India’s city gas distribution (CGD) sector is witnessing progress, with measures being taken to promote the adoption of cleaner fuels such as piped natural gas (PNG) for domestic and industrial consumption, and compressed natural gas (CNG) for the automobile industry. Currently, the share of natural gas in the energy basket is 6.7 per cent. However, the government is working towards increasing this share to 15 per cent by 2030.
The Petroleum and Natural Gas Regulatory Board (PNGRB), the regulatory body under the government entrusted with granting authorisations to entities for developing CGD networks across geographical areas (GAs), has introduced various policies to streamline activities in the sector. The total natural gas consumption (including internal consumption) in May 2024 stood at 5,708 million metric standard cubic metres (mmscm), 0.3 per cent more than in May 2023.
Expanding network
With the growing demand for natural gas in India, the CGD network is expanding at a rapid pace. As of May 1, 2024, the number of CNG stations in the country reached 6,907, marking a fivefold increase over 2017-18 (1,349). Meanwhile, the total PNG connections (domestic, industrial and commercial) in the country stood at 13.13 million, a threefold increase over 2017-18 (4.22 million).
Progress under bidding rounds
The PNGRB has successfully concluded 11 CGD bidding rounds. The 11th bidding round was launched in September 2021 for 65 GAs, for which authorisation letters have been issued. Under the 11A CGD bidding round, the board invited bids for six more GAs covering 28 districts across six states. At present, there are 300 GAs authorised by the PNGRB, covering around 88 per cent of the country’s GAs and 98 per cent of its population.
The PNGRB launched the 12th CGD bidding round in October 2023. A total of five firms have won licences for the development of CGD networks in eight GAs under rounds 12 and 12A of CGD bidding in March 2024. Bids for the same were invited by the PNGRB in October 2023. The anticipated investment for the 12th CGD bidding round is Rs 410 billion.
Gas pricing scenario and policy developments
The Ministry of Petroleum and Natural Gas has notified the price of domestic natural gas for the period of July 1, 2024 to July 31, 2024 as $8.24 per million metric British thermal units (mmBtus) on a gross calorific value (GCV) basis. For gas produced by Oil and Natural Gas Corporation Limited/Oil India Limited (OIL) from their nomination fields, the administrative price mechanism will be subject to a ceiling of $6.5 per mmBtu on a GCV basis for the same period. The government constituted an expert committee under the chairmanship of Dr Kirit Parikh to critically examine and review the domestic natural gas pricing regime. The committee submitted its report in November 2022 and recommended complete liberalisation of natural gas prices by January 1, 2027.
Meanwhile, the PNGRB plans to engage knowledge partners to determine tariffs for natural gas pipelines and CGD networks, reviewing operations of gas exchanges along with associated research work. The scope of work includes determining transportation rates for CGD, and petroleum and petroleum product pipelines; regulating gas exchanges; providing expert views and data on new areas such as gas storages; assessing the impact on pipeline tariffs due to hydrogen/compressed biogas blending; setting tariffs for hydrogen/CBG pipelines; and regulating other areas in the gas value chain, including fuel pricing.
Moving towards sustainability
Numerous measures are being undertaken to facilitate the adoption of bio-CNG to drive sustainable economic growth. Under the Union Budget 2024-25, the government announced that blending of CBG in CNG for transport and PNG for domestic purposes will be mandated and financial assistance will be provided for the procurement of biomass aggregation machinery to support collection.
Notably, the central government has approved the guidelines for the Development of Pipeline Infrastructure (DPI) scheme for injecting CBG into CGD, entailing a financial outlay of Rs 9.94 billion during financial year 2024-25. It will help achieve full CBG offtake by utilising cost-effective pipeline transportation from production to consumption sites, thereby maximising CBG utilisation. THINK Gas Distribution Private Limited has recently signed an agreement with GAIL (India) Limited, Reliance Chemicals and Materials Limited and the Sandhu Group for sourcing CBG for its CGD network under the CBG-CGD Synchronisation Scheme. As per the agreement, THINK Gas will source CBG for its CGD network in the Jalandhar GA, Ludhiana GA and Kangra-Chamba GA. It has been authorised by the PNGRB to operate across the states of Punjab, Madhya Pradesh, Bihar, Uttar Pradesh and Himachal Pradesh to supply natural gas to the domestic, commercial, industrial and automotive sectors. Under the scheme, Indian Oil Adani Gas Private Limited has signed a tripartite agreement with Reliance Bio Energy Limited and GAIL (India) Limited for CBG blending in the CGD network. Meanwhile, LR Energy Vrindavan Private Limited has also signed a tripartite agreement with GAIL (India) Limited and GAIL Gas Limited for the production and supply of compressed gas under the scheme.
The PNGRB is considering natural gas transmission lines as a first choice for the transportation of green hydrogen. These gas pipelines will bridge the gap between regions with rich renewable energy resources (having a high supply of green hydrogen) and hydrogen-consuming centres such as fertiliser plants, refineries, and heavy iron and steel industries. At present, about 33,000 km of natural gas transmission pipeline network has been authorised, of which 24,000 km is operational and the rest is under construction.
The PNGRB, in collaboration with the World Bank, has initiated a study to develop pathways for hydrogen transmission in natural gas pipelines and CGD networks. The study includes mapping the demand and supply of hydrogen, technical assessment of the existing pipeline network for its compatibility, commercial assessment of the pipeline sector, identification of bottlenecks in policy and regulatory frameworks and framing of road map milestones till 2040. The total hydrogen demand in India is expected to increase from the current demand of 6-7 million metric tonnes per annum (mmtpa) to 16-18.5 mmtpa by 2040, as per a draft study result. Major contributors to this projected demand will come from the ammonia, refineries and transport sectors. The study also projected additional capex and opex requirements towards equipment and fittings.
Future outlook
The government aims to set up 17,700 CNG stations and 120 million PNG connections in the country by 2030. Overall, the CGD sector has an optimistic outlook backed by the government’s increasing focus and progressive infrastructure development. Going forward, the sector will witness increased digital deployment, with companies incorporating advanced technologies such as the supervisory control and data acquisition system, edge computing and geographic information systems, facilitating asset mapping and real-time monitoring, and installing smart meters.
Sidra Siddiquie
