in Maharashtra.
Further, a number of new companies with no prior experience in the CGD segment have entered the business, as a result of the initiatives undertaken by the regulatory board to simplify the bidding parameters. Megha Engineering and Infrastructures Limited is undertaking CGD projects in Krishna district in Andhra Pradesh as well as Tumkur and Belgaum districts in Karnataka.
Region-wise, the western region has the maximum number of operators, including GGCL, MGL and SGL, due to its proximity to gas fields. The northern region, on the other hand, is dominated by JVs of GAIL such as IGL, Central Uttar Pradesh Gas Limited, etc.
In terms of gas sales volume, GGCL is the biggest CGD player in the country, accounting for 44 per cent of the volume. It is followed by IGL, which accounts for 27 per cent of the total sales volume.
In terms of PNG consumers too, GGCL is the largest CGD company with over 1.09 million domestic, industrial and commercial consumers served. This is followed by MGL, which serves over 0.86 million consumers and IGL (0.64 million). IGL is the largest CGD company in terms of CNG vehicles served. It supplies CNG to 0.87 million vehicles through 340 CNG filling stations. This is followed by GGCL, which operates a total of 245 CNG stations and MGL (188 CNG stations). In terms of CNG vehicles served, both MGL and GGCL supply CNG to about 500,000 vehicles.
The way forward
While gas availability continues to be a challenge, policy developments have certainly helped improve access to domestic gas. Since January 2014, the top priority in domestic natural gas allocation is accorded to the domestic CNG and PNG categories. This has helped CGD players cut prices and retain their margins, thereby allowing them to regain competitiveness.
Going forward, the business potential for CGD networks in India is significant owing to a strong domestic consumer base in the industrial, commercial and vehicular segments. The sector is offering more opportunities for technology providers as well. Most CGD operators are testing world-class technologies and best practices to ensure effective operations.
That said, given the importance attached to CGD development by the central and state governments as well as industry players, the sector needs to work towards addressing operational challenges. The areas that require attention are asset management and distribution, trunk line connectivity, network safety, leakage detection and metering.
