The country’s natural gas sector is looking at bright times ahead. In a bid to use cleaner fuels, the government aims to increase the share of gas from 6 per cent at present to 15 per cent by 2030. The development of an extensive pipeline network through the creation of a national gas grid has, therefore, been a top priority. Significant emphasis has been laid on the expansion of pipelines to ensure the availability of gas across the country, especially in the underpenetrated eastern and north-eastern regions. At a recent Indian Infrastructure conference, a panel of experts discussed the status of the current and upcoming pipeline network, the challenges being faced in implementation, the steps that can be taken to improve the pace of execution and the future outlook for the gas transportation segment. Excerpts…
Current and upcoming pipeline network
At present, the country’s natural gas pipeline network stands at 16,226 km, with a carrying capacity of 360 million metric standard cubic metres per day (mmscmd). GAIL (India) Limited accounts for the largest share (over 70 per cent) in the gas transmission infrastructure. It has a network spanning 11,656 km and a capacity of 229.6 mmscmd. Other organisations that own pipelines in India include Gujarat State Petronet Limited, Reliance India Limited, Assam Regional Network and Indian Oil Corporation Limited (IOCL). In the past, pipeline infrastructure development took place only in regions where gas supplies were easily available and demand centres were active. Therefore, most pipelines emanated from the western parts of the country, especially Gujarat, into the northern and central parts. Some pipelines also emerged in areas where localised use of gas was taking place, in states such as Assam and Tripura. However, in the past few years, proactive efforts have been made to expand the pipeline network by connecting eastern and southern India to domestic gas sources as well as to the liquefied natural gas (LNG) terminals. The government is working towards the creation of a National Gas Grid to boost the consumption of gas and ensure availability across all regions.
As of June 30, 2020, nine pipeline projects with a total length of 13,680 km have been partially commissioned. Some of the key projects that are currently under implementation are the PradhanMantriUrja Ganga Project (PMUG) and the Kochi-Mangalore, Daddri-Bawana-Nangal, Mehsana-Bathinda and Bathinda-Jammu-Srinagar pipelines. The ambitious PMUG project aims to connect eastern India to the pipeline network. It was launched in 2015 and is being executed by GAIL. As part of the project, initially the 2,655 km long Jagdishpur-Haldia-Bokaro-Dhamra pipeline was planned across five states – Uttar Pradesh, Bihar, Jharkhand, Odisha and West Bengal. Later, the 729 km pipeline from Barauni to Guwahati in Assam was also included. The project entails investments of over Rs 129 billion and is being implemented with 40 per cent viability gap funding (VGF) from the government. It is scheduled to be completed by December 2021. Further, the long delayed Kochi-Mangalore pipeline is at the last stage of completion and is expected to be commissioned by September-October 2020. The capacity utilisation of the Kochi LNG terminal is expected to increase considerably after the completion of the pipeline.
Moreover, seven pipeline projects, spanning a total length of 6,255 km, are also at the construction or pre-construction stages. These projects include the development of the North East Gas Grid and the Kakinada-Srikakulam, Jaigarh-Mangalore, Kakinada-Nellore and Mumbai-Nagpur-Jharsuguda pipelines, among others. The 1,656 km North East Grid will ensure uninterrupted supply of gas in the north-eastern states. The project will be implemented by Indradhanush Gas Grid Limited, a joint venture of GAIL, IOCL, Oil and Natural Gas Corporation (ONGC), Oil India Limited and Numaligarh Refinery Limited. It will be connected with the upcoming Barauni-Guwahati pipeline. It involves investments of over Rs 90 billion, and a VGF of over Rs 54 billion (60 per cent of the total cost) has been sought from the central government. Construction on the first phase of the project is expected to start in 2020, between Guwahati and Numaligarh in Assam. Recently, the government has also authorised GAIL to undertake the construction of the 1,755 km Mumbai-Nagpur-Jharsuguda pipeline.
The completion of the ongoing projects will create a network of 35,000-36,000 km of pipelines running across the length and breadth of the country, ensuring seamless flow of gas.
Key issues and challenges
Gas pipeline projects continue to be mired in legacy issues, such as right-of-way challenges and delays in securing requisite clearances. In fact, the first 16,000 km of pipelines took more than 10 years to complete due to sluggish progress on account of the above issues. Further, even the operational pipelines continue to be under-utilised by as much as 50 per cent.
A major challenge faced by the pipeline segment is its inability to attract private capital. The lack of anchor load customers can have a significant impact on the viability of the pipelines. As of now, natural gas has gained limited traction from the power sector due to affordability issues. Also, the sector does not receive priority allocation of domestic gas. Going forward, the anchor load is expected to be provided by the fertilser, refinery and CGD sectors. However, as demand from the CGD and transport sectors takes time to pick up, the economic viability of the pipelines becomes an issue in the initial phase. Further, there is a need to address the issue of volume commitment by any pipeline entity in the country, which puts the entire volume risk on the entity itself. Therefore, there is a need to cover the risks by providing VGF and ensuring an assured rate of return for operators.
Further, the government and private developers need to speed up pipeline network creation by unlocking capital tied up in operational assets through mechanisms such as infrastructure investment trusts (InvITs). InvITs can help in transferring the existing transmission infrastructure to various asset management companies, thus monetising the assets and freeing up capital, which can then be deployed to set up new pipelines. This can also help in attracting foreign investment in the sector. Another issue that has perennially affected projects in the sector is the delay in obtaining right-of-use permissions. The road sector offers a promising solution wherein the National Highways Authority of India (NHAI) has taken a stand by awarding projects only after 90 per cent of the land has been acquired. Such practices can prove beneficial for pipeline projects as well, and will go a long way in attracting active participation from the private sector.
Moreover, due to the growing population and rapid urbanisation, route planning for new projects has become extremely difficult. Besides this, resistance from farmers and demands for higher compensation hamper the progress of the project. Further, as several projects are taken up simultaneously, the limited availability of skilled personnel and the inadequate mobilisation of equipment cause considerable delays.
Recently, the Petroleum and Natural Gas Regulatory Board’s (PNGRB) move to rationalise the tariff by the introduction of a unified tariff system has also been subjected to various debates. While a unified tariff will help in boosting gas consumption in areas away from the gas source, it may not be as attractive for customers located near the source. However, there are various complexities in the implementation of an entry-exit tariff mechanism as well. Therefore, the regulator decided to go ahead with the unified tariff model. The transition to more sophisticated tariff models such as the aforementioned entry-exit tariff system should be the next step, once the country has more developed systems and processes in place. Several regulatory issues need to be addressed for the gas exchange to work seamlessly as well. At some stage, the legal unbundling of GAIL will also be necessary to enable pure transmission companies to give access to other entities. Pipeline companies need to offer a transparent mechanism to book capacities by reducing manual interventions.
Conclusion
While several initiatives have been introduced to expand the coverage of the pipeline network in the country, the progress has been rather slow. The timely completion of pipeline projects is crucial in creating a gas-based economy. Therefore, measures to resolve legacy issues such as developing a robust regulatory framework, encouraging greater investments through private sector participation and simplifying the process of obtaining statutory approvals would go a long way in expeditious development of pipelines, thus boosting gas consumption in the country.