Growth in the city gas distribution (CGD) segment hinges crucially on the timely development of trunk pipeline networks that make gas available for final offtake. In India, the national gas transporter, GAIL (India) Limited, has maintained its dominance in the gas transmission and distribution segment for many decades now.
Over the past few years, the company has been giving renewed attention to its CGD business. Most of its CGD operations are through the joint venture (JV) route, with the exception of six geographical areas (GAs) that it operates independently. These are Varanasi, Bhubaneswar, Cuttack, Patna, Ranchi and Jamshedpur, all of which are situated alongside the currently under way PradhanMantriUrja Ganga (PMUG) pipeline project.
GAIL’s CGD operations: Current scenario and business plans
At present, GAIL supplies over 13.2 million metric standard cubic metres per day (mmscmd) of domestic gas to the country’s CGD segment. While doing so, it serves 29 CGD entities. Besides the domestically produced gas, it also supplies 1.5 mmscmd of regasified liquefied natural gas to meet the demand from the CGD segment.
GAIL, along with its subsidiaries and JVs, is now authorised to carry out CGD operations in 62 out of the 228 GAs across the country. Of these, it won 15 GAs in the ninth round of bidding and another 8 GAs in the tenth round.
Of the six independent GAs operated by GAIL, Varanasi’s CGD network was inaugurated in 2018, followed by commencement of operations in Ranchi and Patna in 2019. The company supplied gas to its CGD network in Cuttack and Bhubaneswar through a liquefied compressed natural gas (CNG) satellite terminal developed in Bhubaneswar, the first such facility inthe country. At present, GAIL supplies gas to its independent GAs through a combination of CNG cascades and pipeline network. It plans to feed the CGD network of all of these six GAs through pipelines in the next 10-12 months.
As the Petroleum and Natural Gas Regulatory Board is firming up its list of GAs for the soon-to-be-launched eleventh round of bidding, GAIL is geared towards participating in the bidding to expand its presence in the CGD segment. That said, like other CGD players, GAIL too is facing a few challenges associated with the fledgling segment.
Key concerns
As the CGD segment is yet to mature in most parts of the country, some issues are impacting all the CGD players, and GAIL is no exception. Some of these areas of concern are:
- Saturated markets: In the CGD business, vertically growing cities (that is, major cities with a large number of high-rise buildings for residential and commercial purposes) are low-hanging fruit for any company. In such cities, the CGD company benefits from a high density of population in a given area that leads to a quick build-up of gas volumes (and thus, revenues). This is in sharp contrast with smaller cities/towns that have a relatively low population density and thus have uncertain volume build-up, at least in the household segment. So far, most of the opportunities in Tier I cities have been realised. The new markets are the Tier II cities and these present somewhat difficult economics for the CGD business.
- Paucity of skills: A sudden surge in activity in the CGD segment in recent years has created a dearth of skilled personnel along the value chain. For instance, many CGD entities are chasing the same contractors, equipment and service vendors, as well as project management consultants. The issue calls for a long-term solution if a vibrant CGD industry with timely execution of projects is aimed at.
- Bidding scenario: The current bidding scenario is marked by a lack of engagement by CGD players with the state governments before submitting bids for their preferred GAs. The situation demands a well-structured bidding approach that involves extensive consultation with state governments for identification of the existing infrastructure as well as the gaps therein. Such an approach will aid the companies in arriving at fairly priced competitive bids, along with well-thought-out routes for gas pipelines and locations for setting up gas dispensing stations.
- Synergy: It is often the case that two or more adjoining GAs are being developed by different CGD players. In such a situation, it would be beneficial for the players to make the most of the synergies and develop a mutually advantageous plan for creation of CGD infrastructure in the area.
In sum
GAIL is a key entity in the country’s gas sector, and thus, its business plans hold great relevance to the overall growth of the sector, including the CGD space. With overall gas consumption of the CGD segment expected to be 50-55 mmscmd in the next four-five years, it will be interesting to witness GAIL’s growth amidst all the challenges it faces.
Based on a presentation by Ravi Agarwal, Executive Director, GAIL (India) Limited, at a recent India Infrastructure conference