The city gas distribution (CGD) sector in India has witnessed significant infrastructure growth in recent years. This transformation has been driven by increasing energy demand, rapid urbanisation and a growing focus on cleaner energy alternatives. As India moves towards a gas-based economy, the CGD sector is set to play a critical role. Central to this transition is the National Gas Grid, which serves as the backbone of the country’s natural gas infrastructure, enabling efficient transportation and distribution across regions. At a recent Indian Infrastructure conference, key CGD operators shared their views on the sector’s growth, key challenges and the future outlook. Edited excerpts…
Mohit Bhatia
Indraprastha Gas Limited (IGL), a pioneer in the CGD and compressed natural gas (CNG) segments, continues to play a pivotal role in India’s energy transition. The company operates an extensive network of over 950 CNG stations, with approximately 500 stations located in Delhi. It caters to nearly 3 million piped natural gas (PNG) customers and 12,000 industrial and commercial customers. IGL is consistently expanding its PNG customer base, adding about 0.3-0.33 million new connections annually. IGL accounts for one-fourth of India’s total CGD volume of approximately 40 million metric standard cubic metres per day (mmscmd), supplying around 10 mmscmd.
The company has plans to increase its capital expenditure in upcoming years, strengthen the core business and diversify into renewables, solar, liquefied natural gas (LNG) and compressed biogas (CBG). Of the total capex, IGL has allocated almost 70 per cent to the core business and 30 per cent to diversification.
The gas sector remains highly capital-intensive, posing challenges for operators due to long monetisation cycles, particularly in the PNG segment. Other key concerns include limited gas infrastructure penetration in rural regions, regulatory uncertainties such as evolving tariff structures and external factors such as geopolitical developments.
Goutom Chakraborty
GAIL Gas Limited, a wholly owned subsidiary of GAIL (India) Limited, operates CGD networks across 25 geographical areas (GAs) – 16 directly and nine through joint ventures.
In terms of physical infrastructure, the company operates over 520 CNG stations across 16 GAs. It has established a customer base of around 632,000 for domestic PNG connections, over 1,000 industrial customers and close to 600 commercial customers. GAIL Gas’s total gas consumption stands at around 8 mmscmd, with the CGD segment accounting for 3.5-3.6 mmscmd.
Till date, the company has invested around Rs 50 billion in its CGD operations and plans to invest an additional Rs 50 billion in the coming six to seven years to further expand its network. It is actively expanding into Tier II and II cities as well as in rural regions. These regions, while rich in natural and human resources, continue to face infrastructure and socio-economic challenges, necessitating targeted interventions.
The construction of gas pipelines in these areas presents significant challenges. Infrastructure development is capital-intensive and frequently hampered by factors such as utility interference, right of way issues, regulatory compliance requirements and complex terrain. These issues adversely impact project timelines and costs. The use of horizontal directional drilling techniques, required for pipelines laid 3-4 metres underground, poses additional risks. In case of damage, identifying the exact location for repair becomes particularly challenging.
Another major concern for CGD operators is the reduction in administered price mechanism (APM) gas prices, which is expected to persist in the near term. Lower APM gas allocation could lead to increased input costs for CGD companies. It is therefore imperative for the government to mitigate gas price volatility and ensure a level playing field so that natural gas can effectively compete with polluting fuels. A balanced gas sourcing portfolio and enhanced involvement of state governments in gas market development will be essential for creating a stable and efficient energy sector.
Looking ahead, CBG is expected to be a significant game changer. The government has announced plans for 5,000 CBG plants. Of this, GAIL is set to construct around 26 CBG plants in the coming years. To meet the government’s broader objective of increasing the share of natural gas in the overall energy mix, a national target has been set to establish around 17,500 CNG stations and 120 million PNG connections by 2030.
Yogiraj Navathe
Gujarat Gas Limited (GGL) is one of India’s largest CGD companies, operating around 27 CGD authorisations. In addition, it holds authorisation for a natural gas pipeline, and owns and operates approximately 74 km of steel transmission pipeline. The company’s operations span 44 districts in six states and one union territory.
GGL’s infrastructure includes five LNG stations and 828 CNG stations. It serves more than 2.26 million domestic customers, 4,430 industrial customers and 15,682 commercial connections. The company’s total natural gas sales stand at around 9.3 mmscmd, with CNG sales contributing about 3 mmscmd. Industrial sales, however, are subject to fluctuations, particularly due to price sensitivity in the ceramic industry in the Morbi region.
As part of its expansion strategy, GGL plans to develop a natural gas pipeline network of additional 300 km in authorised area of Palghar district and Thane Rural, Maharashtra. This initiative aims to facilitate gas supply to households, small- and medium-sized industries and CNG stations. Growth in the CGD sector is expected to be driven by rising natural gas consumption, which is closely linked to increasing energy demand and economic growth.
However, the sector faces a number of challenges. In mature GAs, issues such as ageing infrastructure, asset replacement, urban congestion and ongoing city development add to operational complexities. In contrast, newer GAs face transmission connectivity issues for assured gas supply to the CGD entity. For instance, only 195 out of the total 307 GAs have access to transmission infrastructure.
Also, the growing emphasis on electric vehicles (EVs) poses a potential threat to CGD players, particularly in the three-wheeler segment. While EVs benefit from tax incentives across the value chain, the CNG segment continues to attract a goods and services (GST) tax of 28 per cent, placing it at a relative disadvantage. In addition, scaling up the LNG customer base to 50,000 customers presents logistical challenges, particularly in terms of supply and distribution. Addressing these issues will be critical for GGL and other CGD entities to sustain growth and remain competitive in an evolving landscape.
Manoj Kumar Sharma
IRM Energy holds authorisation for four CGD GAs – Banaskantha, Fatehgarh Sahib, Diu and Gir Somnath, and Namakkal and Tiruchirappalli. The company has established a strong presence, with more than 600 commercial and industrial (C&I) connections across its GAs. It has commissioned a total of 112 CNG stations, of which 29 stations were commissioned in 2024-25 itself. Additionally, 50 new CNG stations are planned to be commissioned during financial year 2025-26.
IRM Energy’s current total gas sales stand at 0.6 mmscmd. The company has set a target to scale this up to 1 mmscmd in the near term, with 60 per cent of the volume expected to come from the CNG segment and 40 per cent from the PNG segment, including the C&I segment.
A key challenge faced by the company is the declining domestic gas production and associated issues with gas allocation by the government. In the southern region, operations have been further constrained by delays in connecting to the gas grid. While GAIL (India) Limited is continuing its network expansion efforts, Indian Oil Corporation Limited (IOCL) has also begun laying pipelines in the same region. Due to inordinate delays in national grid connectivity from GAIL, there is a monopoly of IOCL in the region. As a result, the availability of gas under the APM is restricted, and CGD industries are heavily dependent on IOCL as the sole supplier.
Additionally, fluctuations in Brent crude oil prices pose significant risks due to their broader economic implications, including impact on trade, investor decisions and foreign exchange volatility. Another operational constraint is the limited availability of experienced contractors, who often charge premium rates, further driving up project costs. To mitigate some of these challenges and strengthen our gas supplies, more than 80 per cent of our gas requirement is tied up with various reliable suppliers, which is further planned to be increased to make sourcing more robust and efficient.
As India progresses toward a gas-based economy, policy interventions will be critical. The inclusion of natural gas under the purview of GST has been a long-awaited decision, as well as extending subsidies to natural gas, similar to schemes like Pradhan Mantri Ujjwala Yojana for liquified petroleum gas (LPG), can also encourage PNG adoption as a cleaner and more efficient fuel. Households receiving PNG connections should be encouraged to surrender their LPG connections, ensuring subsidised LPG connections are reserved for those who need them.
Moreover, the establishment of core infrastructure prior to deploying PNG systems is essential, for which the intervention of regulators is essential to ensure timely and reliable connectivity, enabling the seamless expansion of the pipeline network.
