Gas distribution in Indian cities
through pipeline network is relatively a new concept. Even 10 years ago, cities
like Delhi and Mumbai did not have, for consumers, the piped gas supply system.
Compressed Natural Gas (CNG) for transportation is even more recent. In
whichever towns/cities the piped gas supply for consumers and CNG for
transportation (for example in Delhi) has been brought into use, there is a
dramatic effect not only on convenience to consumers but also it has brought
about a significant positive impact on environment (less air pollution).
Recently, the first Euro Asian Conference Cum Exhibition was organised at Delhi
by National Engineering and General Industries India, Energy Management
International, U.K., and Organisation Dynamics India. I participated partly in
this conference and chaired one of the key sessions dealing with Investment
Opportunities in City Gas Projects. A number of important issues emerged. I
outline below the substance of the opening remarks I made :
Since the beginning
of 1990's, when the 21st Century was yet to arrive, most of the
energy professionals were of the view that if the 20th Century was of
coal and subsequently of oil, the 21st Century would be dominated by
the most important energy resource i.e. gas. A number of projections were
made. But somehow, in spite of gas being an environment friendly fuel, it has
not been able to occupy the space that we were all looking forward to. For
example, in power generation, even though almost 45% of gas available in India
is allocated to power, we are hardly about 7% of the total installed capacity
based on gas. Therefore, gas being the fuel of 21st Century is not
only illusory but, at least in India, we are all waiting for it like a mirage in
desert. Perhaps after the KG Basin gas comes the situation may change.
availability of gas has obviously constrained the process of large scale
shift in transportation from liquid fuel to compressed natural gas. Under
the direction of the Supreme Court, and with highly positive impact on
pollution, a substantial amount of road transportation in Delhi has shifted
to CNG, but a lot more remains to be done in Delhi and more so in other
towns and cities.
domestic piped gas supply, in the whole country hardly 8 lac homes have been provided.
Even in Delhi the level of penetration is hardly 3%. The rate of growth, in
terms of coverage, in a period of last 8 to 10 years is not something which we
energy professionals in general and those energy professionals, who are engaged
in city gas distribution in particular, can be proud of. It has really been
As a customer
of piped gas supply for almost 5 years in Bapa Nagar (the Government Colony
for Govt. of India Secretaries and other Senior Officers), I can
authentically say that as a service provider for the existing customers, the
city gas company could legitimately claim to be ranked in excellent
category. However, as one wanting to be a customer from an important
locality close to All India Institute of Medical Sciences, I am rather
reluctant to rate the gas distribution company even as Average for the
reason that the company's response to enlarge the coverage and provide the
service to more customers is somewhat indifferent. This brings out, at a
conceptual plane, our inability to service both existing and prospective
customers in a professional manner.
One of the
reasons of the slow pace of enlarging the city gas distribution network, in
cities where it exists, and taking up new cities has no doubt been the lack
of availability of sufficient amount of gas. We are well aware that as it
is, it has not been possible for the power sector to embark upon large
expansions through gas based power generation capacities. In fact, almost
one third of the capacity based on gas (and that works out to over 4,000 MW)
remains unused for want of gas. The overall utilisation of gas based power
plant capacity in the country is less than 70%, whereas coal based plants
run at more than 80%, and gas plants, if gas was available, could run at
more than 90%.
power and fertiliser, two important inputs for industry and agriculture,
have occupied the largest share (almost 85%) of the total supply of gas. In
spite of this, the shortage has caused under utilisation of capacities.
We are also
aware that both these sectors continue to put forward their arguments for
even higher allocations. The argument of the power sector has been that it
is a prime mover of every segment of economy and therefore has the potential
of large scale multiplier effect on economy. Similarly good agricultural
output is essential for food security of the country. Therefore, the
constraint of the city gas distributor, though valid from the point of view
of lack of availability, and the whole issue need to be dispassionately
examined and appreciated keeping in view entirety of the situation and
price at which the natural gas is supplied by Gas Authority of India Ltd. is
about 3 dollars per million BTU (based on the Administered Price Mechanism).
When the domestic gas is delivered to consumers, it is around 6 dollars per
million BTU. This is on account of the additionality of costs that get
added, which include the cost of infrastructure of distribution, its
maintenance, overheads and profit margin of the gas distribution company.
Obviously, when the whole issue of pricing is examined by the Petroleum
Regulatory Board the true picture will emerge.
One of the ways
to supplement the gas, which is supplied through domestic production, is
through import of Liquefied Natural Gas (LNG) and that could have provided
opportunities for expanding in a significant way the customer base in the
existing towns and in also covering new towns. But, unfortunately due to the
erratic price behaviour of LNG it has not been possible. I recall, in the beginning of 10th
Plan (2002) there was an ambitious programme for setting up a chain of LNG
terminals both on Eastern and Western coasts, with the idea that liquefied gas
would be imported, regasified at these terminals and then the gas after
regasification will be supplied though network of pipelines. One does not know
why and how the gas suppliers have linked the movement of gas price with that of
crude. In a period of 10 years the crude price has moved up almost 10 times
from about 10 dollars a barrel to 100 dollars a barrel. It appears that the CIF
price of LNG at terminal, at present could be as high as 8 to 9 dollars per
million BTU and therefore after adding the cost of regasification and
transportation etc. the delivered price to bulk buyers will be almost 10 dollars
per million BTU. With this type of a price level, and more importantly highly
unpredictable and erratic price behaviour, any long term planning of city gas
distribution get severely constrained.
country hoped that when the Petroleum Regulatory Bill becomes an Act, the
statutory authority viz. the Petroleum Regulatory Board will try to balance
the interests of all the stakeholders including customers and therefore will
determine price with such an approach. We do have Petroleum Regulatory Act
now. We also have Petroleum Regulatory Board. What we do not, however, have
is the Board empowered to do anything with upstream gas. If upstream gas
price is not regulated, there is very little that the Regulatory Board can
do to safeguard the interests of consumers in so far as the price of gas for
them is concerned.
There were three presentations in
this session - by Director Crisil, Senior Representative from Adani Energy,
Director, Earnst and Young and Executive Director MECON. The main points of
these presentations, all of which together bring out various aspects and issues
concerning city gas distribution, are summarised below :
In India at present
we have city gas distribution in very limited places which include Delhi,
Ahmedabad, Baroda, Mumbai, Mangalore and Bangalore. A number of new projects
have been identified for other locations and they are under implementation.
These include Faridabad, Agra, Lucknow, Kota, Cochin, Tripura and Calcutta.
Even if we consider the projects in hand which will be implemented during next
few years, the coverage is likely to be rather limited.
There are a
number of benefits from the increased usage of natural gas through city gas
distribution networks. These include its impact by way of bringing down the
oil intensity of gross domestic product, which would help the country in
withstanding the impacts of oil price in a more resilient fashion, reducing
the crude import bill of the country resulting in substantial savings in
foreign exchange which can be diverted to be used for development of
infrastructure, replacement of LPG by natural gas would reduce the LPG
subsidy burden on the Government and the possibility of distributed power
generation along the gas pipeline network leading to more reliable power
supply. Finally the natural gas usage in an extensive manner will have a
substantial positive effect on pollution control.
In general, the
experiences indicate that city gas distribution business is an attractive
investment. For the year 2006 Gujarat gas had a revenue of around Rs. 970
crores and a profit of about Rs. 88 crores. Their return on capital employed
was approximately 22%. The Indraprastha Gas, which operates the system in
Delhi, had even better financial results - Rs. 521 crores of revenue, Rs.
106 crores of profit and 41% of return on capital employed. These
encouraging results are clear indications of the attractiveness of the
opportunity and therefore the preference of the potential investors.
Perhaps, the only constraint seems to be the shortage of gas supply.
A typical gas
distribution network would cost around Rs. 350 to 400 crores to handle a
volume of the order of 1.5 million standard cubic meters. The build-up of
the consumer base and therefore off-take is normally low and even in a
period of 9 to 10 years the reasonable level of customer penetration is not
more than 50 - 60%. (in case of Delhi and Mumbai, in spite of about 10 years
of operation the customer penetration is in the range of 3 to 4%).
together with low volume creates an adverse impact on the business and
therefore it requires a good degree of patience.
The issues which can impact development of
the City Gas Projects are as follows:
Since the progress in
Pakistan on this front has been significantly better than we have been able to
achieve in India, it would be relevant to study the various initiatives put in
place by them for an appropriate adaptation in our own country.
One of the
papers presented emphasised the need for single switch energy usage which could include
cooking, lighting, drying, feed stock, space cooling, steam, power and heating.
Such an integration may be energy efficient but there are a number of
interlinked issues which will have to be resolved.
One of the
reasons that different forms of energy uses is not getting integrated is
lack of availability of latest equipment which could use gas as the fuel and
be more energy and environment efficient. Engines used in our transport
system are not the only examples. Conversion of liquid fuel using engines in
transport to engines which can use CNG comes with a cost. But on the ground
of energy efficiency and more importantly in the interest of pollution
control, the regulatory mechanism guides and directs such switch over. To
what extent similar switching is possible in cases of other equipments and
gadgets needs considerable amount of study and analysis.
The cost of the
new technology also stands in the way of shift in usage pattern. Unless
using the economies of the scale principle the number of such equipments and
gadgets is increased, the required cost effective level will not be
In conclusion, some of the issues which
will require more comprehensive examination to understand the challenges and
issues involved in city gas distribution are as follows:
Copyright : R.V. SHAHI