Growing Gas Market: Demand, development plans and key challenges

The city gas distribution (CGD) sector is growing rapidly in terms of gas demand and network development. As of September 30, 2022, 4,800 compressed natural gas (CNG) stations have been established and around 10 million piped natural gas (PNG) domestic connections have been provided. The number of commercial PNG connections is over 36,000 and industrial PNG connections is over 14,000 in the country. The CGD sector constitutes about 20 per cent of the overall natural gas consumption and with the expanding network, the demand for natural gas is also on the rise. This is primarily on account of infrastructure expansion under CGD bidding rounds 9, 10 and 11. At a recent India Infrastructure conference, Kapil Kumar Jain, chief operating officer, GAIL Gas, and Hardip S. Rai, chief executive officer, THINK Gas, deliberated on network plans, gas demand and challenges in India’s CGD sector. Excerpts…

What is the current network size of your company and the progress that has been achiev­ed so far?

Kapil Kumar Jain, Chief Operating Officer, Gail Gas

Established in 2008, Gail Gas is a 100 per cent subsidiary of  GAIL (India) Limited. It has a total of 25 geographical areas (GAs) under its ambit. Of these, 16 are directly under Gail Gas and nine are with its joint venture (JV) companies. In the ninth and tenth CGD bidding roun­ds,  GAIL Gas secured nine GAs. Recently, in the 11th CGD bidding round, it secured two more GAs. The company alone has more than 0.45 million PNG connections in the country. The JVs add another 0.40 million PNG connections, bringing the total to 0.85 million connections.  GAIL Gas has around  350  CNG stations in the country. Of these, 250 are directly under  GAIL Gas and the remaining are along with JV companies.  GAIL Gas has more than  1,000 industrial and commercial consumers of its own and over  4,000 industrial and commercial consumers along with its JV companies. The company has also commissioned one L-CNG (liquid to CNG) station of capacity 2X114 kl in Mandi­deep, Madhya Pradesh.

“GAIL Gas is shifting its focus from building infrastructure to customer conversion for growing its business to new highs.” Kapil Kumar Jain

Hardip S. Rai, Chief Executive Officer, THINK Gas

THINK Gas is a start-up established in 2018. It won its first seven GAs in the ninth round of CGD bidding and then went on to win some additional GAs in the 10th and 11th rounds. It operates in Punjab, Madhya Pradesh, Bihar and Uttar Pradesh. It has also recently won some assets in Himachal Pradesh, which are at early stages of development. The company has more than 90 CNG stations pan-India. Of these, around 15 are THINK Gas-branded stations. The company also has one L-CNG  facility in Bhopal, Madhya Pradesh. THINK Gas has laid approximately 2,000 km of pipeline, of which roughly around 300-350 km is steel and the rest is medium density polyethylene (MDPE). It has over 100 commercial and in­dustrial customers across its GAs. It has around 8,000 domestic PNG customers and a pipeline of about 45,000 potential PNG customers.



“THINK Gas believes in a customer first approach. It ensures that gas flows for usage and the customers
are served.” Hardip S. Rai

What is the cost economics of PNG connections?

Kapil Kumar Jain

The cost of investment in PNG connections is very high. Customers always tend to compare the cost of PNG connections with liquefied petroleum gas (LPG) and thus expect cheaper PNG connections. The way gas prices are go­ing up, the price gap between subsidised LPG facilities and PNG connections is expected to grow. GAIL Gas has laid all the necessary in­frastructure for PNG connections, but the customer conversion rate is really slow due to reluctance from customer. The penetration of PNG connections in rural areas is even slower, as it becomes difficult to convince people in rural areas as compared to urban areas, to deposit the security deposit amount for these connections.

Hardip S. Rai

Once the infrastructure for PNG connections is laid and gas is being sourced under the administered pricing mechanism, the price margins that are made in domestic gas sales are reasonable. Companies are expected to put in place the infrastructure, including MDPE pipes, ground connections, galvanised iron pi­pes, etc. Customers, however, are reluctant to pay any deposit amounts to companies for PNG connections and they are only concerned about the price that they pay for PNG, as compared to the LPG connections. This puts a lot of strain on the overall economics of these companies. This implies that companies are expec­ted to invest heavy capital initially and the payback time is very long. Given the current price levels of LPG and PNG, there is very little incentive for customers to convert.

How is the EV business expected to impact the CGD sector?

Kapil Kumar Jain

Electric vehicles (EVs) are definitely a challenge for the CGD sector. However, it is expected to co-exist with the CNG sector. The development of infrastructure such as charging stati­ons will be done in the future for EVs, but it will require a huge amount of investment. Some percentage of the business is expected to shift from the CNG sector to EV vehicles, but that will be confined to some particular areas only. Further, it is more of a threat for the petrol and diesel sectors. The CGD sector is expected to grow for the next 10-15 years.

Hardip S. Rai

The EV sector is a very segmented market and there are only certain areas where it is expected to be successful. For example, there is a lot of penetration of EVs in the auto segment. Any CNG company that is reliant upon autos for their business is expected to be impacted. Ty­pically, new companies such as THINK Gas are not reliant on the auto segment for their business. Therefore, the impact of the EV sector on these companies is expected to be much less. THINK GAs is also setting up EV charging stations at THINK Gas-branded CNG stations. How­­ever, the sale for the same is not high. EVs are expected to play a major role in the energy transition to renewables. However, this transition will take a long time in India.

What have been the implementation challenges during the past year?

Kapil Kumar Jain

The biggest challenge in the sector is delays in permissions. Apart from that, the quality of contractors is another challenge being faced. The quality has been deteriorating for a few years. This is because of non-availability of su­ffi­ci­ent number of quality manpower due to steep rise in quantum of work in CGD sector. Avail­ability of gas is another challenge that the company is facing.

Hardip S. Rai

Implementation in the CGD sector essentially involves laying the infrastructure, including pipelines, and digging roads. One of the major problems that the sector faces is with regard to permissions from various departments. These permissions take a lot of time and the­reby, result in cost and time overruns. Other challenges include increasing prices of gas and its availability.

What are the future plans for the next one to two years?

Kapil Kumar Jain

GAIL Gas is looking to operationalise around 550 CNG stations by 2030. The company already has 200 stations in place and is expected to  add another 350 CNG stations in the coming years. With regard to PNG connections,  GAIL Gas is looking to reach its authorised number of 2 million in the coming years. As a public sector company, it is looking to focus more on domestic PNG connections in the future. Within the next two months,  GAIL Gas is expecting to start gas supply to industrial and domestic segment in four of its GAs including Dhanbad, Rourkela, Adityapur and Mughalsarai. The pipeline network for the same has been established. Further,  GAIL Gas had a target of operationalising 100  CNG stations in 2022-23. With regard to domestic PNG connections, it is expected to add around 80,000 new connections this year. In order to monetise the created assets,  GAIL Gas,  is  putting additional focus on  customer con­­version for growing its business to new highs.

Hardip S. Rai

THINK Gas has set ambitious targets for CGD infrastructure development. The company is looking to achieve its minimum work progra­mme in the coming years. THINK Gas belie­ves in a customer first approach. It ensures that gas flows for usage and the customers are served.