Natural gas has increasingly become a preferred choice of fuel globally, as it is a cleaner source of energy, in comparison with other conventional fuels such as coal and oil. It is found in abundance in the world as the production of natural gas has been on the rise and it is a more efficient way of producing useful energy cheaper than oil on a calorific value basis. This explains India’s ambition to increase the share of natural gas in its primary energy mix to 15 per cent by 2030, up from 6.7 per cent in 2021 and 6.3 per cent in 2020.
India is the third-largest energy consumer in the world after China and the US and also one of the fastest growing energy consumers. While the share of natural gas in India’s primary energy mix has largely remained flat in recent years, at around 6 per cent compared to the global share of 24 per cent, the overall energy demand has risen rapidly and there have been significant shifts in demand for natural gas in specific sectors of the economy. To move forward, there has been a thrust to enhance domestic gas production, complete the national gas grid and speed up the roll-out of the city gas distribution (CGD) network across the country.
Indian Infrastructure takes a look at some of the recent policy and regulatory developments in the CGD sector…
Central-level developments
In the Union Budget 2022-23, the Ministry of Petroleum and Natural Gas (MoPNG) has received a budget estimate of Rs 89.4 billion. This allocation is 43.92 per cent lower than that of Rs 159.43 billion for 2021-22. In terms of budget allocations, the sector’s share has been reduced. While the allocation for the MoPNG in the Union Budget 2021-22 was 62.83 per cent lower than the revised budget estimate for 2020-21, it has been reduced further in 2022-23.
The increased thrust on the CGD network can be seen in the number of compressed natural gas (CNG) stations and piped natural gas (PNG) connections established by various authorised entities. CNG stations have increased from 1,742 on March 31, 2019 to 4,433 on March 31, 2022. Domestic PNG connections stand at 9,302,667 as of March 31, 2022, while commercial PNG connections are 34,854 and industrial connections are 13,215.
In a recent development, in May 2022, the government modified its gas allocation policy for the CGD sector for the first time since 2014. The new amendment allows the state-owned GAIL (India) Limited to import gas and buy from new domestic fields to meet growing demand from households and the transport sector. GAIL will have the responsibility of pooling or averaging out prices of imported as well as new field gas with the lower-priced regulated field gas to supply to city gas entities for sale as CNG to automobiles and PNG to households.
Till now, these entities were allocated natural gas from older fields, called the regulated or administrative price mechanism (APM) gas. To promote the sector, the cabinet had, in 2014-15, made city gas a no-cut sector. This meant that all demands of the sector would be met from domestic fields. But as the demand grew and APM gas production remained stagnant, the government modified the allocation policy.
A revision of the allocation for supply of pooled natural gas to CGD entities for the CNG and PNG segments will be done on a quarterly basis for better representation of consumption. To meet the growing demand of the sector, GAIL will supply pooled natural gas of 2.5 per cent over and above the 100 per cent requirement of CNG and PNG for the household segment of each city in the quarterly allocation. For the month of June 2022, the gas supplying rate set by GAIL stands at $8.05 per metric million British thermal unit, which is largely similar to the price set on May 16, 2022. The gas cost appears to be positive from a gross margin standpoint as the price increases have accounted for the CGD factor in these gas costs as well as any increase in other costs. For any further requirements, GAIL will also source long-term liquefied natural gas (LNG), failing which spot LNG may be sourced for mixing with the available APM gas. This sourcing will be done by GAIL within its procurement procedure and the Petroleum Planning and Analysis Cell shall vet the procurement procedure during the finalisation of the uniform base price. For the current quarter, in case long-term LNG is not available, GAIL may procure spot LNG for mixing in the pool.
The Indian government is also planning to import CNG in place of LNG to meet the incremental domestic demand at a lower cost. The MoPNG, along with GAIL and Petronet LNG, is exploring supply sources and shippers for importing CNG. The advantages of CNG over LNG include lower cost of production and storage and direct injecting from the ship into the pipeline for use. Additionally, it takes about three years to build a liquefaction plant or regasification terminal, a key reason that LNG supply has not been able to respond quickly to increased global demand in the past several months, resulting in record high prices. CNG export or import facilities do not require such lead time.
Further, in September 2021, PNGRB launched the 11th CGD bidding round. It received 439 bids from 26 entities against 61 geographical areas (GAs). As of February 2022, the letter of intent for 52 GAs have been issued by PNGRB to 13 entities. This takes the total number of authorised GAs by PNGRB to 289. Further, under the 11th-A CGD bidding round, the PNGRB has invited bids for six GAs covering 28 districts in six states/union territories. The completion of the 11 and 11-A CGD bidding rounds is expected to cover almost 98 per cent of the population and 88 per cent of the geographical area of the country, including smart cities situated within these GAs.
State-level developments
In a recent announcement, the West Bengal government has exempted the registration fees, motor vehicle tax and additional taxes for two- and four-wheeler electric vehicles and all categories of CNG-operated vehicles, starting April 1, 2022 till March 31, 2024. This will result in a decrease in the road prices of several categories of green energy-operated vehicles. This initiative will also help reduce dependence on petrol and diesel, and incentivise investment in CNG vehicles.
In another notable development, the Uttar Pradesh Pollution Control Board has stated that only PNG-based industries will function in Noida and Ghaziabad effective October 1, 2022. Factories that do not start using PNG after September 30, 2022 will be forced to shut operations. This move has been made following a directive from the Commission for Air Quality Management (CAQM) regarding pollution level checks in the National Capital Region. The CAQM had also referred to an order by the Uttar Pradesh government to inspect industries that use PNG and ensure they do not use any polluting fuel such as coal and diesel. There are 1,207 industries in Noida and 1,900 units in Ghaziabad.
In sum
To make natural gas available to the public, the government has been actively promoting the development of the CGD network. For India to achieve the target of raising the share of natural gas in the energy basket, gas consumption has to rise three and a half times to around 600 million standard cubic metres per day. Going forward, hydrogen will also play a key role in the natural gas sector.
GAIL has also commenced India’s first-of-its-kind project of mixing hydrogen in 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.