The city gas distribution (CGD) segment has witnessed remarkable growth over the past few years. The existing players have invested significantly in developing infrastructure and expanding operations to new geographical areas (GAs). The Petroleum and Natural Gas Regulatory Board (PNGRB) has also been taking several initiatives to create a favourable environment to drive sector growth. During 2019-20, the total natural gas consumption in India stood at 156 mmscmd. Of this, the fertiliser sector accounted for a maximum share of 29 per cent, followed by the power and CGD sectors at 20 per cent and 19 per cent respectively. The three sectors together accounted for close to 70 per cent of the natural gas consumption in the country.
Overall gas supply scenario
While natural gas consumption in India has been increasing, the rate of domestic gas production has declined significantly. This has led to a considerable rise in import dependence. The share of imported liquefied natural gas (LNG) stood at around 60 per cent in 2019-20.
In the global market, the largest importing regions were Asia Pacific and Asia, where the import figures stood at 131.7 million tonnes (mt) and 114.5 mt respectively. The biggest importers were Japan (76.87 mt) and China (61.68 mt). India stood at fourth position with 23.98 mt of LNG imports.
On a positive note, the total consumption of natural gas by the CGD segment has almost doubled over the past eight years. The contribution of the CGD segment to natural gas consumption in 2019-20 stood at 20 per cent, 11 per cent higher than that in 2011-12 (9 per cent), registering a compound annual growth rate of 8.35 per cent.
With more than 400 GAs authorised, the demand for natural gas is bound to grow in the near future. The PNGRB has identified more than 120 GAs to be authorised under the upcoming eleventh bidding round. It is expected that the launch of the eleventh bidding round will give an impetus to natural gas consumption. The CGD segment (the industrial and commercial segment) relies on a mix of spot/short-term and long-term contracts, especially for regasified LNG (R-LNG).
Impact of Covid-19
Like all other infrastructure sectors, the gas segment also faced the brunt of Covid-19. In 2020, the segment witnessed a considerable decline in natural gas consumption, falling to as low as 130 mmscmd, with an average consumption rate of nearly 152 mmscmd.
Consumption in the CGD segment, in particular, was severely impacted during the lockdown imposed to stem the spread of the coronavirus. Consumption in the segment declined to 12.7 mmscmd, with average consumption at about 25 mmscmd. In many GAs, not even 10 per cent of the compressed natural gas (CNG) stations were operating during the lockdown period, which impacted sales severely. As of November 2020, the share of R-LNG in the CGD segment stood at around 50 per cent.
Consumption remained low mainly during the lockdown period; it then recovered quickly to reach pre-Covid levels. Since sale and consumption had reduced by more than 50 per cent for some months, the impact was visible in the revenues generated from CGD operations. However, despite the disruptions caused by the pandemic, the sale of CNG automobiles was only marginally impacted.
In sum
The CGD segment is expected to grow rapidly and outpace other sectors such as fertilisers and power to become the largest consumer of gas in the next few years. The government is working on its vision to make gas the preferred fuel and increase its share in the primary energy mix. With more GAs coming up, the consumption of natural gas is bound to increase. In addition, with new infrastructure, including pipelines, being set up and new stations being commissioned, the CGD segment is set to be on a growth trajectory. Net, net, the outlook for the CGD segment in India looks positive, with a mix of short- and spot-term LNG contracts as well as long-term contracts. w
Based on a presentation by Ankit Gupta, Managing Consultant, Oil and Gas, ICF, at a recent India Infrastructure conference