New Connections: Penetration of CGD network in untapped geographies

Penetration of CGD network in untapped geographies

In the past couple of years, the prospects of the city gas distribution (CGD) industry have improved. This is mainly because the government is focusing on promoting the use of environment-friendly transportation fuel – compressed natural gas (CNG) – and increasing the share of liquefied natural gas (LNG) in India’s energy mix. The introduction of new policies and guidelines for making piped natural gas (PNG) available to CGD entities to enable them to cater to domestic demand is also fuelling growth. Besides, licences being issued by the Petroleum and Natural Gas Regulatory Board (PNGRB) at a much faster pace is also providing a push. As a result, several projects to expand the coverage of the CGD network in cities across the country are being taken up.

Indian Infrastructure provides a snapshot of some of the upcoming CGD projects, which will provide an impetus to the CDG industry…

Key upcoming projects

IOCL-Adani CNG corridors

Adani Gas Private Limited, in a joint venture (JV) with Indian Oil Corporation Limited (IOCL), has been granted the authorisation for laying, building, operating or expanding the CGD network in nine geographic areas (GAs) – Chandigarh, Allahabad, Panipat, Bulandshahr, Daman, South Goa, Udham Singh Nagar, Dharwad and Ernakulum. These GAs are spread across 12 districts in 10 states with diverse terrains, and complex regulatory environments and approval processes. As a result, the execution of work within the defined timelines is a challenge. Despite this, work is currently in progress and an investment of over Rs 20 billion has been planned for the first five-six years. The size of the GAs varies from 50 square km to 4,225 square km with GAIL (India) Limited, IOCL or Gujarat State Petroleum Corporation Limited undertaking gas transmission.

So far, the supply of PNG in five GAs – Chandigarh, Allahabad, Panipat, Daman and Ernakulam – has commenced. Supply in two other districts – Udham Singh Nagar and Dharwad – is expected to commence by March or April 2018. The licences for the remaining two GAs – Bulandshahr and South Goa – were recently granted and work is expected to commence by April 2018.

Ratnagiri CGD network

The CGD infrastructure and network in Ratnagiri, Maharashtra, is being developed by Unison Enviro Private Limited (UEPL), a subsidiary of Ashoka Buildcon Limited. The authorisation was granted to UEPL by the PNGRB on August 16, 2016. The authorised area is spread across 8,276 square km and includes nine charge areas within the GA – Mandangarh, Dapoli, Khed, Guhagar, Chiplun, Ratnagiri, Sangmeshwar, Lanja and Rajapur. The gas is being sourced from GAIL’s tap-off point located at Sangmeshwar. Two gas connectivity agreements have been signed for the transmission of gas. One agreement with GAIL (signed in February 2017) is for supplying gas through the Dabhol-Bengaluru natural gas pipeline. The other was signed with IOCL in April 2017 for supplying LNG from Dahej. Besides Ratnagiri and Chiplun, all the other charge areas are located at a distance of 100 km or more from the GAIL tap-off, resulting in constraints in gas supply. To overcome the constraints, UEPL has set up two city gas stations. The first, a mother station at Sangmeshwar, is scheduled to be commissioned by April 15, 2018. Type-3 Luxfer cascade cylinders have been deployed at the station to transport gas to daughter booster stations (DBSs). The second station is an LNG terminal being developed at Lote (Maharashtra Industrial Development Corporation) and is scheduled to be commissioned by May 20, 2018. Besides, there are plans to develop three DBSs at Ratnagiri and Chiplun to further ease the transportation constraint.

UEPL has a target to provide 19,880 domestic connections in five years (starting 2016) to the charge areas with most of the connections being installed in Ratnagiri (9,500) and Chiplun (6,200).

CGD infrastructure in Kota

The availability of energy is key for the systematic development of industrial clusters. The city of Kota in Rajasthan has a huge industrial base comprising agro, textile, chemical and metal industries. Thus, there exists great potential for the development of the CGD business in the city. Rajasthan State Gas Limited (RSGL), a JV of GAIL Gas Limited and Rajasthan State Petroleum Corporation Limited, is the authorised entity for setting up retail gas infrastructure in the state.

Earlier, in 2009, a contract was awarded to GAIL Gas Limited by the PNGRB for developing a CGD network and CNG stations covering 527.03 square km of the GA. During the period 2009-14, 40.04 km of steel pipelines and 53.46 km of polyethylene (PE) pipelines were laid and three CNG stations and one DBS were developed. The infrastructure could cater to only 192 domestic, one commercial and 18 industrial customers, with the supply of 15,000 standard cubic metres per day (scmd) of gas. Later, in 2014-15, due to a lack of coordination between the authorities and workers and a rocky terrain, work was left midway. As a result, the existing capacity fell short of the potential demand. To tap the potential, RSGL signed a business transfer agreement with GAIL on April 18, 2017. Under the agreement, all gas assets of GAIL were transferred to RSGL.

Subsequently, RSGL prepared a plan to holistically develop CGD infrastructure in the city to meet the demand for 60,000 scmd by 2021. The plan aims to help transform Kota into a smart city by providing clean energy by setting up CNG corridors and stations. As per the plan, CNG corridors will be developed on the Kota-Jaipur (about 250 km), Kota-Jhalawar (80 km), Kota-Baran (5 km), Kota-Chittorgarh-Bhilwara- Udaipur (over 400 km) stretches. Besides, industrial clusters will be developed at Ranpur, IPIA Kota and the NCR industrial estate, which will create the required demand. The scope of work includes laying a steel pipeline network, and setting up CNG stations, an online CNG station and DBSs. A PE pipeline network will also be laid to connect 36,000 household consumers, about 43 commercial consumers (including hostels), among others, by 2021-22.

The areas that have been identified for the provision of domestic connections on an immediate basis are Om Enclave (Anantpura), Rajiv Gandhi Nagar (Jhalawar Road), Mahavir Nagar-1, Multimetal Staff Quarter (Kota Industrial Area), Kanchenjunga Apartments, Mahalaxmipuram, Mahalaxmi Enclave, Royal Exotica and Benchmark Township. Further, RSGL is planning to develop an intra-city CGD network connecting Kota to Ahmedabad and Mumbai.

Conclusion

In the past few years, industry confidence, low global LNG prices, and clear-cut policies have helped in the growth of the CGD industry. However, to maintain the growth momentum, a number of issues have to be addressed. For instance, projects are exposed to high execution risks associated with huge capital expenditure and the slow pace of pipeline laying. Besides, low sales and customer penetration and the high cost of providing last-mile connectivity adversely affect project viability. Measures have to be taken while keeping these challenges in mind. This will attract more players for the development of new projects.

Based on a presentation by Ravi Agarwal, Managing Director, RSGL; Nitish Kohli, Senior Quality Engineer, UEPL; and Bashit Dholakia, Director, IOCL-Adani Gas Private Limited, at a recent India Infrastructure conference