Gas is emerging as a critical component of the energy mix in the country. Government initiatives, regulatory reforms and significant investment in infrastructure have notably promoted its use over the years. The sector is seeing efforts to ensure countrywide access and is steadily witnessing the integration of digital initiatives, especially to cater to customer requirements. Efforts are also under way to increase the share of natural gas in the energy mix, backed by rising energy demands and the need for alternative sources. At a recent India Infrastructure conference, Suresh P. Manglani, Executive Director and Chief Executive Officer, Adani Total Gas Limited, highlighted the progress of the gas sector, key trends, challenges and the future outlook. Edited excerpts…
Journey so far
The gas sector in India has seen a monumental transformation over the years with notable initiatives across the upstream, midstream and downstream value chains. Significant steps by the government, regulators and industry participants have contributed to this nation-building. India currently has 330 million liquefied petroleum gas (LPG) connections, with 150 million under the Pradhan Mantri Ujjwala Yojana (PMUY), 16 million piped natural gas (PNG) connections and over 8,000 compressed natural gas (CNG) stations. There are 307 licensed geographic areas (GAs) authorised for city gas distribution (CGD) network development, virtually covering the entire country (across 780 districts). Massive infrastructure development has also unfolded on the national gas grid side, with a current footprint of eight terminals having a total capacity of over 50 million tonnes per annum. The national gas grid has a current operational length of more than 25,000 km. Government reforms and interventions have also shaped the sector, including pricing reforms brought by the Kirit Parikh Committee and the 2040 Vision by the Petroleum and Natural Gas Regulatory Board (PNGRB).
“The industry must consider the establishment of a CGD act. This will bring in standardisation and uniformity in permissions and restoration charges, define consumer rights and duties, and ensure the protection of consumer interest.”
Transforming obstacles into opportunity
The sector as a whole has evolved over the years, but not without challenges. These could be seen as bigger opportunity areas for the government, the PNGRB or various authorities to boost investment and accelerate progress in the sector. Permission reforms are one of the key areas that require intervention. This includes the move from a permit-and-dig mechanism to intimate-and-dig. All stakeholders and CGD entities are now mature, with due diligence also being carried out by the PNGRB. There should, therefore, be trust and confidence in CGD entities and pipeline infrastructure, whereby restatement or restoration charges could be placed in an escrow account, and digging permitted after prior intimation within a three- to six-month period. With permissions and planning being carried out three to six months in advance, approval should be given to carry on and accelerate the work. Further, there is a need for uniformity and certainty of permission charges, as charges currently vary significantly between locations.
Further, the industry must also consider the establishment of a CGD act. This will bring in standardisation and uniformity in permissions and restoration charges, define consumer rights and duties, and ensure the protection of consumer interest.
Another critical area that could give a major boost to the sector is the creation of a level playing field. While the government is pushing for several reforms, there is a need to address disparities in fiscal benefits or fiscal taxation between different ministries. For example, electric vehicles and compressed biogas are currently under the GST regime, at 5 per cent, while gas still falls under the value added tax regime. Further, with major steps taken to authorise 307 GAs, authorities must now focus on ensuring that every GA or district has access to the national gas grid. This would aid in expanding the gas economy and access to gas for large masses. Moreover, expecting CGD entities to lay pipelines spanning 100-200 km, given the sizes of GAs, is not feasible due to investment constraints, hence hindering the acceleration of CGD development. There is also a need to build momentum on the piped natural gas (PNG) segment. While the PMUY has demonstrated positive outcomes in replacing polluting fuels with LPG, a similar level playing field would be advantageous for the CGD sector, such as through direct benefit transfers to home PNG consumers.
Moreover, there is a need to build awareness around the use of PNG and CNG through mass media and other communications in order to create an urge for their use. Using PNG instead of cylinders should be presented and considered as pride points for households. Building up such aspirational pushes and progress points is essential for the advancement of the sector.
Stimulating future demand and supply
India aims to increase the share of natural gas in its energy mix from 6 per cent to 15 per cent. While perceptions exist that this may not materialise, it can be achieved through more concentrated efforts.
There is a need for a scheme like the PMUY to increase household PNG connections, and the direct benefit transfer mechanism would further provide a boost and create a supporting ecosystem. The segment sees stable demand, which will be materialised through connections.
Another key focus area to boost gas demand is the micro, small and medium enterprise (MSME) segment. With a current footprint of more than 1 million MSMEs, there is a lack of a level playing field on fuel usage for these entities. Some regions mandate the use of natural gas, while others permit the use of any fuel. Such differences create issues related to competitiveness. The provision of a consumption-linked incentive, directly transferred to these entities for three to five years, would boost gas consumption and ensure that infrastructure is fully utilised. Connection incentives and consumption-linked incentives would also aid in providing price stabilisation. It would also contribute towards achieving a true Swachh Bharat, with citizens witnessing better health standards and hygiene.
There is also a need to promote the use of LNG for transport and mining sooner rather than later. With possibilities for price lock-in, incentivising the conversion of existing vehicles or the introduction of new LNG-based vehicles would aid in significantly boosting LNG demand.
Over the decades, the major focus has been on conventional gas demand. There is, however, a need to also focus on non-conventional demand. For example, water heating in building complexes and residential societies could be carried out using a boiler that runs on natural gas. Natural gas could also be used for household heating in areas facing extreme winter conditions. Moreover, establishing incubation funds and supporting research would prove beneficial in promoting non-conventional applications of natural gas.
Apart from these, huge opportunities exist in the power sector and for industrial consumption. Hence, moving from 6 per cent to 15 per cent showcases an optimistic and achievable target that can be achieved in a shorter period with more concentrated dialogue and fiscal benefits.
“Going forward, in around a decade, there will be a notable amount of gas consumption in nonconventional applications.”
Trends and opportunities shaping the future
Looking ahead, the sector is expected to see positive development, with further infrastructure developments and better utilisation of existing infrastructure. Major reforms and developments that are currently under way are also contributing to the high uptake of natural gas in the country. While natural gas is considered by many to be a traditional fuel, it is a mainstay fuel, and will remain so beyond 2060. The sector is also expected to see continual reforms, backed by government support. Going forward, in around a decade, there will be a notable amount of gas consumption in non-conventional applications. Traditionally used for cooking, opportunities exist for use in water heating and for central cooling and heating systems. Industrial consumption is also likely to see an enhancement. However, there is a need to build a robust portfolio amid alternative fuels. Hence, the performance of other liquid fuels compared to natural gas prices would also need to be looked at.
Further, digitalisation and automation are emerging as major trends, especially for business-to-consumer companies. Therefore, these must be perceived as an investment rather than a cost. Processes like obtaining PNG connections and bill assessment and estimation should be carried out seamlessly. Hence, the gas sector should be aligned with the overall uptake of artificial intelligence, machine learning and digitalisation. Smart metering is also expected to make headway.
On a global level, the US is seeing a big push to enhance exploration, making sure it remains in the number one position, bringing in geopolitical pressures on the receiving countries.
In the near future, good opportunities exist for India and the CGD sector. While possibilities of periods of excess supply of gas could exist, the cheaper gas would likely build up the demand, bringing back the equilibrium.
