The city gas distribution (CGD) segment has witnessed mixed progress in the past few years. The network has continued to grow and fresh licences have been issued at a much faster pace. However, despite several changes in the bidding parameters to encourage participation, the response has remained lukewarm.
The pipeline network grew at a compound annual growth rate (CAGR) of about 12 per cent between 2011-12 and 2016-17 and the number of compressed natural gas (CNG) stations increased at a CAGR of 10 per cent. Total sales in 2016-17 were close to 22 million metric standard cubic metres per day (mmscmd).
In 2016, new bidding rounds were rolled out by the Petroleum and Natural Gas Regulatory Board (PNGRB). Bids were invited for the development of CGD networks for five geographical areas (GAs) under the seventh round of bidding and another seven GAs under the eighth round.
Under the seventh round, only one GA (Solapur GA allocated to IMC Limited) has been sanctioned so far and no price bids have been received for the remaining GAs. With regard to the eighth bidding round, there has been no update on the bid status as of June 2017.
In the past one year, the PNGRB has granted authorisation to lay, build, operate and expand the CGD network in 16 cities covered under the sixth bidding round and one city under the seventh bidding round.
Network size and growth
The CGD network in India is spread across 45 GAs in 15 states/union territories (UTs). The existing network comprises more than 47,000 km of distribution pipelines. From 2011-12 to 2016-17, the distribution pipeline network increased substantially from 26,725 km in 2011-12 to over 47,000 km in 2016-17, witnessing a CAGR of about 12 per cent.
From 2011-12 to 2016-17, the number of compressed natural gas (CNG) stations increased at a CAGR of 9.62 per cent from 779 stations in 2011-12 to 1,233 stations in 2016-17. Since 2011-12, the number of CNG vehicles served has grown at a CAGR of 20.47 per cent and the growth in piped natural gas (PNG) connections has been around 17.06 per cent. A state-wise analysis shows that in terms of CNG stations, Delhi leads with 421 stations, followed by Gujarat (396 stations) and Maharashtra (245 stations).
In terms of the number of CNG vehicles, Gujarat has the maximum number at 1,094,973, followed by Delhi with 939,475 CNG-fuelled vehicles and Maharashtra with 685,883 CNG vehicles. Together, these three states account for about 86 per cent of the total CNG stations and serve about 89 per cent of the CNG customers in the country. Between 2014-15 and 2016-17, in absolute terms, Indraprastha Gas Limited (IGL) made the maximum addition to the CNG network, establishing 95 new CNG stations.
It is followed by Gujarat Gas Limited (GGL), which added about 24 CNG stations during the same period (till end-February 2017). In terms of growth rate, IGL recorded the highest CAGR of about 13 per cent, followed by Mahanagar Gas Limited (MGL) at 6.2 per cent.
Between 2011-12 and 2016-17, the number of PNG connections grew at a CAGR of 17.06 per cent. As of March 2017, a total of 3,614,312 consumers were connected to PNG, which was 13.22 per cent higher compared to 2015-16 when the number of connections stood at 3,192,179. Category-wise, domestic connections account for 99 per cent of the PNG connections (3,585,646). Commercial and industrial consumers account for only 1 per cent of the total PNG connections (as of March 2017).
The five major companies – GGL, IGL, MGL, Adani Gas Limited (AGL) and Central Uttar Pradesh Gas Limited (CUGL) – together cater to more than 3,165,110 PNG customers (87.57 per cent of the total customer base). IGL added the maximum number of PNG customers in 2016-17, increasing its customers base from 638,898 in 2015-16 to 745,075 as of March 2017, registering a growth rate of 16.62 per cent. It was followed by GGL, which added over 90,000 PNG customers to its network.
Key CGD operators
The CGD sector is dominated by a few companies. The top five players – GGL, IGL, AGL, MGL and CUGL – account for more than 82 per cent of the gas distribution pipeline network.
Overall, with a pipeline network of over 17,000 km (March 2016) and about 258 CNG stations, GGL is the largest CGD player in India, catering to approximately 1,204,085 consumers (as of February 2017).
The second largest CGD player, IGL currently has a network of 778 km of steel pipelines and 9,940 km of medium density polyethylene (MDPE) pipelines catering to a customer base of 742,205 domestic and 2,870 commercial and industrial customers. It also has over 421 CNG stations.
MGL, the third largest player in the CGD segment, has a network of over 4,838 km of pipelines and about 203 CNG stations as of 2016-17. With over 952,200 PNG customers, it is one of the largest CGD companies in terms of consumers.
Other major players include AGL, which has a gas distribution network of more than 5,350 km, GAIL Gas with about 1,200 km of pipeline network and CUGL with 749 km.
Apart from these key CGD players, there are several other utilities that have been operating in the CGD segment for quite some time now. These include Maharashtra Natural Gas Limited, Haryana City Gas Distribution Limited, Green Gas Limited, Assam Gas Company Limited, Bhagyanagar Gas Limited and Tripura Natural Gas Company Limited. As of March 2016, these companies cumulatively operated over 103 CNG stations across the country and had a total PNG customer base of approximately 110,000.
Opportunities and the way forward
Going forward, the business potential for CGD networks in the country is significant. Based on the bidding rounds held so far, over 895,000 PNG connections will be required in the GAs (under the minimum works programme; the maximum are under rounds 5 and 6). Over 56,000 inch km of pipelines are to be laid for the upcoming GAs (under the minimum works programme).
Overall, the short-term investment requirement for the CGD segment is estimated at about Rs 104 billion. The bulk of the investment (about 70 per cent) will be directed towards laying common pipelines and providing last-mile connectivity. The remaining 30 per cent will be shared between CNG dispensation units (20 per cent) and CNG compression units (10 per cent). In the long term, CGD network expansion will require an investment of at least Rs 144 billion (considering the 42 cities that will invite fresh bids).
With only 15 states/UTs covered under the CGD network at present, the magnitude of the untapped potential can be clearly gauged. Growing urbanisation is creating new potential markets that can be explored by CGD players.
Policy initiatives in the past two-three years have certainly helped improve access to domestic gas. Since January 2014, the domestic CNG and PNG categories have been accorded top priority in domestic natural gas allocation. The LNG route for accessing gas too is advantageous as spot prices have been re-negotiatedare low and long-term prices by key players such as RasGas.
However, there are some issues and concerns that need urgent attention. Chief among these are irrational bidding by CGD entities, delays in securing multiple clearances, lack of well-defined market potential, entry barriers, deficient pipeline connectivity and uncertainty regarding domestic gas supply.
Going forward, the policy side looks promising, as the PNGRB is planning to revamp the existing City Gas Distribution Policy in a bid to provide a boost to the segment. It is expected that the existing challenges will be addressed under the new regime. Given the robust project pipeline, significant business opportunities exist for project developers, pipeline manufacturers, technology providers (control systems, etc.), consultants, regulator and meter manufacturers, etc.