Natural gas been established as a cleaner fuel has the potential to meet most of the energy needs of a city or urban habitat. Also its wider application makes natural gas popular among various sectors like transport, power, fertilizer, household, steel, and so on. In this regard, City Gas Distribution (CGD) network facilitates the flow of natural gas to city for its application in transport sector as Compressed Natural Gas (CNG) and household, commercial and industrial sector as Piped Natural Gas (PNG). In transport sector, CNG by replacing petrol and diesel helps in reducing harmful vehicular emissions, caused largely from sulfur and benzene. CNG being safer and economical fuel also reduces the operational cost of vehicles which is generally 68 percent and 36 percent lower than petrol and diesel respectively. In household, commercial and industrial sectors PNG is quite competitive to fuels used in these sectors in terms of safe and continuous supply, convenient of use, economically viable, no wastage, minus storage requirement and lower maintenance cost. PNG in commercial and industrial sectors are used to run boilers, ovens, furnaces, thermifluid heaters, tumblers and hot water generators for power generations, besides other cooling applications.
CNG and PNG are distributed to end users through the CGD network, across geographical areas (GAs), as authorized by PNGRB. CNG stations are situated in major traffic locations of cities, while PNG is distributed through pipelines to end users (domestic, commercial and industrial). This network is designed to operate at a pressure which at present is not more than 19 kg/cm2 and the supply for a volume not exceeding 50,000 standard cubic metres per day (scmd) per consumer per annum. Natural gas beyond this volume can be sourced by the consumer through a main gas transmission pipeline.
Need for CGD in India
With its rapidly growing populations and burgeoning economy, India’s energy requirements have shown a rapid increase in the recent years. To meet its energy needs, valuable resources such as coal, oil, natural gas, hydropower, nuclear energy and renewable are being used.
Besides, energy needs are augmented via importing of crude oil, liquefied natural gas (LNG) and washed coal. Among various resources, dependence on coal and oil was higher during 2009, accounting for 52% and 30% share respectively. Because of substantial reserves, convenience of availability and low production costs, coal dominates India’s current fuel basket. In fact, more than half of the electricity produced in India comes from coal. Also due to its huge energy requirements in transport and industrial sectors, its dependency on imported crude is also increasing.
As a result intensive use of coal and oil has led to environmental degradation resulting from carbon dioxide (CO2) and other greenhouse gases, emitted in the atmosphere. Therefore, the immediate challenge faced by India with respect to the two conventional fuel are the pressure of reducing carbon intensity (the amount of carbon dioxide emitted for every unit of GDP) and to tackle the rising crude oil prices, which averaged $112.74 during fortnight June 01-15, 2011.
State of Natural Gas in India
Luckily, India has got decent natural gas reserves which if utilized to its potentials can address some of its energy needs and many of its environmental woes. Fact is India’s natural gas reserves during 2010 stood at 1,437 billion cubic meters (bcm). There are 145 gas fields and 242 oil and gas fields situated in onshore (on land) and offshore (on the sea bed). Most of the natural gas is available in western offshore and onshore areas of Gujarat, Assam and Andhra Pradesh. Gas available in areas of Tamil Nadu, Rajasthan and Krishna Godavari offshore is relatively less. These fields which are operated by Oil and Natural Gas Corporation, Oil India Limited, Reliance Industries Limited (RIL) and other private joint venture operators accounted for 169.3 million metric standard cubic meters per day (mmscmd) of natural gas supplies during 2010-11, along with LNG imports. India’s natural gas production in 2010 was 50.9 bcm. This was an increase from 39.2 bcm in 2009, with 29.7% growth. India also observed phenomenal growth in natural gas consumption of 21.5% in 2010, recording 61.9 bcm, one of the highest among Asia Pacific nations in percentage terms. The shortage during that period was met by importing 12.15 bcm of LNG, of which 10.53 bcm was imported from Qatar.
Role of Natural Gas in CGD As said earlier, natural gas is a key to CGD network. Given its availability, cost affordability, user friendliness and potentials to reduce greenhouse emission, the Government of India has initiated National Action Plan on Climate Change (NAPCC), which aims at addressing the issues of climate change occurring due to global warming. Under NAPCC’s clean air initiative, steps are being taken to reduce pollution by promoting the use of natural gas in various cities through fuel switch over from petrol and diesel to CNG, coal to natural gas, etc, as an adaptation and mitigation strategy. To reiterate, natural gas is been a preferred fuel worldwide due to its benefits which is been accrued by various sectors.
In case of industrial sector its demand correlate with industrial output due for process heating purposes and useful for new industrial equipments. Also its end users get connected with supply through CGD networks in households, commercial and industrial units. Gas fired power generation plants are less emissions intensive and lower in capital cost.
In transport sector the payback period for purchasing a natural gas vehicle could become shorter, given the current trajectory of petroleum prices, besides less emission intensive. Most of the aforesaid applications of natural gas are facilitated through CGD. The competitiveness of natural gas with other fuels is the sole determinant of its use.
Current State of CGD in India
India’s CGD network is connected with the main transmission pipelines, covering 11,814 kilometers, laid by entities like Gas Authority of India Limited (GAIL), Reliance Gas Transportation Infrastructure Limited (RGTIL), Gujarat State Petronet Limited (GSPL) and Assam Gas Company Limited (AGCL). Government has planned to increase the network of gas pipelines to the extent of 15,000 kilometers by the end of 11th Five Year Plan. Such network is operative in cities like Delhi, Mumbai, Agartala, Surat, Ankleshwar, Bharuch, Ahmedabad, Agra, Vadodara, Noida, Kanpur, etc. Ministry of Petroleum and Natural Gas (MoPNG) has set a target of covering 200 cities with gas connections by 2015, different from PNGRB which has a target to cover 300 GAs, covering wider areas of sub-urban, villages and districts, in next five years. PNGRB has invited bids for authorization of CGD networks. So far, entities have submitted Expression of Interest for around 65 cities. Three rounds of bidding for CGD licenses have been launched, while GAs of fourth rounds has been announced. Till now 29, GAs has been covered in these four rounds.
The Challenges in CGD
As reflected from the above expansion plans, India still has a larger ground to cover as CGD business is in its infancy. Notwithstanding its huge potentials and merits, CGD business in its current form and shape, faces numerous challenges and barriers in entering the market. One of such problems faced by existing CGD players is the slow progress in penetrating the market despite having their presence for more than a decade. For e.g. Indraprastha Gas Limited (IGL) has managed to convert only 4.30 lakhs vehicles, out of 64.51 lakhs registered vehicles with only six per cent of penetration level, since last 12 years of its existence. Pakistan has the highest number of natural gas vehicles (NGVs) to the tune of 27.40 lakhs in the world fueled by 3,285 stations as compared to India’s 10.80 lakhs vehicles fueling 571 stations. India has to raise its number of refueling stations to serve it’s rapidly rising NGVs by developing its infrastructure further. The penetration level in PNG segments goes down further with only 2.50 lakhs domestic and 464 commercial connections.
The problems intensify where the expansion of such network is required in unplanned cities in India. Some other issues relates to availability of land for CNG stations, approvals from concerned authorities like municipal corporations, environmental clearing authorities, etc, facing the ire of common people, and so on. Problem in Tier I and Tier II cities for the existing CGD companies is the hefty price paid to local authorities for land acquired for CNG stations and laying downs of PNG pipelines. For example, recently IGL paid about Rs. 15,000 just for digging besides other cost for laying a PNG pipeline, which is three times more of what they are getting as security deposit from the customer, thereby loosing Rs. 10,000 per customer. The end result is the cost and time overrun, coupled with slow and low returns. Therefore, PNG business in smaller cities is now becoming unviable. Moreover, CGD business is also plagued with manpower shortage. Besides engineers, skilled labourers, plumbers and technicians are required.
Similarly, policies and regulations of PNGRB are sometimes not getting aligned with actual day to day business, thereby impacting various downstream projects. For example, there has been a supply concern in sectors like power, fertilizers, CGD, refineries and so on after a fall in production at KG-D6. RIL has been asked by the government to cut supplies of non-core sectors by restricting it to sectors like power, fertilizers, refineries and CGD. The directives of the government issued in April 2011, to allocate gas on a priority basis seems contradictory with Gas Sales and Purchase Agreement (GSPA), which talks of allocation on pro-rata basis. Such shortfall in allocation has started hitting hard the core sectors too starting from CGD. RIL has already decided to abstain itself for signing further GSPA as it did in case of Bawana power plant in Delhi.Recently due to temporary fall in the natural gas production in KG-D6 basin, the supply has been curtailed to many sectors including CGD. Consequently, these sectors have started to rely on costlier LNG, which also is the main source of supply to CGD sector. This has resulted into the rise in their input cost, resulting in the rise in CNG prices, which have been raised thrice in a short span of three months. For example, the Indraprastha Gas Limited has raised the price of CNG in June 4, 2011, by 0.50 paisa per kg, to the tune of Rs.29.80 per kg. This not only gives the room to CNG companies to raise CNG prices by following global crude oil prices trends but also making it comparable with the existing petrol or diesel prices in terms of saving on operation cost in percentage terms, to justify such increase.
Conclusion
Despite India’s natural gas sector being evolving, its development in recent past has shown the signs of potential it has to fulfill its robust energy demand, by replacing the existing dirty fuels in various sectors. But it is only through sustainable development of entire natural gas value chain, can keep the hopes of a various sectors including CGD alive. Such sustainability can be brought through good governance and better policy implementation, adaptation of best international practices in terms of radical technologies, which not only takes care of the environment but also reduces energy intensity.
CGD can play a vital role in widespread use of natural gas among those sectors like transport, which are polluting environment the most through vehicular emissions, besides insulating a common man from rising petrol and diesel prices. CGD through PNG can remove the burden of subsidy on LPG cylinders, thereby targeting it to the poorer section of the society, helping them to switchover their fuel from biomass which they are currently using for cooking purpose. Government should also promote wider usage of natural gas appliances like geysers, air conditioners etc, so that people can expand the use of PNG in domestic, commercial and industrial units, making it viable to this segment too. Therefore all the policy directions of the government should focus to enhance the availability, supply and efficient use of natural gas to make CGD sector more vibrant.
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