The share of natural gas in the energy basket stood at 6.5 per cent in April 2023. The government is working towards increasing this to 15 per cent by 2030. While this is lower than the global average of 24 per cent in the total energy use, the city gas distribution (CGD) sector in the country is witnessing progress backed by government support. The idea is to promote the adoption of green fuels such as piped natural gas (PNG) for domestic and industrial consumption, and compressed natural gas (CNG) for the automobile industry. The total natural gas consumption in May 2023 stood at 5,468 million metric standard cubic meters. Of this, nearly 20 per cent was attributed to the CGD sector. Of late, the sector has been grappling with issues related to high gas prices. With the right regulatory reforms, it is expected that gas prices will decline.
Indian Infrastructure takes a look at the progress and developments in the CGD sector…
Growth in network
With the growing demand for natural gas in India, the CGD network is expanding. As on April 30, 2023, the number of CNG stations in the country stood at 5,710, a threefold increase over 2017-18 (1,424). Meanwhile, the total PNG connections (domestic, industrial and commercial) in the country have crossed 11 million, more than double the number in 2017-18.
Progress under bidding rounds
In June 2023, the Petroleum and Natural Gas Regulatory Board (PNGRB) announced plans to offer eight geographical areas (GAs) under the 12th CGD bidding round. In order to further improve natural gas availability in the country, the PNGRB has finalised these GAs for which public consultation process is being initiated. The eight GAs to be bid out are Arunachal Pradesh, Meghalaya, Manipur, Mizoram, Nagaland, Sikkim, and the union territories of Jammu & Kashmir and Ladakh. The 12th CGD bidding round is expected to open up further opportunities for stakeholders.
The PNGRB has successfully concluded 11 CGD bidding rounds. The 11th bidding round was launched in September 2021 for 65 GAs. A total of 439 bids from 26 entities for 61 GAs were received while four GAs in Chhattisgarh received no bids. The bids for these four GAs were invited later on. Authorisation letters for all 65 GAs have been issued by the PNGRB. Under the 11A CGD bidding round, the board invited bids for six more GAs covering 28 districts across six states. At present, there are 302 GAs authorised by the PNGRB, covering around 88 per cent of the country’s geographical area and 98 per cent of its population.
In the 11th CGD bidding round, Megha Gas Distribution Private Limited (erstwhile Megha Engineering and Infrastructure Limited) won 15 GAs, while 14 were secured by Adani Total Gas Limited (ATGL), a joint venture between the Adani Group and French energy major Total. Indian Oil Corporation Limited (IOCL) and Bharat Petroleum Corporation Limited (BPCL) won nine and six GAs respectively, while Navi Mumbai-based Dinesh Engineers won four GAs. State government PSU Assam Gas secured three GAs, followed by Maharashtra Natural Gas Limited with two GAs. Meanwhile, central PSUs including Hindustan Petroleum Corporation Limited (HPCL), GAIL (India) Limited and Indraprastha Gas Limited secured bids for one GA each. Under the 11A bidding round, BPCL, HPCL and GAIL (India) Limited were awarded two, two and one GAs respectively. The last bid for round 11A was awarded to a consortium of HCG Private Limited, Haryana City Gas (Kapil Chopra Enterprise) and others for the Yanam GA.
Gas pricing scenario and policy developments
The domestic gas price has witnessed a substantial increase from $2.9 per metric million British thermal units (mmBtu) during October 2021-March 2022 to $8.57 per mmBtu during October 2022-March 2023. Due to the elevation in prices, sales were negatively impacted thereby impacting the overall CGD business. In order to critically examine and review the current domestic natural gas pricing regime, the government had constituted an expert committee under the chairmanship of Dr Kirit Parikh. This was also done to ensure a fair price to the end consumer and to suggest market-oriented, transparent and reliable pricing regimes. The committee submitted its report on November 30, 2022 and recommended complete liberalisation of natural gas prices by January 1, 2027.
The Cabinet Committee on Economic Affairs recently approved the revised domestic natural gas pricing regime applicable to gas produced from nomination fields of the Oil and Natural Gas Corporation (ONGC) and Oil India Limited (OIL). The gas produced under the administered price mechanism (APM) by these companies’ legacy fields will be priced at 10 per cent cost of the imported crude oil. Also, this price would be subject to a floor price of $4 per mmBtu and a ceiling price of $6.5 per mmBtu. The gas produced from new wells or well interventions in the nomination fields of ONGC and OIL will be allowed a premium of 20 per cent over the APM price. This pricing regime will not benefit areas where mostly imported gas is used.
In another development, in April 2023, the PNGRB amended its regulations to allow a unified tariff for natural gas pipelines. It notified a levellised unified tariff of Rs. 73.93 per mmBtu for all interconnected gas transmission pipelines owned and operated by authorised entities. It further created three tariff zones for unified tariff. The first zone covers a distance of up to 300 km from the gas source, the second zone is 300 km to 1,200 km, and the third zone is beyond 1,200 km. The zonal unified tariffs have been made effective from April 1, 2023. This reform is expected to benefit consumers located in far-flung areas where currently the additive tariff is applicable. It will also facilitate the development of gas markets and help increase gas utilisation in the country.
Meanwhile, in an amendment to the gas allocation policy of May 2022, the Ministry of Petroleum and Natural Gas (MoPNG) allowed GAIL (India) Limited to import gas and buy from newer domestic fields to meet the growing demand from households and the transport sector. Going forward, GAIL will pool or average out the price of imported as well as newer field gas with the lower-priced regulated field gas to supply to city gas entities for sale as CNG to automobiles and as PNG to households.
Increasing focus on bio-CNG
The central government has been working towards increasing the adoption of bio-CNG through various policies and schemes. Under the Union Budget 2023-24, 500 new “waste-to-wealth” plants under the GOBARdhan (Galvanising Organic Bio-Agro Resources Dhan) scheme will be established for promoting a circular economy. Of these, 200 will be bio-CNG plants, including 75 plants in urban areas, and 300 community- or cluster-based plants at a total investment of Rs 100 billion. Meanwhile, in order to promote green fuel and avoid cascading of taxes on blended CNG, excise duty on the amount of goods and services tax paid on compressed biogas contained in the blended CNG has been exempted. Earlier, in 2018, the MoPNG launched the Sustainable Alternative Towards Affordable Transport programme. Under this programme, oil marketing companies such as IOCL and HPCL have tied up with bio-CNG producers to distribute gas through their network. The ministry aims to set up 5,000 bio-CNG plants in India by 2024-25.
Future outlook
The CGD sector has a positive outlook backed by the government’s focus and progressive infrastructure development. Investments of over Rs 800 billion are envisaged for setting up the CGD infrastructure in the GAs authorised in the 11th bidding round. Apart from this, industry players have planned investments to develop infrastructure and expand operations to new GAs. For instance, ATGL plans to build over 1,800 CNG stations across the country in the coming seven to 10 years. This is likely to entail an investment of Rs 180 billion to Rs 200 billion. According to the MoPNG, the total number of CNG stations in the country will be ramped up to 8,000 by 2024. Going forward, the sector will see increased digital deployment with companies incorporating supervisory control and data acquisition, encouraging asset mapping and real-time monitoring, installing smart meters, etc.
Disha Khanna
