The city gas distribution (CGD) segment has undoubtedly made significant headway in the past couple of years. Several factors such as renewed government focus, regulatory reforms and growing environmental concerns have been crucial in driving growth. A total of 136 new geographical areas (GAs) were put on offer in the ninth and tenth bidding rounds that received overwhelming industry response. Investments to the tune of Rs 1.2 trillion are expected to be made in the next 8-10 years to expand coverage of compressed natural gas (CNG) and piped natural gas (PNG) across the country. Upon successful completion of CGD projects in the awarded GAs, 70 per cent of the population will have access to a CGD network. Further, around 44 GAs covering 100 districts have been identified for the upcoming eleventh bidding round.
Several measures have been taken by the Ministry of Petroleum and Natural Gas (MoPNG) to ensure faster infrastructure creation. Priority allocation of domestic natural gas for the CNG and PNG segments has been a major policy shift. Besides, public utility status has been granted to CGD projects. In January 2020, a draft CGD policy that could be adopted by states to facilitate CGD infrastructure development was released. The policy outlines suggestions regarding setting up of a committee to help formulate policies and streamline processes for the requisite clearances to develop CGD infrastructure. In 2018, the Petroleum and Natural Gas Regulatory Board (PNGRB) had revised the bidding criteria to lay greater emphasis on infrastructure, giving it 80 per cent weightage as compared to zero per cent earlier.
Indian Infrastructure looks at the existing infrastructure and upcoming development plans across the CNG and PNG segments…
CNG network
India is working rapidly towards increasing its network of CNG fuelling stations in order to curb the rising levels of vehicular pollution in cities. The number of CNG stations has grown from 1,053 stations in 2015-16 to 2,207 stations in 2019-20, recording a compound annual growth (CAGR) of 20.32 per cent. Meanwhile, the number of CNG vehicles has grown at a CAGR of 7 per cent, increasing from 2.57 million vehicles in 2015-16 to over 3.37 million vehicles in 2019-20. More than 60 per cent of the CNG stations are located in three states – Gujarat (636 stations), Delhi (419 stations) and Maharashtra (370 stations).
Further, as per the minimum work programme commitments for new GAs awarded under the ninth and tenth bidding rounds, the number of CNG stations is expected to increase to over 10,000 by 2028. These stations are likely to cater to a fleet of 15 million CNG vehicles. The transition towards this green mode of transport could lead to potential savings of Rs 2 trillion given that CNG vehicles are more cost effective than their petrol counterparts.
In the past few years, various initiatives have been taken to drive CNG demand and ensure faster infrastructure development. The government has introduced plans for development of green corridors in the vicinity of pipeline networks. In 2015, draft guidelines for the development of CNG outlets on highways were issued. Several corridors including those connecting Delhi to Chandigarh, Jaipur, Agra and Haridwar were identified to facilitate the availability of CNG beyond city limits. As a maiden project, Rajasthan State Gas Limited has commissioned CNG stations at Neemrana and Kukus near Jaipur along National Highway-8 and has started dispensing CNG to plying vehicles, thereby opening a CNG corridor between Delhi and Jaipur.
Moreover, in February 2019, the MoPNG introduced guidelines for setting up dealer-owned, dealer-operated (DODO) CNG stations. The DODO model aims to overcome the challenge of land acquisition for setting up these stations. The new model will not only reduce the cost of setting up stations for CGD entities but will also enable landowners and investors to become partners in the green drive. According to the guidelines, the entire plot owned by a private owner will be developed exclusively for setting up a CNG station and for allied commercial activities at the discretion of the CGD entity. The plot owner desirous of setting up a CNG station will have to enter into a long-term agreement with the CGD company. The model will initially be implemented in 150 districts.
Besides, several states have also introduced different policies and taken measures to increase the uptake of CNG as a transport fuel. For instance, the Gujarat government has recently introduced the CNG SahbhagiYojana under which the permissions required from various authorities to set up CNG stations have been reduced. Besides, land requirements have also been eased.
PNG network
The PNG segment has also witnessed significant developments in the past few years. From 2015 to 2020, the number of PNG connections in the country have increased from 3.19 million connections in 2015-16 to 6.1 million at the end of 2019-20, a CAGR of more than 17 per cent. Growth in the segment has been primarily driven by the rise in the number of household connections, which have increased from 3.16 million in 2015-16 to 6.06 connections in 2019-20.
While the commercial and industrial segments have also made some progress, their share in the total PNG connections continues to remains minuscule at barely 1 per cent. The number of commercial and industrial connections currently stand at 30,622 and 10,258 respectively. As is the case with the CNG segment, the states of Gujarat (2.17 million connections), Maharashtra (1.76 million connections) and Delhi (0.91 million connections) dominate the PNG segment too. Further, as per the commitments under the ninth and tenth bid rounds, the number of PNG connections in the country are expected to increase by 42 million in the next 8-10 years.
The ban on polluting fuels such as furnace oil and pet coke in states like Haryana, Rajasthan and Uttar Pradesh has played a crucial role in pushing industrial gas demand. In 2019, the Himachal Pradesh State Pollution Control Board also released a draft policy that restricts the use of furnace oil and pet coke and encourages the adoption of alternative fuels including PNG. It is expected that in the coming years the ban on polluting fuels will be extended to several other states to combat environmental issues, thus giving greater momentum to the PNG segment.
Moreover, the Ministry of Housing and Urban Affairs has advised all the states and union territories to ensure the provision of PNG in all the smart cities. The Ministry of Defence has also issued guidelines for the use of PNG in its residential areas/units.
The way forward
In the coming years, the CGD segment is expected to maintain a high growth trajectory. It is also expected to play an important role in realising the government’s vision of a gas-based economy. However, effective execution of regulatory changes, timely completion of pipeline connectivity projects and development of skilled manpower will be essential to ensure faster development of infrastructure.