Stepping on the Gas: CGD bidding rounds and investments

CGD bidding rounds and investments

The city gas distribution (CGD) sector aims to promote green fuel such as pi­ped natural gas (PNG) for domestic and industrial consumption, and compressed natural gas (CNG) for the automobile industry. The sector has witnessed remarkable growth in the past few years. The government has been taking steps to promote the development of the CGD network to ensure an adequate supply of PNG and CNG to consumers.

The Petroleum and Natural Gas Regulatory Board (PNGRB) is the regulatory body under the government entrusted with granting autho­ri­­sations to entities for developing CGD networ­ks in geographical areas (GAs) as per the PNGRB Act, 2006. It has introduced various po­li­cies to streamline activities in the sector. The­se include the issuance of force majeure gui­delines, relaxation in LNG marketing and di­s­tribution regulations and simplification of the gas pipeline tariff structure. A major focus area of the PNGRB has been the creation of new networks for expansion.

CGD sector bidding rounds

The PNGRB identifies GAs based on the development of natural gas pipeline connectivity and the availability of natural gas. It grants authorisation based on a transparent competitive bidding process. The PNGRB has concluded 10 bidding rounds and the 11th and 11A bidding rounds are under way.

After the 10th bidding round, there are 228 GAs authorised by the PNGRB in 27 states and union territories (UTs). This covers approximately 53 per cent of the country’s GA and 70 per cent of the cumulative population.

In order to expand the reach of natural gas in the country, the PNGRB launched the 11th bidding round in September 2021. It will cover 65 GAs spread over 215 districts in 19 states and UTs. The 11th round will cover 26 per cent of India’s population and 33 per cent of its area.

The PNGRB has received bids against 61 out of 65 GAs and it has issued letters of intent to successful bidders pertaining to 52 out of 61 GAs. Hyderabad-based engineering firm Me­­g­ha Enterprises (MEIL) has won the highest number of bids in the 11th round. The other wi­nners are Adani Total and state-owned Indian Oil Corporation Limited (IOCL) and Bharat Pet­roleum Corporation Limited (BPCL).

Of the total bids for 61 GAs in the 11th round of CGD bidding, MEIL won 15 GAs. This was followed by Adani Total securing 14 GAs, IOCL winning nine GAs and BPCL winning six GAs. The Navi Mumbai-based Dinesh Engi­ne­ers won bids for four GAs. The successful bidders will have to construct city gate stations or mother stations, lay the main pipeline and distribution pipelines and install CNG stations, among other works.

On January 7, 2022, the PNGRB invited bids under the 11A CGD bidding round. This will cover areas such as Lakhimpur Kheri, Sitapur, Bah­rai­ch, Shrawasti, Balrampur, Siddharth Nagar and Maharajganj districts in Uttar Pradesh; Banka, Dumka, Godda, Jamtara, Pakur and Sahibganj di­s­tricts in Bihar and Jharkhand; Birbhum, Mu­rshi­dabad, Maldah and Dakshin Dinajpur distri­cts in West Bengal; and Koriya, Surajpur, Bal­ram­pur and Surguja districts in Chhattisgarh. It also invited bids for the Yanam GA in Puducherry on February 10, 2022.

Enhanced investments in the CGD sector

The existing players in the CGD sector are investing significantly to develop the infrastructure and expand operations to new GAs.

Adani Total Gas Limited (ATGL) is one of India’s largest private CGD companies. After winning 14 GAs in the 11th bidding round, the company now caters to a total of 52 GAs. This accounts for 15 per cent of the area covering 124 districts across 18 States and 3 UTs. ATGL is committed to providing convenient and environment-friendly natural gas for cooking and water heating to over 9 million households. It will establish around 2,000 CNG stations to su­pply economic transport fuel to vehicles and clean fuel to industrial and commercial consu­mers. To achieve this, ATGL will invest around Rs 120 billion in these 14 newly added GAs. This will take the total commitment of AGTL in the clean energy sector to Rs 200 billion.

After securing six new GAs across 19 districts in the latest round of bidding, BPCL has committed to invest Rs 100 billion over the next five years in setting up city CGD networks. This would increase its commitment to Rs 220 billion for a total of 23 GAs across the country on a stand-alone basis. The CGD footprints of BPCL, along with its joint ventures (JVs), will now exte­nd to 48 GAs covering 94 districts in 18 states. Currently, with presence in 63 districts, BPCL, along with its JVs, holds a 33 per cent market share in the CGD sector in the country.

State-run company IOCL secured nearly 33 per cent of the demand potential in the recently concluded 11th CGD bidding round. The company, along with its JVs, will be present in 49 GAs across 21 states. IOCL has expanded its presence in Jammu, Pathankot, Sikar, Jal­gaon, Guntur, Thoothukudi, Tirunelveli, am­ong others. These districts have high-demand customers across the industrial, commercial, and domestic segments for both PNG and CNG. With the latest announcement, the total investment earmarked by the company for its CGD vertical is Rs 270 billion. Of this, Rs 70 billion will be spent on the nine new GAs secured in the 11th bidding round.

Future of the CGD network

One of the key objectives of the government is to transform India into a gas-based economy. At present, the share of natural gas in the energy basket of the country is over 6 per cent. The government targets to take it to 15 per cent by 2030. To make natural gas available to the public, the government has been actively promoting the development of the CGD network.

The CGD sector uses 22 per cent of the natural gas in the country, and it is the second-largest gas consuming category followed by fertiliser. Currently, with authorisation in 228 GAs across 27 states and UTs, approxima­tely 70 per cent of the country’s population is covered. After the 11th round, CGD networks are expected to reach more than 90 per cent of the population and over 85 per cent of the country’s area.

Gas Authority of India Limited (GAIL) has also commenced India’s first-of-its-kind project of mixing hydrogen into natural gas at Indore, Madhya Pradesh. In line with the National Hy­drogen Mission, GAIL has started this pilot project to establish the techno-commercial feasibility of blending hydrogen in the CGD network. This project marks the stepping stone of India’s journey towards a hydrogen-based and carbon neutral future.

GAIL has started injecting grey hydrogen at the city gate station, Indore. The grey hydrogen will be supplied to a joint venture for retailing CNG to automobiles and PNG to households for cooking. This grey hydrogen would subsequently be replaced with green hydrogen.

It is expected that this pilot project would help in the creation of a robust standard and re­gulatory framework in India to cover the as­pects of injecting hydrogen into natural gas. This will pave the path for carrying out more such projects in India.