The demand from the city gas distribution (CGD) sector received a major blow owing to the outbreak of the Covid-19 pandemic. However, since the third quarter of 2020-21, CGD volumes have witnessed a significant improvement with the easing of lockdown restrictions. Moreover, the CGD sector is expected to grow manifold in the next few years, with the government setting a target of increasing the share of natural gas in the country’s energy basket from the current level of 6.2 per cent to 15 per cent by 2030. The following is the perspective of leading CGD operators on the current status of the sector, the key issues and future outlook…
Adani Total Gas Limited
Adani Total Gas Limited (ATGL) has made a strong recovery from the Covid-induced economic slowdown and has registered positive growth in the past five months. Piped natural gas (PNG) supply has commenced in new geographical areas, and construction work is progressing in full swing in all 15 geographical areas recently won in the 9th and 10th bidding rounds. The regulator has also provided some relief on account of the Covid-19 pandemic as a force majeure. However, pandemic-related issues continue to delay the implementation of CGD networks in these geographical areas. Meanwhile, the issue of supply chain blockages has largely been resolved, as the strong parentage of the Adani Group and Total helped Adani Total Gas Limited to pursue domestic industries that were successful in offering alternatives to Chinese imports. ATGL is optimistic about completing its targeted capex in fiscal 2020-21. Moreover, the capex figure in the next four to five years is expected to reach around Rs 50 billion, riding on the strong V-shaped recovery of the Indian economy by March 2022.
GAIL Gas Limited
GAIL Gas Limited’s compressed natural gas (CNG) sales witnessed a fall of around 87 per cent, whereas the industrial and commercial PNG sales dipped around 75 per cent during the Covid-induced lockdown in the country. However, pre-Covid level volumes have been achieved across all segments since the third quarter of the financial year 2021-21. The company is currently operating in 14 geographical areas consisting of 52 cities and towns, and has placed a special emphasis on setting up CNG stations through the dealer-owned-dealer-operated model.
GAIL Gas is planning to expand its operations in eastern and southern India. These regions constitute a large market that is still untapped and are expected to provide a major impetus to the CGD sector. The current natural gas utilisation in Karnataka stands at 1 per cent. It offers tremendous scope to CGD companies to establish an ecosystem for promoting natural gas. The company is expected to connect around 160,000 households and 75 CNG stations in 2020-21. The company utilised the Covid lockdown period to adopt new technologies to simplify and streamline processes and further improve its customer experience with automated billing processes, e-invoicing and invoice reminder functionalities.
Indraprastha Gas Limited
Indraprastha Gas Limited (IGL) is currently operating at 97-98 per cent of its pre-Covid levels, and is expected to register a double digit year-on-year growth in fiscal year 2021. The company was operating at 20 per cent of the pre-Covid levels during the first quarter of the fiscal year, which then increased to 50 per cent in the subsequent quarter. The company’s CNG operations made a strong recovery in the third quarter due to the reopening of various sectors of the economy. Moreover, during the fourth quarter of 2020-21, IGL is expected to witness a year-on-year growth of around 10 per cent.
IGL has provided around 200,000 PNG domestic connections till date in the current financial year, and is expecting to reach 300,000 connections by March 2021. The number of CNG stations under IGL has also grown rapidly. In the future, IGL aims to commission 100 CNG stations and connect around 600,000 PNG connections every year, with an annual capex of around Rs 15 billion.
Sabarmati Gas Limited
Sabarmati Gas Limited (SGL) is currently operating almost at pre-Covid levels, with industrial and domestic segments registering double digit growth rates since the third quarter of financial year 2020-21. Its CNG operations have crossed pre-Covid levels, whereas the domestic PNG segment has witnessed a growth of around 18-20 per cent since the onset of the pandemic. Operations in the commercial segment are yet to pick up pace – a single digit negative growth was registered in the third quarter of the current fiscal year. However, the overall operations of SGL have reverted to normalcy.
As far as expansion of operations is concerned, SGL is expecting to commission 30 CNG stations by 2022 and expand its PNG network to 60,000 households in Gujarat. Moreover, SGL has also identified two liquefied and compressed natural gas (LCNG) sites and is setting up one compressed bio gas plant as well.
THINK Gas is a relatively new player in India’s CGD sector and is still focused on foundational work. As a result, the company is recovering from the economic slowdown differently. It is currently working towards creating a favourable ecosystem for natural gas by setting up CNG retail outlets and developing relations with dealers and prospective customers. THINK Gas decided to venture into the CGD sector in India owing to an improved regulatory framework, positive outlook within the sector and various upcoming opportunities available at the macro level. THINK Gas recently commissioned its first LCNG facility in Bhopal, Madhya Pradesh and fully operationalised a city gas station (CGS) in Bagpat city in the Delhi-NCR region. By March 2022, the company is expecting to have 11 operational CGSs and complete more than 50 per cent of its steel MWP.
Most of the CGD entities have recovered from the economic slowdown and are currently operating at pre-Covid levels. By the end of financial year 2020-21, most CGD entities are expected to achieve higher productivity than in the previous year. The domestic and industrial segments have played a vital role in facilitating pre-Covid growth rates in the current fiscal year, with the ceramic, metal and dairy industries facilitating a positive growth rate in the industrial segment. Construction activities, which were halted during the Covid-induced lockdown period, have also picked up pace. The issue of migrant labour has also been resolved to a great extent with lockdown restrictions being lifted.
Digitalisation in the CGD sector has become the need of the hour in order to ensure higher efficiency rates in operations. Digital tools such as geographic information systems, which were not considered important earlier, are now being used extensively in the CGD sector as they improve collaboration within the organisation and stimulate overall efficiency. Going forward, digitalisation is expected to play a major role in transforming the operations of CGD entities through the introduction of smart meters and mobile applications that reduce the need for manual readings.
Although the adoption of digital solutions increases the initial capex for companies, such solutions are pivotal in reducing opex over the long term. Many CGD companies have started adopting digital solutions and are also measuring the quantum of their operations being carried out digitally and that being carried out conventionally in order to achieve optimum efficiency.
Key challenges and future outlook
Most CGD entities face challenges in obtaining equipment owing to substantial price hikes of up to 30-40 per cent. Hence, benchmark rates are applied for contractors to ensure price stability. Another major issue that CGD companies face is delays in obtaining permissions. While the authorities have showcased a highly positive intent for the CGD sector, government agencies still lack the resources for large-scale operations, due to which there are various delays in granting the requisite permissions.
Going forward, the outlook for the sector remains optimistic due to favourable government policies and the expansion of CGD entities. The CNG segment is expected to grow exponentially in the coming years. Currently, there are around 41 million vehicles on Indian roads, of which only 4 million run on CNG. Hence, there is immense scope for CNG motor vehicles in the country.
Based on a panel discussion among Suresh P. Manglani, Chief Executive Officer (CEO), ATGL; M.V. Ravi Someswarudu, CEO, GAIL Gas Limited; A.K. Jana, Managing Director (MD), IGL; Ramana Kumar, MD, SGL; Hardip Singh Rai, CEO, THINK Gas; at a recent Indian Infrastructure conference, “City Gas Distribution in India”
The companies have been arranged in alphabetical order.