Over the years, India’s city gas distribution (CGD) industry has grown and matured in terms of both regulatory framework and infrastructure. There have so far been 11 CGD bidding rounds to expand the natural gas market across the country. This growth has been supported by rising natural gas demand from the household, industry and transportation segments. At a recent Indian Infrastructure conference, Dr Anil Kumar Jain, chairman, Petroleum and Natural Gas Regulatory Board (PNGRB), talked about the evolving regulatory framework, the company’s current focus areas and priorities, and the sector outlook…
What are the PNGRB’s current focus areas and priorities?
The PNGRB Act outlines several roles for the board, including key functions such as the awarding of CGD licences and authorisation of trunk pipelines for both liquid fuel and natural gas.
In the past 16 years or so, 98 per cent of the country’s population has been covered through the licensing of geographical areas under 11 CGD bidding rounds. Companies were given timelines to set up compressed natural gas (CNG) stations and provide a minimum number of piped natural gas (PNG) connections for household consumption. Recently, we launched the 12th bidding round to cover the remaining 2 per cent of the population, including states such as Jammu & Kashmir, Sikkim and Arunachal Pradesh.
A change in bidding norms has been observed in the last few bidding rounds. Earlier, the minimum work programme (MWP) targets were significantly higher, which were later moderated in the fourth to eighth rounds, and were increased again thereafter. PNGRB is currently deliberating on strategies to normalise these targets. Moreover, there are penalties for default on MWP targets. Thus, our current focus is to ensure that companies meet the MWP targets within the committed timelines.
Emphasis is being laid on increasing PNG connections to replace liquefied petroleum gas (LPG). From an analytical perspective, if we examine a city and assess the number of households currently using LPG, it effectively gives us the potential number of PNG connections that we must target to achieve. This suggests that the current pace of progress needs to be increased in order to meet the target. That said, it is a long-term commitment. Once a consumer gets a PNG connection, they will probably use it for the next 50-60 years until electric cooking becomes more prevalent. The PNGRB is also encouraging the conversion of vehicles, especially public transport fleets, to gas.
What are the key challenges that the sector is facing?
The natural gas pipeline network was developed on a common carrier basis, requiring the pipeline owner to allow other oil and gas companies to use its network. However, in the case of oil pipelines, this has been a challenge since the pipeline owner typically allows its pipeline to be used by another entity on a swap basis.
Since the production of administered price mechanism gas is not rising, there will not be commensurate growth in the CNG and PNG segments. Therefore, CGD entities have to overcome the notion that they can source gas from cheaper sources and charge higher prices to their customers. Any price distortion in the market is because the CGD operator wants to make profits. The limited growth in an operator’s business stems from their reluctance to market gas until they source it at cheaper prices. This has not been the case with mature CGD entities such as Indraprastha Gas Limited and Mahanagar Gas Limited, which have witnessed business growth in double digits. Hence, the gas market has to be unified with a single pricing mechanism.
The second challenge is the lack of adequate CNG station infrastructure. Given the rapid pace of transition from petrol/diesel to alternative fuels, CNG, etc., the number of CNG stations needs to be significantly ramped up. Further, LNG is now being used for long-distance truck operations, which is necessitating the establishment of several LNG fuelling stations. The investments required in the future will be two to three times higher than what the industry is investing at present.
The third challenge is the dynamic nature of the energy sector, where different players, fuels and technologies all compete at the same time. For instance, about 20 per cent of the Delhi Transportation Corporation’s fleet is electric and the rest is CNG. Additionally, there are plans to convert the entire DTC fleet to electric by the end of 2025. Soon, several other big cities will follow suit and will transition their public bus fleet to electric, which is a cleaner source. However, this will be a challenge for investors and CNG licensees.
What happens when the exclusivity ends for CGD operators? What kind of regulatory issues will come up at that stage?
There are two kinds of exclusivity, one is infrastructure exclusivity and the other is marketing exclusivity. In many cases marketing exclusivity has ended for the older CGD licensees. While PNGRB has made attempts to open the market in the past five to seven years, it has not been very successful. That said, this is a priority area for us. We have held an open house consultation with the existing licensees to understand their concerns and ensure a level playing field.
When the physical exclusivity ends, I anticipate the gas business to grow just like any other liquid fuel business. I expect that investors will have recovered their capex and will get a regulated tariff. It will be a good business to be in.
What is your perspective on gas pipeline utilisation?
To succeed, the gas markets must have gas at the beginning and customers at the end of the value chain. When we talk of pipeline utilisation, it is an uneven field. A mature pipeline like the Hazira-Vijaipur-Jagdishpur pipeline probably has a 100 per cent utilisation rate, while some newer pipelines will have lower utilisation rates. Moreover, growth has been somewhat muted in the past few years because the throughput risk lies with the pipeline transporter. There is a need to evolve the regime so that the throughput risk is shared by both the consumer and the transporter. These networks are similar to highways: wherein first, the highway is constructed, and only then cars can ply.
Going forward, what notifications or orders can the industry expect from the PNGRB?
We are working on the petroleum product pipeline, which, so far, has been largely developed on dedicated business principles. We are now examining ways to avoid duplicate investments. If we have one LPG pipeline being laid from an import terminal, and another one, say, about 50 miles or 100 miles away is also going in the same direction, they should come up on a shared basis.
Another focus area is the transport of hydrogen. Hydrogen can be blended with natural gas to the tune of 20-25 per cent as per the known technology. Pilots are already under way and we will be developing standards and guidelines on this front soon.
LNG is a promising fuel. Going by the statistics, once a truck is filled with LNG, it can travel for up to 800 km. Thus, not many LNG stations are required. LNG is coming up in a big way for long-haul freight transportation. Safety is another area where technical standards are required. LNG terminals (and their registration) is also a developing field.
