By Bhashit Dholakia, Acting Chief Executive Officer and Chief Operating Officer, IndianOil-Adani Gas Private Limited
Compressed natural gas (CNG) has emerged as a key component of India’s city gas distribution (CGD) sector. In recent years, CNG has gained traction as a transport fuel owing to various competitive advantages over other fuels. Further, the segment is currently seeing a renewed focus on pipelines and online CNG stations.
Growth trajectory of CNG
CNG witnessed significant adoption in India in the late 1990s, following directives issued by the Supreme Court. With a history of approximately 30 years, the sector is relatively young compared to energy and other infrastructure sectors. The industry’s growth trajectory witnessed a notable shift in 2014. The number of CNG stations has grown about 12-fold, from around 738 in 2014 to the current footprint of 8,700, highlighting a clear inflection point.
Looking at a range of parameters, the current phase stands in contrast to the first 18 years of development. A key differentiator between the pre-2014 period and the current scenario is the nationwide roll-out of CGD infrastructure through the Petroleum and Natural Gas Regulatory Board (PNGRB) bidding rounds. The expansion remained limited until Round 8, which was completed in 2018. Since then, almost the entire country has been allocated for CGD development.
Domestic gas was priced very low, with a differential of approximately 70-80 per cent compared to petrol and diesel. In some cases, particularly in Delhi, CNG cost almost half as much as petrol and diesel. Government mandates were still required to drive CNG volumes, making it largely a policy-driven situation rather than a market-driven one. However, over the past 12 years, the sector has witnessed a 12-fold expansion in the absence of a mandate or policy. Interestingly, prices have also increased, with the differential between CNG and petrol/diesel being a mere 10-20 per cent. This has raised a key question: what has driven the growth of CNG when the price differential with alternative fuels is much lower? This calls for an assessment of factors such as supply constraints, infrastructure limitations, or the possible underpenetration of key market pockets.
Tapping new markets
The initial growth of CNG was largely concentrated in two markets – Delhi and Mumbai. These remain among the largest markets today and continue to grow rapidly. Notably, markets that were considered less lucrative 15-20 years ago have become far more significant. Uttar Pradesh has been one of the biggest surprises, currently selling a notable share of CNG in the country. Bihar is also expected to present similar developments. Southern states, despite being late entrants into the gas ecosystem, have exceeded expectations. Chennai, historically dominated by LPG and a major auto hub, has witnessed significant CNG uptake, contrary to expectations of a shift towards electric vehicles, given its strong IT and startup ecosystem. Areas like Bengaluru, Kerala, Telangana and Andhra Pradesh have also shown positive progress.
CNG infrastructure split
CNG infrastructure can be segmented into online stations connected through pipelines and daughter booster stations (DBSs). Prior to 2014, online stations accounted for a higher share at 70-80 per cent. Post 2018, with the roll-out of infrastructure across the country, the share of DBS has increased owing to the time taken for pipeline development. The share of online stations has dropped, with the current split at around 60:40. This is an area of concern, as gas was intended to be transported through pipelines. While DBSs are faster and more economical to set up, they pose opex and other related issues in the long term. Meanwhile, online stations offer superior service quality and are better in terms of opex. DBSs must hence be retained for high-altitude regions, rural areas and locations of less commercial viability.
Challenges and the future outlook
The sector continues to face challenges in the adoption of new technologies and systems, highlighting the need for greater integration of modern machinery, equipment and digital solutions. It has remained largely averse to changes over the past two decades, especially on the technology side, warranting the need for careful consideration. While smart meters are expected to make headway in the segment, one of the key challenges in their adoption would be configurations with existing systems.
In addition, the ongoing LPG crisis has renewed the focus on pipeline infrastructure, with expansion taking place at an unprecedented pace. This is also likely to see the push for steel pipelines, likely converting DBSs and connecting remote stations with pipelines, marking a second sunrise for the industry. IndianOil-Adani Gas Private Limited (IOAGPL) adds around 200-250 km of steel pipelines across our 19 GAs monthly, which is expected to continue. It is also focusing on online CNG stations.
Further, figures prior to the LPG crisis have shown positive growth trends, with some nascent markets at around 2-3 per cent a month. Some of the newer CGD companies are recording an annual growth of almost 25-30 per cent in CNG volumes. CNG has hence been well established, with targets to add 10,000 CNG stations over the next five years. Moreover, IOAGPL aims to add 500 CNG stations over the next 5-7 years, building on the current network of almost 500 stations. The growth is expected to continue, now largely market-led.
