Gas Business In India

1

Gas Business In India

2

Gas business in India August 27, 2009

Submitted to Dr.Subrat Sahu

Submitted by Sparshy Saxena (20081035)

3

Table of Contents Executive Summary ................................................................................................................................. 4 Overview ................................................................................................................................................ 5 Industry Structure ................................................................................................................................ 7 Explore and Sell ...................................................................................................................................... 8 Natural Gas reserves in India ............................................................................................................... 8 Sovereign right of the Government over the ‘Government property’ and Regulatory Issues ................ 11 Gas Utilisation Policy .................................................................................................................... 11 Awarding of fields ......................................................................................................................... 12 Pricing of Gas ................................................................................................................................ 12 Process and transport ............................................................................................................................. 15 R-LNG Import Potential .................................................................................................................... 15 Pricing of R-LNG .............................................................................................................................. 19 Gas Processing .................................................................................................................................. 20 Transportation ................................................................................................................................... 21 Domestic pipeline network............................................................................................................. 21 International Pipelines ................................................................................................................... 28 Distribute and Market ............................................................................................................................ 29 Bulk Demand ..................................................................................................................................... 29 Power Sector Analysis .................................................................................................................... 29 Fertilizer Sector Analysis ................................................................................................................ 29 Petrochemicals/Refineries/Internal Consumption and Sponge Iron/Steel and other Industries ...... 30 RETAIL DEMAND ................................................................................................................................ 31 City gas distribution (CGD) ............................................................................................................. 31 Role of PNGRB in CGD.................................................................................................................... 32 Legal and Infrastructure ................................................................................................................. 33 CNG and PNG................................................................................................................................. 40

4

Executive Summary With the growing need of cleaner fuels, the commercial prospects for gas business are lucrative. The paper covers aspects different aspects of gas business as enlisted below : 1) 2) 3) 4) 5)

Industry structure of the gas verticals Legal and regulatory aspects of the business, with the effective governmental intervention Pricing methods and structures Present market and infrastructure positioning and statistics among the existing players Potential for market breakthroughs in terms of new opportunities which can be explored

The paper extols the opportunities that be exploited among the three verticals of the gas industry with a view to providing an understanding the nuances of venturing into whichever business, as desired.

5 Overview With high rates of economic growth and over 15 percent of the world’s population, India has become a significant consumer of energy resources. The global financial crisis and credit crunch have slowed India’s significant economic growth particularly in the manufacturing sector, and GDP growth rates have declined from 9.3 percent in 2007 to 5.3 percent in the fourth quarter of 2008. Despite a recent slowing economy, India’s energy demand continues to increase. The energy mix of the country is depicted below, as a projection from 2008 till 2030.

Figure 1 : India's Energy Mix (2008-2030)

●

●

●

Despite major new natural gas discoveries in recent years, India is considering large-scale imports via pipelines and LNG terminals to help meet growing demand ●

●

●

As shown in the figure above (India, 2009), the dependence of India on coal is dominantly seen till 2030. However, gas seems to emerge as the fastest growing fuel, growing from 8% to 12% in 2030.

According to Oil and Gas Journal (OGJ), India had 38 trillion cubic feet (Tcf) of proven natural gas reserves as of January 2009. It is estimated that India produced approximately 1.1 Tcf of natural gas in 2007, up only slightly from 2006 production levels. The bulk of India’s natural gas production comes from the western offshore regions, especially the Mumbai High complex. The onshore fields in Assam, Andhra Pradesh, and Gujarat states are also significant sources of natural gas. The Bay of Bengal has also become an important source of natural gas for the country. In 2007, India consumed roughly 1.5 Tcf of natural gas, approximately 100 Bcf more than in 2006. (Administration, 2009).

6

Figure 2 : Natural Gas Production v/s Consumption (1990- 2006)

Natural gas demand is expected to grow considerably, largely driven by demand in the power sector. The power and fertilizer sectors account for nearly three-quarters of natural gas consumption in India. In order to meet that demand, India heavily depended on LNG imports since 2004. India’s net imports reached an estimated 353 Bcf in 2007. The recent gas discoveries in the Krishna- Godavari basin have managed to reduce the import dependence from 20% in 2006 to near about 13% at the present date. However, most of the natural gas reserves from which natural gas is being explored are mature fields that are beginning to decline. Hence, after 2030, India is expected to be dependent on LNG imports to an extent of 30%. (Administration, 2009). This concludes in the inadequacy of natural gas production in meeting up with the exceeded demand in the country. The industry can be briefly divided into three sectors in terms of business areas; Upstream, Midstream and Downstream. These areas would be extensively covered in the coming chapters.

7 Industry Structure In light of the above factors, let us put the industry into a structural framework that would help us to have a holistic picture of the same.

MARKET Numbers : Few Players on the buyers and sellers market

Ownership : State owned majors, Presence of Foreign JVs

REPLACEMENT Threat : Possible Sources : Renewable sources like Nuclear and Hydro power Pitfall : Heavy Capital investment and costlier end -use

FREEDOM

INTENSITY Industry : Capital Intensive and turn key

Regualtions : Heavily regulated, Intense Government interference Control : Pricing controlled

The above Four-point framework studies the Indian Gas industry in light of the following aspects. 1) Market : The industry is dominated by State owned players, both in the exploration as well as the transmission sectors. These state players account for about 70% of the market share. Few others are private participation through Joint ventures or Production Sharing Contracts (PSCs). 2) Replacement : Figure 1 shows the increase in the use of renewable energy sources in the years to come. Plus, the present natural gas fields, as already mentioned, are mature and on the declining stage. This proves to be a natural threat for replacement of use of natural gas by renewable sources of energy like nuclear and hydro energy. 3) Intensity : The industry is highly capital intensive. It requires a high amount of investment in terms of technology for exploration and infrastructure in terms of transportation. 4) Freedom : Government interference or rather, control is seen to a higher extent in across the streams in the industry. Gas, as having a status of being a national asset, cannot be governed by private entities that are sub-let contracts for exploration, transmission or distribution. Hence, the pricing at which gas is to be sold is also set and controlled by the government. The mechanism of price setting shall be covered in the following relevant chapters. Thus, as an entry strategy in to this industry requires a player to have; an optimum, efficient and latest technology in order to compete with the existing players, initial link-ups or JVs with the existing state players in order to allow the settling of the company existence and expertise, sufficient high capex and a an efficient control over the operational expenditures in order to have a profitable margin or a higher company off-take in the price, as and when set.

8 Explore and Sell While India is not expected to be a significant contributor to the upstream oil sector, the outlook for the upstream natural gas sector is more positive, although it is forecasted that natural gas production in India will peak between 2020 and 2030. As per the data from the Ministry of Petroleum and Natural Gas, the total production of natural gas shows a growth of about 1.4%. FY08 FY09 Growth

Table 1 : Natural gas Production Data (08- 09) Hence, although the onshore fields show a decline, which indicate maturity of the land fields, it also implies that new offshore discoveries have been made and are currently being explored, adding to their growth percentage. Hence, the offshore fields hold future potential in terms of gas supply. Natural Gas reserves in India It is forecasted that natural gas production in India will peak between 2020 and 2030 (Administration, 2009). Most natural gas production in India comes from fields off the western coast, including the Mumbai High complex and the Tapti, Panna, and Mukti fields, while the major onshore fields are located in the northeast, in the areas of Assam, Andhra Pradesh, and Gujarat. The Bay of Bengal has also recently become an important area of reserves, in particular in the Krishna-Godavari basin. Three blocks are operational in the KG basin. These three blocks are being operated ny exploration companies like Oil and Natural Gas Corporation (ONGC), Gujarat State Petroleum Corporation (GSPC) and Reliance Industries Limited(RIL).

Figure 3 : Company-wise Natural Gas Production (1999- 2007) As seen in Figure 3, ONGC produces about 70% - 80% of the entire gas produced in India.

9

Percentage

Production Share 100 90 80 70 60 50 40 30 20 10 0

Government Private

99-00 00-01 01-02 02-03 03-04 04-05 05-06 06-07

Figure 4 : Comparative Shares of Government and private holdings (1999- 2007) The fields of ONGC seem to be reaching a declining stage, where in, on the other hand, the gas exploration activity of private players has significantly increased from 10% to almost 25%. This shows an array of opportunities for the entry of private players, in terms of new gas finds and relatively lesser state monopoly. It might also indicate that the industry seems to be opening up to private participation. The new entries in the private sector seem to be dominated by the Reliance Industries Limited find of KG-D6. The following table gives a concise yet detailed brief about these operational gas fields. Company ONGC

GSPC Reliance Industries Limited Reliance + BG International

Block- Area KG-DOWN-98/2 (Off the coast of Andhra Pradesh) GS-15-OA (Off the coast of Andhra Pradesh) Mahanadi basin (Off the coast of Orissa) Mumbai High Fields KG-OSN-2001/3 (Krishna Godavari basin) KG- D-6 (Krishna Godavari basin) Tapti (Off Mumbai High) Panna (Off Mumbai High) Mukta (Off Mumbai High)

Quantity of Reserves 22 Tcf (estimated) 4 new gas finds of unknown quantity 4 Tcf (estimated)

1.8 Tcf (estimated) 11.5 Tcf (estimated)

Table 2 : Detailed gas reserves (Company- wise) Mumbai High fields, supplying a bulk of the natural gas in the country today, have been producing gas over a relatively long period of time. Hence, they are on a verge of decline. Hence, the companies operating in that area have increased efforts in order to get high recovery rates from the existing fields. The supply needs to be stepped up in order to meet the demand of as in the country. The current finds in the Krishna-Godavari basin is expected to double the country’s supply of natural gas.

10

In addition to the above fields, the north eastern part of the country also seems to be attracting investment in huge proportions. GAIL recently announced plans to invest $35 million in exploration and production projects in northeastern areas of the country, particularly in Assam, which are likely to be difficult to develop due to the terrain and increasing violence from separatist rebels. In addition, ONGC formed plans to invest $2.4 billion for E&P oil and gas projects in the same region. As a supplement to the extensive gas finds, midstream companies are providing the necessary infrastructure in rder to tap the resources effectively. Gas Authority of India Limited (GAIL) has provided for a pipeline linking the KG basin to the existing pipeline network in the country. The onshore fields have been the source of gas since long. Over time, these fields have matured and subsequently, the production has decreased. However, the offshore fields have been exploited to meet the demand in the country.

Figure 5 : Relative quantity of Offshore and Onshore gas fields As seen above, over a span of 15 years, the exploitation of offshore fields have a larger share over the gas produced in the country over the onshore fields. The following table gives an account of the reserves exploited from the gas fields, both onshore and offshore.

11

Table 3: Gas production from fields (2007-2008)

Sovereign right of the Government over the ‘Government property’ and Regulatory Issues As an explorer of natural gas, certain regulatory issues come into play over the awarding and pricing mechanism of the gas explored. As a move to introduce level playing field for competitors, technologies and foreign investments, the ministry had introduced the National Exploration Licensing Policy (NELP) in the year 1999 for licensing new blocks of oil as well as gas to private contractors who explore the gas and then sell the gas to prospective clients under the format of the Gas Utilisation Policy. Gas Utilisation Policy The Gas Utilization policy specifies the sectors which are entitled to receive gas first, or on priority from the fields. These sectors are specified by the government, where in the industries are free to choose their own industries, as per the prioritized sectors. The following table gives the priority list and the reasons for the order, as per the gas utilization policy. Sector 1. Fertiliser : Ideal feedstock for Urea production 2. LPG and Petrochem : Need to boast domestic LPG production to reduce imports 3. Power plants : All sources of energy, included coal and gas, need to be harnessed to achieve 8 – 10% growth 4. City Gas : Vital necessity for urban dwellers 5. Refineries : Currently using costly alternatives like crude/fuel oil for processing and burning naphtha 6. Other industries : Sponge iron, ceramic units Table 4 : Gas Utilisation Policy (Priority List)

12 As per the policy, the sectors are listed as per their quantity offtakes as under;

Sector-wise Offtakes (2007-2008) Fertiliser Power Industrial Fuel LPG/ Petrochemicals Others Captive

Figure 6: Demand from the Priority List (2007-2008) Over time, the demand of natural gas from the sectors have remained more or the less the same, except for the power sector, where the demand has risen over a period of 15 years due to the increased usage of clean fuel, natural gas in generation over traditional coal, with coal still forming a large percentage of the generating fuel used. Awarding of fields The gas fields are either, owned and exploited by the government, or are licensed out to private operators via bidding through New Exploration and Licensing Policy (NELP) introduced in the year 1999 to encourage private participation. Prior to the introduction of NELP, NOCs like ONGC and OIL undertook the exploration of gas. Pricing of Gas The Union of India has an authority over the ‘gas resources’ in India, under the Article 297 of the Constitution of India. Hence, in this case, the government's pricing policy- given out by the Empowered Group of Ministers (EGoM)- is the curtailing clause. In the mid-1980s, the price scenario went from being fixed National oil companies to being fully controlled by the Government after 1987. At this juncture, there are two pricing ways in India, 1) Administered pricing Mechanism (APM) Administered Pricing Mechanism (APM) is applied to government controlled fields and operated upon by PSUs like ONGC and OIL. The prices of natural gas produced by Oil and Natural Gas Corporation Limited (ONGC) and Oil India Limited (OIL) were fixed on an ad hoc basis w.e.f. 1.7.2005. The determination of producer price is now required to be made in light of the recommendations made by the Tariff Commission. An appropriate price for the gas produced by National Oil Companies (NOCs), viz., ONGC and OIL, would make it economically viable for these Companies to invest more in exploration and production of natural gas.

13 The last price revision came into effect from 01.07.2005. The Government made the following decisions in May 2005: 1. The producer price for ONGC and OIL to be referred to the Tariff Commission, 2. The consumer price of APM gas to be increased to Rs.3,200/MSCM (thousand standard cubic metres) on an ad hoc basis, till the Tariff Commission submits its recommendation and a decision is taken thereon, 3. The consumer price of gas for the North Eastern Region to be pegged at 60% of the revised price for general consumers, i.e., 60% of Rs.3,200/MSCM = Rs.1,920/MSCM, 4. The difference between the producer price and the consumer price in the North Eastern Region to be reimbursed to OIL from the Gas Pool Account for the year 2005-06. From 2006-07 onwards, the difference may be borne on the Government Budget, the financing requirement being around Rs.150 crore per annum, 5. The price of gas supplied to transport sector, small industries in Agra Ferozabad region and other small scale consumers having allocations up to 0.05 MMSCMD, to be progressively increased over the next 3 to 5 years to reflect the market price. Based on the above decision, the Gas Price order dated 20.06.2005 was issued. Based on the recommendations of the Tariff Commission’s report, the APM price of gas has been linked to an international basket of commodities (WPI- Base year 1993- 1994). Thus for a change of 10 points over the 189.40 of March 2005, the natural gas prices would be revised by Rs. 55/ MSCM. The Tariff Commission has recommended the following normative producer price: ONGC OIL : Rs.4,040/MSCM

:

Rs.3,600/MSCM

(at calorific value of 10,000 kCal/SCM) On the basis of the above, the producer price would be as follows for the mentioned period: Period

ONGC

OIL

April 2008

Rs.3765/MSCM Rs.4205/MSCM

May 2008 to March 2009 Rs.3,820/MSCM Rs.4,260/MSCM It is proposed that the producer price determined by TC be accepted. 2) Market determined prices Market determined prices is applicable on the gas explored from fields through JVs, Private contractors through a Production sharing contract (PSC) and the import of R-LNG. These prices are not entirely regulated by the government, but government intervention is needed in order to keep the negotiated prices at ‘arm’s length’. The prices generally are approved by the government based on the valuation of the company by the government. The prices include a share of the government in terms of the royalty to be paid by the government, government share in profit petroleum, income tax. The contractor, explorer of the gas from the field, is free to market the gas at a price lower than the approved price, however, the settling of the under-recovery need to be negotiated between the buyer and the seller.

14 The following excerpt gives an account of the various costs involved in the setting of prices in the market driven scenario. The price includes these aspects; the Cost of production, company’s return on capital, Government take and the Company take from the resultant price. (Gas Pricing Issues- India 2009, 2009) Cost of Production : Cost to the company includes; Royalty (calculated at a certain percentage average for the entire life of the field) Operational expenditure Capital expenditure Government share in profit petroleum1 (Revenue – Royalty- Opex- Capex) Income tax (average for the life of the field) Total government take : The take includes; Royalty Share in profit petroleum Income tax Net Company take : the company take from the revenue includes; Revenue at selling price – (Profit petroleum to government + Royalty + Opex + Capex + Income tax)

1

Profit petroleum is calculated on the basis of the investment multiple (IM) tranche. IM is the ratio of accumulated net cash income to accumulated capex.

15

Process and transport For an entrant in the midstream business, for transportation of gas, the player can have two options; 1) Import R-LNG 2) Buy from prospective players This sector vertical also requires an in-depth knowledge of the supply infrastructure present in the country. R-LNG Import Potential India began importing liquefied natural gas (LNG) in 2004. In 2006, India imported 254 Bcf of LNG, making it the seventh largest importer of LNG in the world. India’s LNG imports in 2006 came from Algeria, Egypt, Nigeria, Oman, Qatar, United Arab Emirates, Australia, and Malaysia. Qatar was by far the largest supplier in 2006, accounting for nearly 86 percent of imports. As per international reports, the dependency of India is forecasted to increase to about 30% of the total supply in the country. (Administration, 2009)

Figure 7 : Gas Supply Mix (2007)

Hence, the imports seem to be instrumental in meeting the future domestic gas demand. The imports are done through tankers, or probable pipelines, still on the drawing boards. The import potential around the country can be identified as follows :

16

CENTRAL ASIA ((7.21 tcm) Kazakhastan (1.7%) Turkmenistan (1.6%) Azerbaijan (0.7%)

MIDDLE EAST (72.56 tcm) Iran (15.5%) Qatar (14%) SA (3.9%) UAE (3.3%) Iraq (1.7%)

SOUTH-EAST ASIA (5.65 tcm)

Kuwait (1%)

Indonesia (1.5%)

Oman (0.5%)

Malaysia (1.4%) Myanmar (0.3%)

Figure 8 : Import Potential from the near-by countries

Out of the import areas, Indonesia and Qatar form a high percentage of the suppliers through the imports. Pipelines can be generally used to transport LNG from the Middle East through pipelines. Pipelines form a cheaper source of transport over LNG shipments.

17

Figure 9: Probable LNG imports

As in the above figure, the potential for imports hold from Turkmenistan and Iran. Iran acts a current source of import of LNG tankers serving the Dahej, Hazira and Dabhol terminals. New probable LNG terminals can be set up at places like Ennore and Kochi (being exploited by PLL as a Green LNG terminal). New gas discoveries are evident along the eastern coast of India like the Vizag and Kakinada locations. Out of the many pipeline networks in place, like the Iran-Pakistan-India pipeline, however, due to their passage through politically sensitive countries like Pakistan, these networks do not seem to leave the drawing board. In order to overcome these constraints, the government has introduced incentives for LNG terminal establishments. The incentives are as ; 1) 100% FDI provision 2) No price control

18 The various players in place for the current LNG imports are as follows; Company Petronet LNG Shell

MMTPA 5 2.5

Location Dahej Hazira

Contract Long term – till 2027 Spot market

Table 5 : Current statistics of LNG imports Currently, India has two LNG import terminals, with several others that are planned or proposed. India started receiving LNG shipments in January 2004 with the start-up of the Dahej terminal in Gujarat state. Petronet LNG, a consortium of state-owned Indian companies and international investors, owns and operates the Dahej LNG facility with a capacity of 5 million tons per year (mta) (975 bcf/y). India’s second terminal, Hazira LNG, started operations in April 2005, and is owned by a joint ventur e of Shell and Total. The facility has a capacity of 2.5 mta (488 Bcf/y), which may be expanded to 5 mta (975 Bcf/y) in the future. In addition, Petronet LNG is currently finalizing a deal with a Japanese consortium to build a 2.5 mta (488 Bcf/y) LNG import facility at Kochi. The project is expected to cost US$500 million and is partially funded by the International Finance Corporation. The facility is expected be completed in March 2012 and will potentially be expanded to a capacity of 5 mta (975 Bcf/y). Petronet LNG plans to sign a long-term LNG supply deal with Australia’s Gorgon LNG project for 2.5 mta (488 Bcf/y) in early 2009. Another proposed LNG facility is the 5 mta (975 Bcf/y) LNG processing plant in Dabhol. Following delays in the plant’s early stages, the Ratnagiri Gas and Power Company purchased the Dabhol Power Company in 2005. Dabhol is currently operating a power plant, but the LNG receiving terminal is not scheduled to begin operations until the first half of 2009. In addition, several other companies are studying possible LNG import sites around India, such as GAIL’s Ennore LNG terminal at Tamil Nadu, scheduled for commissioning in 2011.

Company Petronet LNG (Expansion) Ratnagiri Gas Petronet LNG (Current)

Location Dahej

MMTPA 5

Supplier Ras Laffan, Qatar

Progress Under construction

Dabhol Kochi

5 5

Ras Laffan, Qatar Ras Laffan, Qatar

Under construction Bidding

Table 6 : Expansion statistics of LNG imports

As opposed to the above long term contract of Petronet LNG (PLL), it also operates in a small fraction of the spot market. The followng table gives an account of the quantities of LNG imports (in mmscmd) for the year 2008. PLL RLNG

20.41

PLL Spot RLNG

3.20

Shell LNG

2.50

LNG Import

26.11

Table 7 : LNG imports for the 3rd quarter of 2008

PLL forms a larger share (about 85%) of the total LNG imports in the country. A latest entrant into the import shipment seems to be RIL, wherein operates through the Shell, Hazira terminal with an amount of 2 mmscmd.

In order to secure supply of natural gas to India and meet growing demand, India is currently looking to invest in liquefaction projects abroad. For example, ONGC and the UK-based Hinduja Group are considering service contracts in Iran to supply 5 mta (975 Bcf/y) of LNG to India. The country is also exploring the possibility of investing more in the Sakhalin I LNG project. Longterm growth in demand for LNG remains unclear however, as price is an issue of contention in India and increasing domestic

19 natural gas production is expected from eastern offshore fields. Industry analysts note that Indian companies appear unwilling to commit to long-term LNG supply contracts at international prices. While negotiations are currently underway for several longterm LNG supply deals, whether or not India’s bids will be accepted is questionable in light of the low prices that India has offered to pay. Instead, India is becoming an important destination for spot LNG cargoes.

Pricing of R-LNG The pricing of the LNG imports depends on the source of supply of the shipment. The pricing may also differ on the basis of the contract entered into, spot or long term. The reference prices are stated below for some of the companies entered into different type of contracts. 1) PLL has a long term contract for LNG import with Ras Laffan, Qatar for 25 years for 7.5 MMTPA. The pricing is done in two phases. The first phase covers the sale of 5 MMTPA at $2.53/mmbtu till 2009, the rest of the 2.5 MMTPA at a mutually decided rate. Thus, the pricing in a long term contract depends on the mutual agreement between the two parties. 2) Shell is a prominent player in the spot market in India. It buys cargo from the spot shipments at its Hazira terminal. The prices are market driven, where in the significant driver is the source from the LNG has been shipped. Shell regassifies the LNG and transports it through GAIL. The price that was prevalent in the shipment bought in May 2009 was $8/mmbtu. The new entrant, RIL, imports LNG through the terminal of Shell and has a price of $5.1/mmtbu.

20

Gas Processing After the import of R-LNG, the LNG needs to be regassified. The processing plants are mostly present with the companies that transport the gas further. These plants prepare the gas for transportation on the transmission system. India currently operates 11 gas processing plants. (Advancing Project Development in India Through Public - Private Partnerships, 2009)

Table 8 : Gas processing plants with capacity (2007)

GAIL has a widespread network of pipelines as well processing plants, spread majorly in the western part of the country, corresponding with the pipeline network being concentrated in the western part. GAIL has a processing capacity of about 68%, succeeded by ONGC with a share of 28%.

21

Transportation Domestic pipeline network

22

Gas transmission pipeline can be defined as “a gas pipeline normally operating at pressure greater than 60 pounds per square inch, transporting gas from other transmission lines or gas production/processing facilities to the lower pressure distribution systems."

Existing Pipeline Network: At present the total trunk pipeline network is more than 9,000 km. The pipelines are owned and operated by central and state public sector undertaking, and also private companies. Out of this 9000 km of trunk pipeline, GAIL has trunk pipeline Network of around 6,778 km, RGTIL has trunk pipeline network of around 1,385 km and GSPCL has trunk pipeline network of around 1,070 km.

SI .No. Pipeline Network

Updated Lengths km

Existing Pipeline Net work Of GAIL 1

DVPL

770

2

HVJ

3397

3

Assam

8

4

Tripura

61

5

Gujarat Region

742

6

Maharashtra Region

125

7

AP Region

83T

8

TN Region

260

9

DUPL/DPPL

581

Existing Pipeline Net work RGTIL 10

Kakinada- Hyderabad-Uran-Ahmedabad 1385

Existing Pipeline Net work GSPCL 11

GSPCL Net work

Grand Total Table 9: Pipeline Network

1070 9233

23

GAIL (India) Limited: Currently, GAIL (India) Ltd. has a virtual monopoly over India's gas transmission network. Currently, GAIL is operating around 6,778 km of pipeline network in the country with a capacity of about 142 MMSCMD for transportation of natural gas.

Figure 10: GAIL pipeline network

1) Hazira-Vijaipur-Jagdishpur (HVJ) Gas Pipeline The Hazira-Vijaipur-Jagdishpur (HVJ) pipeline, India’s first cross country gas pipeline, was laid to link the gas sourced from Bassein fields landing at Hazira with the fertilizer, power and industrial consumers in Gujarat, Rajasthan, Madhya Pradesh and Uttar Pradesh. The first section of HVJ gas pipeline was commissioned in 1987 with a gas transportation capacity of 18.2 MMSCMD. Since then, the pipeline capacity has been increased and project up-gradation work was completed by 1997-98. The pipeline has six compressor stations located at Hazira, Vaghodia, Jhabua, Kheda, Vijaipur and Auraiya. These compressor stations boost the pressure of natural gas for efficient transmission and for meeting the contractual pressure requirements of different consumers. The 3,397 km long pipeline, with a capacity of 33.4 MMSCMD, traverses through the states of Gujarat, Rajasthan, Madhya Pradesh, Uttar Pradesh, Delhi and Haryana. 2) DVPL The Dahej Vijaipur pipeline (DVPL) is the country's first pipeline to carry R-LNG in the country. DVPL is a 42", 770 km onshore natural gas trunk pipeline with a capacity of 24 MMSCMD. It was laid to augment the throughput capacity of the existing HVJ pipeline having a capacity of 33.4 MMSCMD. With the commissioning of the DVPL system, the total capacity of the gas pipeline infrastructure along the HVJ corridor has increased to approximately 56 MMSCMD.

24 3) Dahej-Uran-Panvel-Dabhol (DUPL) This pipeline connects the Dahej and Hazira LNG terminals in Gujarat with potential R-LNG customers in Maharashtra, and also with the idle Dabhol power plant, which the GoI wants to fuel with R-LNG from Dahej until the Dabhol LNG import terminal is ready by June 2009. The pipeline is based on the concept of bi-directional flow. There is a provision to flow gas from Gujarat to Maharashtra and also in the reverse direction from gas sources like Uran and Dabhol to Gujarat and further north. GAIL commissioned the DUPL and DPPL pipelines on July 11, 2007. ii) GAIL’s Important Spur lines: Pipeline Kelaras-Malanpur Thulendi-Phulpur Vijaipur-Kota Jagoti-Indore-Pithampur

Length (Km) 95 139 192

92

Design Capacity (MMSCMD) 2 2.8 3.47 3

Kelaras-Malanpur, Vijaipur-Kota and Jagoti-Pitampur pipelines have been commissioned by GAIL in July 2006, January 2007 and March 2007 respectively. Besides these pipelines, GAIL also operates regional pipelines in Gujarat, Mumbai, Rajasthan, Andhra Pradesh, Tamil Nadu, Pondicherry, Assam and Tripura. iii) GAIL's Major Regional Pipeline Networks: KG Basin Pipeline Network - GAIL (India) Limited has laid a pipeline network of 834 km in KG Basin area in Andhra Pradesh, which transports approximately 6.2 MMSCMD of natural gas. The gas pipeline passes through three districts of Andhra Pradesh - East Godavari, West Godavari and Krishna. The network consists of four sections namely Tatipaka-Kakinada, Narasapur-Kovuur, Tatipaka-Kondapalli and Tatipaka-Narasapur. Cauvery Basin Pipeline Network - GAIL has laid down a 260 km pipeline network in the Cauvery Basin area in Tamil Nadu and Pondicherry. The pipeline network transports approximately 3 MMSCMD of natural gas to several consumers in the region. ONGC is the gas supplier to this pipeline network. Tripura - Tripura has a pipeline network of around 61 km, which transmits approximately 1.3 - 1.4 MMSCMD of natural gas. Assam - Assam has a gas pipeline network of approximately 8 km, which transports 0.4 MMSCMD of gas to the region. Gujarat - A pipeline network of around 742 km is laid in Gujarat (except Ahmedabad and Bharuch region gas supplies from HVJ/GREP). Maharashtra - Maharashtra has a pipeline network of approximately 125 km and it supplies 10.5 - 11 MMSCMD of natural gas to the region.

25 iv) GAIL's P/L Capex Plans: Details

2009-10 200-10-11 2011-12 Total

Approved Pipeline Projects 5397

4805

695

10897

Jagdishpur - Haldia

815

2,700

1,885

5,400

Dabhol - Banglore

565

2,000

1,435

4,000

Kochi - Mangalore

315

1350

585

2,250

Other Pipelines

1,043

355

180

1,578

Total Pipelines

8,135

11,210

4,780

24,125

v) Other Transporter's Existing Pipeline Infrastructure: Player

Type Network

GSPL

Regional

of Design (MMSCMD)

Capacity Length (Km) Trunkline

of AVG Present (MMSCMD)

22

1070

12-14

AGCL/OIL Regional

6-8

500

5.0

RGTIL

120

1400

EWPL Trunkline

Flow

Source: Secondary Information a) Gujarat State Petronet Limited (GSPL): Gujarat State Petronet Limited (GSPL), a public-private partnership established by Gujarat State Petroleum Corporation Limited (GSPC), is a laying high-pressure pipeline network of 2,200 km. About 1,130 km of the total pipeline network is already laid and is under operation from Hazira-Vadodara-Ahmedabad-Kalol-HimmatnagarMehsana-Rajkot-Morbi-Vapi. Approximately 425 km of pipeline is under construction. Out of this, 75 km is under execution and other 350 km is under awarding stage. The main sections of the total pipeline network are: Sections Paguthan-Baroda Baroda-Ahmedabad-Kalol Mora-Sajod Kalol-Himmatnagar Kalol-Mehsana Anand-Rajkot-Morbi Mora-Vapi

Distance (km) 83.5 143 58 63 40 290 129

26 Reliance Gas Transportation Infrastructure Ltd. (RGTIL): Reliance Gas Transportation Infrastructure Ltd. (RGTIL), a Reliance Group firm, a has constructed the 1,400 km East West pipeline for transporting gas from KG Basin to the consumers in Maharashtra and Gujarat. The pipeline, with a capacity to transport 120 MMSCMD of gas, runs from Gadimoga at Kakinada (Andhra Pradesh) to Bhadbut at Bharuch (Gujarat). It shall be connected with GAIL’s HVJ and DVPL network at Ankot in Gujarat, Dahej-Uran (DUPL) and Dabhol-Panvel (DPPL) pipeline network at Mashkal in Maharashtra and Krishna Godavari Basin pipeline network at Oduru in Andhra Pradesh. c) Indian Oil Corporation (IOC) IOC is implementing the 133 km long 30" diameter Dadri-Panipat natural gas spur pipeline. The pipeline is being designed to have a capacity of 10.5 MMSCMD which can be upgraded to 20 MMSCMD with installation of a compressor station at Dadri, Uttar Pradesh (UP). It shall be laid at a revised cost of Rs 298 crore and is expected to be commissioned by December 2009. d) Oil India Ltd. (OIL)

For transportation of natural gas from Duliajan to Numaligarh, a pipeline project is being implemented by a Joint Venture Company M/s DNP Ltd., where NRL has 26% share holding along with M/s AGCL (51%) and M/s OIL (23%). The Duliajan-Numaligarh pipeline is a 16 inch diameter, 194 km long high pressure natural gas pipeline that traverses from Duliajan (Dibrugarh district) to Numaligarh (Golaghat district) in the northeastern state of Assam. The pipeline is being designed to have 2 MMSCMD capacity and will be laid at an estimated cost of Rs 320 crore. The project is expected to be completed by June 2009. B) Approved/Under Construction Gas Pipe Line Networks: The details of pipelines, for which authorizations have been issued recently, are detailed below. The approximate length of these pipelines is 6,243 km, 3,348 km in favor of GAIL and 1,515 km in favor of RGTIL. These pipelines must be commissioned within 36 months from the date of the start of the project, i.e. the date of publication in official gazette of notification pertaining to land relating to the pipeline, under sub-section (1) of Section 3 of the Petroleum & Minerals Pipelines (Acquisition of Right of User in Land) Act, 1962. Proposed Gas Pipeline Networks: S. No

Other Players' (except GAIL) Additional Pipelines Approximate length = 400 km.

1.

RGTIL-Kakinada-BasudebpurHowrah

Orissa: Bhadrak, Baleshwar and Mayurbhanj. W.B.: East Medinipur, West Medinipur, Howrah and Hugli Approximate length = 445km.

2.

RGTIL-Vijaywada-Nellore-Chennai

Andhra Pradesh: Krishna, Guntur, Prakasam, Nellore, Chittoor. Tamil Nadu: Thiruvallur and Chennai.

27

Approximate length = 670 km.

3.

RGTIL-Chennai-Tuticorin

Tamil Nadu: Thiruvallur, Vellore, Kanchipuram, Tiruvannamalai, Vilupuram, Salem, Namakkal, Karur, Dindigul, Virudunagar, Tuticorin, Tirunalveli, Ramanathapuram, Erode, Coimbatore, Dharmapur and Sivagana. Approximate length = 660 km.

4.

RGTIL-Chennai-BangaloreMangalore

Tamil Nadu: Thiruvallur, Vellore, Krishnagiri. Andhra Pradesh: Chittoor. Karnataka: Kolar, Bangalore Rural, Bangalore, Tumkur, Mandya, Mysore, Hassan, Chikniagalur, Dakshina ,Kannada.

Approx: 2600 km, Total capacity handling: 60-70 MMSCMD 5.

GSPC

6.

OIL/AGCL

Districts: Jamnagar, Banaskantha, Bhavnagar

Junagarh,

Navsari-Valsad,

Approx: 300 km, Capacity: 6 MMSCMD, Local network development plans in Assam covering Guwahati, Jorhat, Sibsagar etc

Source: Secondary Information RGTIL, a subsidiary of RIL, has proposed to lay a gas pipeline network from Jamnagar, Gujarat to Katak, Orissa via Bhopal, Madhya Pradesh. The pipeline will be constructed in two phases. Phase-I will have a pipeline from Bhopal to Katak, connecting Kakinada-Haldia pipeline, whereas Phase-II will have a pipeline from Jamnagar to Bhopal. GAIL also has submitted an Expression of Interest (EOI) for laying a pipeline from Vijayawada in Andhra Pradesh to Vijaipur in Madhya Pradesh via Nagpur in Maharashtra. The pipeline will be designed to have a capacity of 30 MMSCMD. It will cover the states of Andhra Pradesh, Maharashtra and Madhya Pradesh with a spurline to Bhilai Steel Plant (SAIL).

28 International Pipelines Apart from the LNG imports, the import of gas through international pipelines has also been proposed. The following excerpt gives an account of the network which has been taken into account. Iran-Pakistan-India Pipeline India has considered various proposals for international pipeline connections with other countries. One such scheme is the Ir anPakistan-India (IPI) Pipeline, which has been under discussion since 1994. The plan calls for a roughly 1,700-mile, 5.4-Bcf/d pipeline to run from the South Pars fields in Iran to the Indian state of Gujarat. While Iran is keen to export its abundant natural gas resources and India is in search of projects to meet its growing domestic demand, a variety of economic and political issues have delayed a project agreement. Indian officials have made it clear that any import pipeline crossing Pakistan would need to be accompanied by a security guarantee from officials in Islamabad. Apart from security concerns, natural gas pricing disputes have also held up an agreement. Both Indian and Pakistani officials refused Iran’s proposed price of $8.00 per million Btu (MMBtu), stating that they would not pay more than $4.25/MMBtu. Due to the uncertainties involving this pipeline, the Indian government’s 11 th Five Year plan does not project any gas supply from this route or the following two discussed pipelines. Turkmenistan-Afghanistan-Pakistan-India Pipeline India has worked to join onto the Turkmenistan-Afghanistan-Pakistan Pipeline (TAP or Trans-Afghan Pipeline). With the inclusion of India, the project consists of a planned 1,050-mile pipeline originating in Turkmenistan’s Dauletabad natural gas fields and transporting the fuel to markets in Afghanistan, Pakistan, and India. In 2008, all parties agreed to induct India as a full member into the project, thereby renaming the pipeline TAPI. TAPI will have a capacity of 3.2 Bcf/d and work is expected to commence in 2010, with supplies scheduled to flow in 2015. Concerns about the project have included the security of the route, which would traverse unstable regions in Afghanistan and Pakistan. Furthermore, a review of the TAPI project raised doubts about whether Turkmen natural gas supplies are adequate to meet proposed export commitments. Imports from Myanmar A third international pipeline proposal envisions India importing natural gas from Myanmar. In March 2006, the governments of India and Myanmar signed a natural gas supply deal, although a specific pipeline route has yet to be determined. Initially, the two countries planned to build a pipeline that would cross Bangladesh. However, after indecision from Bangladeshi authorities over the plans, India and Myanmar have studied the possibility of building a pipeline that would terminate in the eastern Indian state of Tripura and not cross Bangladeshi soil. A proposal to build a pipeline between Myanmar and China may interrupt India’s pipeline plans, however. India is working to enhance its presence in Myanmar in light of its neighbor’s large natural gas reserves. Both GAIL and ONGC are investing large sums to obtain access to blocks of the Swe field containing 200 billion cubic meters (7 Tcf). India recently signed a deal to build two hydroelectr ic power plants in Myanmar, largely perceived as an effort to boost relations between the two countries and enable further gas supply deals. Thus, though a cheaper option as compared to R-LNG, the political risks seem to cloud the future of international pipelines in India.

29

Distribute and Market The end user demand for gas is divided into two main sectors;

Bulk Demand The bulk demand for gas comprises of sectors like power, fertilizer which forms a major part of the offtakers. The following excerpt shows the analysis of the sectors based on gas demand. Power Sector Analysis The power sector is going to be the major sector providing the anchor demand for natural gas. The Ministry of Power has set a target of 70,000 MW generation for the 5 year period ending 2012, the terminal year of the 11th of Plan. The current thermal power generation is about 90,800 MW, of which 12% (10,900 MW) is gas based. The gasbased power plants which would definitely be coming up during the 11th Plan period have a capacity of 1889.2 MW; the requirement of gas for the same is likely to be 7.5 MMSCMD. Apart from these, the Ministry of Power expects 26 power plants with a total capacity of 31765.5MW to be coming up in the 11th and 12th plan periods. On an optimistic note, 40% of these plants would be gas-based; this would come to roughly 12700 MW, requiring around 50.82 MMSCMD gas. The present requirement of gas for the existing gas-based power plants is 68.19 MMSCMD. Adding gas requirement of 7.50 MMSCMD and .50.82 MMSCMD, as explained in the above para, the total gas requirement by the end of 11th Plan period is likely to be 126.57 MMSCMD. Assuming that the gas requirement increases equally every year, the projected gas demand estimate is given below : Gas Demand Projections in power sector in XI plan period

Gas Demand (MMSCMD)

2007-08

2008-09

2009-10

2010-11

2011-12

79.7

91.2

102.7

114.2

126.57

Fertilizer Sector Analysis It has been well established that natural gas is the most cost effective fuel vis-a-vis other liquid fuels in the Fertilizer Sector. During the year 2004-05, the gas based fertilizer (urea) production accounted for 66 % of the total fertilizer production. Naphtha and FO/LSHS based production accounts for the balance 34%. At the same time, the % subsidy share of gas based production is 38% compared to the share of 62% for the liquid feedstock. This is essentially due to the cost effectiveness of gas vs other feedstock. Keeping this in view, Dept of Fertilizers has proposed the case for switch over to 100% natural gas in the fertilizer sector, which is expected to give a push to gas demand in this sector during the XI Five Year Plan. Based on this premise, the estimated urea demand and the corresponding gas demand for the XI Plan Period is given below: Projected Gas Demand in the XI Plan Period - Fertilizer Sector 2007-08

2008-09

2009-10

2010-11

2011-12

Urea Demand (Lokh tones)

249.51

257.09

264.88

272.92

281.23

Gas Demand (MMSCMD)

40.82

42.65

52.24

79.36

79.36

30 Purely looking at it from the point of view of projected gas availability from existing sources for the fertilizer sector, there is an expected progressive decline from the existing sources from about 27 MMSCMD in 2007-08 to a level of about 18 MMSCMD in 2011-12. Given the growth in expected demand in the XI Plan period for gas in fertilizer sector, the gas shortfall could increase from 20 MMSCMD in 2007-08 to a level of about 60 MMSCMD in 2011-12. In this context, the gas supplies from domestic sources would have to grow fast to meet the increasing demand in this sector

Petrochemicals/Refineries/Internal Consumption and Sponge Iron/Steel and other Industries The current demand as per the current industry estimates in the Petrochemicals/Refineries and Internal Consumption (of Gas Industries) sectors is about 25.37 mmscmd in 2005-06. These industries are estimated to grow in line with the economic growth. Hence an annual growth rate of about 7% is assumed during the XI plan period, which would result in a demand of 33.25 mmscmd by the terminal year of the XI Plan. Similarly, the sponge iron/steel sector is also expected to grow at the same rate of 7% from the current level of 6 MMSCMD, reaching a level of 7.86 MMSCMD by the terminal year of the XI plan. Based on the above analysis, the consolidated demand estimate is presented below: Sector Wise Gas Demand Projections (2007-2012) 2007-08

2008-09

200.9-10

2010-11

2011-12

Power

79.70

91.20

102.70

114.20

126.57

Fertilizer

40.82

42.65

52.24

79.36

79.36

City gas

12.08

12.93

13.83

14.80

15.83

Industrial

15.00

16.05

17.17.

18.38

19.66

Petrochemicals/Refineries/Internal Consumption

25.37

27.15

29.05

31.08

33.25

Sponge iron/Steel

6.00

6.42

6.87

7.35

7.86

Total

178.97

196.39

221.86

265.16

282.55

31

RETAIL DEMAND Recently, the demand for retail use like CNG and PNG has risen, also giving adequate importance to development of a CGD network. City gas distribution (CGD) City gas distribution (CGD) projects present a tremendous investment opportunity to prospective investors with expected increase in gas supply, changing regulatory scenario and growing concern over pollution in cites due to traditional fossil fuels. The two major factors that will enhance this growth are increase in domestic gas production and the development of infrastructure, both at local and cross-country level. This growth in city gas distribution will be further pushed by market factors and by environmental activism. However, to capture this opportunity, developers need to analyze several critical aspects of the project in terms of demand, supply, project cost, market price scenario and risk factors. City gas networks represent local aspirations and hence involvement of state/local government and citizens is the key to its success.

Ministry of Petroleum & Natural Gas (MoP&NG) wishes to encourage supply of CNG for transport sector and Piped Natural Gas for household sector. It has finalized 'Vision-2015' of the oil sector for 'Consumer Satisfaction and Beyond', wherein 200 cities are to be provided CNG by the year 2015. Objectives of developing CGD Network Consumers to get assured supply of CNG and PNG at cheapest possible price Domestic PNG and CNG to be priority - both in terms of pricing & gas volumes Incentivise maximum possible coverage for domestic PNG and CNG Quickest geographical spread (overall network coverage) during exclusivity period Monitor progress against measurable (with penal provisions, including termination of authorization for failure to achieve commitments Post-exclusivity, CGD network available to multiple players for marketing of PNG, CNG and if required, laying and building network as well

S. No.

CNG

PNG

1.

Economical

Safe and assured supply of gas to domestic, commercial and industrial sectors

a.

Cheaper than conventional fuel

Convenient to use

b.

Pay back period is short

Economically more viable compared to other fuels in same sector

2.

Technical

No traffic disruption as supplied through pipelines

a.

Very high antiknock power (more than 120 ON) allows greater Continuous supply performance compared to petrol one

b.

No wastage, no under weight cylinders, no hassle Does not require refining plant or additive adding and can be for replacement of cylinder, no need for cylinder used immediately after its extraction booking

c.

No advance payment for consumption of gas, It has no evaporation leaks and spills of fuel, both during billing will done in once in two months based on refueling and feeding of the car consumption

32

d.

Its combustion produces a very low quantity of carbon deposits (permits a longer life of lubricant oil)

GAIL, along with other vital CGD players, are implementing the CGD projects taking into consideration the benefits of both the economical and technical benefits of PNG and CNG. CNG is the least polluting: (gm/100 km) Fuel/Emissions CO2

UHC CO NOx SOx PM

Petrol

22,000 85

634 78

8.3

1.1

Diesel

21,000 21

106 108

21

12.5

LPG

18,200 18

168 37

0.38 0.29

CNG

16,275 5.6

22.2 25.8 0.15 0.29

Type of Vehicle

Average Daily running Cost (Km) Conversion

Car/Taxi (Petrol)

150

40,000

97,282

5

Three (Petrol)

100

18,000

38,912

6

200

4,00,000

1,72,216

28

Wheeler

Bus (Diesel)

of Annual (Rs)

Savings Payback (Months)

Period

Note: Mileage considered for Car, Three Wheeler and Bus are 15 km/ltr, 25 km/ltr and 3.5 km/ltr respectively at current fuel prices in Delhi. Benefits of Usage of CNG vs. other Liquid Fuels (all India Basis) % Vehicles Petrol/Diesel

converted

to

CNG

From Qty of Petrol & Diesel Replaced Forex (TMT) (Cr)

20

17019

25,886

50

42548

64,715

75

63822

97,072

Savings

Role of PNGRB in CGD Further, the Government of India has enacted the Petroleum & Natural Gas Regulatory Board Act, 2006(PNGRB Act, 2006) via Gazette Notification dated 31st March, 2006. Accordingly, in line with the provision of the Act, the Petroleum and Natural Gas Regulatory Board (PNGRB) was constituted with effect from 01st October 2007. The PNGRB is reputable for regulating the refining, processing, storage, transportation, distribution, marketing and sale of petroleum, petroleum products and natural gas excluding production of crude oil and natural gas. It aims to protect the interest of consumers and entities engaged in specified activities, ensure uninterrupted and adequate supply and promote competitive markets for petroleum, petroleum products and natural gas.

33 As per the regulation, PNGRB will regulate only the city gas pipeline network tariff. The end gas price to the consumers is not covered in the regulation. Any entity authorized by the Central Government at any time before the appointment of PNGRB does not require to obtain authorization from PNGRB. The statutory requirement for such entity is only to furnish the particulars of its CGD activities to PNGRB. PNGRB has already issued regulations for growth and expansion of the oil and gas industry and is further paving the way for growth of this sector, balancing the interest of various stakeholders such as gas suppliers, manufacturers of equipment, consultants, contractors and users. The Board notified 13 regulations on October 1, 2007, out of which 7 are related to city gas distribution (CGD). It was notified to authorize entities to lay, build, operate and expand CGD network and determine network tariff for CGD on March 19, 2008. According to the scope of these regulations, a CGD network shall normally operate at a pressure as per the mandated code/standard by the Board, presently not more than 19 Kg/ cm2 (g) and for supply of a volume not exceeding 50,000 SCMD per consumer per annum. The consumer shall have the option to source natural gas for volume exceeding 50,000 SCMD from any entity (including the entity laying, building, operating or expanding a CGD Network), but not through the CGD network.

Legal and Infrastructure Marketing and Infrastructure Exclusivity The entity winning the rights to set up CGD network in a city will have five-year marketing exclusivity. After five years, the network will be thrown open to competition but a fresh entrant will not be allowed to lay a new pipeline. It will have to use the network for which it has to pay a fee to the CGD Company. The CGD Company will have lifetime exclusivity of 25 years for the pipeline network. However, a company that has operated the CGD network for three years or more prior to the appointment of PNGRB i.e. 1st October 2007, will have the marketing exclusivity for three years compared with five years for firms that will operate in the cities to be authorized by PNGRB now. Eligibility Criteria Entities interested in obtaining rights to set up a city gas distribution network would need to meet the following eligibility criteria: a. b. c. d.

Body Corporate or Company registered under the Companies Act Should have a credible plan for sourcing of natural gas Should have experience of laying aggregate of over 300 km of oil or gas pipelines or form a joint venture with a company which has that experience The entity should have experience of at least one year in operation and maintenance of a CGD network Or

Should have a joint venture with 11% holding with another entity having such experience Or The entity should intend to operate and maintain the proposed CGD network through appropriate Technical Assistance Agreement for at least one year with another party having experience of operating and maintenance of CGI network for at least a period of one year

34

Or The entity should have adequate number of technically qualified persons with 0 ft M experience of hydrocarbon pipeline and a credible plan to independently take up the 0 & M of CGD network In the explanatory note to the above in the PNGRB notification, it is further stated that the entity should have a minimum of three personnel having experience of at least one year in (i) ROU acquisition, design & execution of pipeline, pre-commissioning and safety aspects and (ii) operation & maintenance of gas pipeline and compressors, gas measurement & accounting and safety aspects. Process of Authorization An entity interested in developing a particular city gas project needs to submit "Expression of Interest" to PNGRB with the following documents: a. b. c. d. e.

Rs 8-12 lakh as fee depending upon population of the city (non-refundable) Geographical area of the city to be covered in the business plan Market potential of Compressed Natural Gas (CNG) for Automobile/Piped Natural Gas (PNG) for domestic consumption/industrial consumption Likely business plan without divulging business secret Credible Gas Sourcing Plan

On receipt of EOI from an interested entity, PNGRB shall issue an open advertisement for public consultation to firm up the authorized area of the city gas project. PNGRB as suo-moto may also select a city for the city gas project. Upon firming up the area, PNGRB will start the process for open bidding from interested city gas entities. The interested entities are required to submit bid with the following: a. b. c. d. e.

Rs 8-12 lakh as fee for submission of bid (for the bidder other than the entity that has already submitted the fee along with EOI) Bid Bond (Rs 0.5 crore to Rs 5.0 crore depending upon population of the city) Credible Gas Sourcing Plan Detailed Technical Plan Detailed Financial Plan, which includes network tariff, compression charge for CNG, inch-km of pipeline network and number of domestic connections over a period of pipeline exclusivity

The authorization shall be granted to the selected entity within a period of 30 days from the last date of submitting the bid. The award will be on the overall best offer basis considering the following criteria: Parameters

Weightage

Lowness of the present value of the overall unit network tariff over the economic life of the project

40%

Lowness of the present value of the compression charge for CNG over the economic life of the project

10%

Highness of the present value of the inch-km of steel pipeline during the period of marketing exclusivity 20% Highness of the present value of number of PNG domestic connection during the period of marketing 30% exclusivity

35 Post Authorization a.

b.

c.

d.

e.

Assignment/Transfer of the Authorization: The grant of authorization to the entity shall not be renunciated by way of sale, assignment, transfer or surrender to any person or entity during the period of three years from the date of its issue. Performance Bond: Upon successful award of the Authorization, the entity shall furnish a performance bond of an amount equal to Rs 1.10 crore (depending upon population of city) or 5% of estimated project cost, whichever is higher. Financial Closure: The authorized entity is required to obtain the financial closure of the project from a bank or financial institution within a period of 120 days from the date of the authorization In case of internally financed project, (the authorized entity is required to submit the approval of its Board of Directors for the DFR of the project along with its financial plan within 120 days of the authorization). Natural Gas Tie-up: The authorized entity is required to enter in to a firm natural gas supply agreement for the proposed CGD network with an entity owning natural gas for at least 50% of the volumes considered in the determination of the network tariff bid up to the marketing exclusivity period (i e 5 years) within 90 days of issue of the authorization. Service Obligations: The authorized entity has the following service obligations: i. ii. iii. iv.

f.

Provide domestic PNG connection as per the bid Lay and build steel pipeline as per the inch-kilometer bid Reach all areas or wards in the authorized area through pipelines of adequate size to meet the demand of the consumers Provide piped natural gas connection on demand to a domestic consumer for cooking purposes within a distance of 25 meters of the metering unit at the consumer's end till the tap-off in the pipeline

Penalty: In case of default in abiding by the terms and conditions of regulation/service obligation, PNGRB has the right to encash 25% of the amount of the performance bond for the first default and 50% of the amount of the performance bond for the second default. In case of third default, PNGRB may encash 100% of the amount of performance bond and simultaneously terminate the authorization of the company.

Further, PNGRB may also levy civil penalty on the authorized company in addition to the penalty described above. Un-bundling of the CGD Business So far, PNGRB has not made any mandatory provision for un-bundling of the CGD business from the regular business of an entity However, the authorized entity is required to ensure that a. b. c.

there is no cross-subsidization of the costs between the activity of transportation and the activity of marketing of natural gas in the CGD network; the confidentiality of customer information collected in the course of providing CGD service is maintained; and there is no preferential access allowed to itself or to any other entity for the activity of transportation of natural gas in the CGD network.

36 Grant of Authorization The entities and cities to which authorizations have been issued by Government for CGD (as on February 2009) are as follows:-

S. No

JVC

Area of Operation

1.

Mahanagar Gas Limited

Mumbai and district Thane including Navi Mumbai & Mira-Bhayander

2.

Indraprastha Gas Limited

Delhi and its suburbs, viz., Noida (Gautambudh Nagar), Gurgaon and Faridabad

3.

Bhagyanagar Gas Limited

Vijayawada & Hyderabad

4.

Tripura Natural Gas Company Agartala Limited

5.

Maharashtra Natural Gas Limited

Pune including Pimpri & Chinchward

6.

Aavantika Gas Limited

Indore, Ujjain & Gwalior

7.

Sabarmati Gas Ltd.

Gandhinagar, Mehsana & Sabharkantha

8.

Green Gas Limited

Lucknow, Agra

9.

Gujarat Gas Company Limited

Surat, Bharuch & Ankleshwar

10.

Central UP Gas Limited

Kanpur & Bareilly

11.

GAIL (India) Ltd.

Vadodara

Other entities supplying CGD to the cities:S. No.

JVC

Area of Operation

1

Adani Energy Limited,

Ahmedabad

2

HPCL

Ahmedabad

3

Vadodara Sadan

4

GSPC

Rajkot, Morbi, etc.

5

Assam Gas Company Limited

Duliajan, Digboi, Tinsukia, Dibrugarh, Naharkatia, Moran, Nazira, Sivsagar etc.

Mahanagar

Seva Vadodara

37

City Gas Projects in India

S. No

Year

City

Company

1

1880

Kolkata

Calcutta Gas Company

2

1900

Mumbai

Bombay Gas Company

3

1972

Vadodara

Vadodara Municipal Corporation

4

1980

Delhi

Delhi Municipal Corporation

5

1982-86

ONGC Colony at Mehsana ONGC & Sibsagar

6

1985

Duliajan

Assam Gas Company

7

1986

Sibsagar

Assam Gas Company

8

1989-91 Surat, Ankleshwar, Bharuch Gujarat Gas Company Ltd.

9

1994

Mumbai

Mahanagar Gas Ltd.

10

1995

Delhi

Indraprastha Gas Ltd.

11

2004

Vadodara & Ahmedabad

Adani Energy Ltd.

12

2005

Hyderabad

Bhagyanagar Gas Ltd.

13

Gandhinagar, 2006-07 Mehsana, Rajkot, Vapi

14

2006

Kadi, Morbi, GSPC Gas/Sabarmati Gas

Kanpur, Lucknow

CUGL & GGL

As in April 2009 the Authorization Status of Entities is as follows: Entities Other Than Gail JVCs in CGD Business Sate

City

Company

Ahmedabad

Adani & HPCL

Surat, Ankleshwar & Bharuch

Gujarat Gas Co. Ltd.

Hazira, Rajkot, Surendranagar

GSPC Gas

Vadodara

VMSS

Gandhinagar

Sabarmati Gas

West Bengal

Asansol

Great Eastern Energy Corp. Ltd.

Assam

Duliajan, Digboi, Dibrugarh, Moran, Naharkatiya, Sivsagar, Nazira, Assam Gas Company Ltd. Simaluguri, Tinsukia

Gujarat

As per February 2009, the status of City Gas Projects in India is as follows:

38

S. No.

Entity

Geographical GAs (Under Areas (GA) Constructio Total (Operating) n)

1

Mahanagar Gas Limited (MGL)

2

-

2

2

Indraprastha Gas Limited (IGL)

1.2

.2

4

3

Aavantika Gas Ltd. (AGL)

1

1.2

3

4

Central U.P. Gas Ltd. (CUGL)

1.2

-

2

5

Green Gas Limited (GGL)

1.2

-

2

6

Gujarat Gas Company Ltd. (GGCL)

1.3

-

3

7

Maharashtra (MNGCL)

1

-

1

8

Tripura Natural Gas Company (TNGCL)

1

-

1

9

Bhagyanagar Gas Limited (BGL)

1.2

2

10

Sabarmati Gas Limited

1.2

2

11

GAIL (India) Ltd.

1.1

-

1

12

Hindustan Petroleum Corporation Ltd. (HPCL) 1.1

-

1

13

Charotar Gas Sahakari Mandali Ltd.

1.1

-

1

14

Vadodara Mahanagar Seva Sadan (VMSS)

1

-

1

15

Adani Energy Ltd. (AEnL)

2

1.6

8

16

GSPC Gas Company Ltd.

1.8

1.2

10

17

Siti Energy Ltd. (SEL)

18

Haryana City Gas

1

19

Assam Gas Company Ltd. (AGCL)

1.4

4

20

Great Eastern (GEECL)

2

2

Natural

Gas Company Ltd.

Energy

1

Corporation

Ltd.

1.2

3

India currently has a CGD network in 21 cities with 0.85 million household connected and 0.45 million vehicles on compressed natural gas (CNG). But the total pipeline infrastructure, including 8,000 km of natural gas pipelines and 10,000 km of product pipelines, is inadequate to meet the country's requirements except oil.

39 Recent Developments As in April 2009: Total Gas Consumption : 3.688 MMSCMD Total Investment : Rs 1,673.93 crore No of CNG vehicles catered: 458804 No of household connected: 511709 Tentative replacement of fuel in quantity as well as in monetary terms: o Petrol = Rs 2,909 crore o Diesel = Rs 2,244 crore o LPG = Rs 183 crore CGD Likely Roll Out Plan (as in April 2009)

State Andhra Pradesh Assam Bihar Punjab & Himachal Pradesh Haryana Gujarat Jharkhand Karnataka Kerala Madhya Pradesh Maharashtra & Goa Orissa Rajasthan Tamil Nadu Uttar Pradesh & Uttarakhand West Bengal Total

37 8 17

Projected Demand MMSCMD 5.02 5 1.91

13

3.66

1830

17 25 5 26 14 5 12 6 4 28

2.61 19.16 0.5 3.89 2.52 0.97 8.08 1.28 1.67 5.95

1305 9580 250 1945 1260 485 4040 640 835 2975

31

7.5

3750

50 298

4.62 74.34

2310 37170

No. of Potential Cities

Projected Investment (in Rs/Cr) 2510 2500 955

As in February 2009, the cities for which Expressions of Interests (EOI) have been invited for CGD projects by Petroleum & Na tural Gas Regulatory Board are Kota (Rajasthan), Sonipat (Haryana), Mathura (Uttar Pradesh), Kakinada (Andhra Pradesh),

Meerut (Uttar Pradesh), Dewas (Madhya Pradesh), Ghaziabad (Uttar Pradesh), Allahabad (Uttar Pradesh), Jhansi (Uttar Pradesh), Rajahmundry (Andhra Pradesh), Yanam (U.T. of Pondicherry), Shahdol (Madhya Pradesh) and Chandigarh (Union Territory). PNGRB has also formulated a Roll-out Plan for the development of CGD networks in various other geographical areas in the years to come. Years By 2010 By 2013 By 2018

Geographical Areas 85+ 125 250

40 CNG and PNG City gas distribution (CGD) essentially consists of Piped Natural Gas (PNG) and Compressed Natural Gas (CNG). Piped Natural Gas (PNG) is being presently supplied in the following cities and towns:Delhi, Mumbai, Agartala, Surat, Hazira, Junagam, Vasva, Mora, Damka, Bhatlai, Kawas, Rajgiri, Suwali, Icchapore, Ankleshwar, Bharauch, Vadodara, Ahmedabad, Vidyanagar, Anand, Morbi, Gandhinagar, Duliajan, Digboi, Dibrugarh, Moran, Naharkatiya, Sivasagar, Nazira, Simaluguri and Tinsukia. Compressed Natural Gas (CNG) is being presently supplied to vehicles in the following cities:Mumbai, Thane, Mira-Bhayandar, Delhi, Noida, Vijayawada, Hyderabad, Kanpur, Lucknow, Agra, Agartala, Ahmedabad, Ankleshwar, Bharuch, Surat, Vadodara, Gandhinagar and Hazira. As in July 2009, the cities/towns in Gujarat which are receiving CNG supply at present are Anand, Baidhana, Bharuch, Bhilad, Chankeda, Chikhali, Chotila, Wankaner, Ahmedabad, Dakor, Damen, Dhaban, Dhegam, Dhrampur, Gandhinagar, Godhra, Holol, Haxira, Kallol, Kalol, Khambhat, Khathlal, Morbid, Nadiad, Nar, Navsari, Padra, Palanpur, Pardi, Petlad, Rajkot, Sarigam, Sidhpur, Tankara, Umreth, Unjha, Valsad, Vapi, Surat, Ankleshwar, Kim Bardoli, Palej.

Piped Natural Gas is being supplied to 513068 domestic, 1433 commercial and 69 industrial consumers all over the country. The details are as follows:- in April 2009 Cities

Company

Avg, CNG Avg. Gas Gas Sales Domestic

Delhi

IGL

1.692

Mumbai

0.047

Sales

Avg. Gas Commercial Industrial 0.103

1.036

Thane

1.842 1.464

0.080 MGL

Sales Total Sales & (MMSCMD)

0.080 0.165

0.263

Mira Bhayandar

0.033

0.033

Navi Mumbai

0.006

0.006

Pune

MNGL

Kanpur

0.000

0

0.054 CUGL

Barrielly

0.000

0

0.054

0

0.005

0 0.005

Lucknow

0

0.054

0

0

0.054

0.034

0

0.037

0.071

0.040

0

0

0.040

0 009

0

0

0.009

0.005

0

0

0.005

GGL Agra Vadodara

GAIL

Vijayawada BGL Hyderabad Agartala

TNGCL

0 003

0.013

0.009

0.025

Lndore

AGL

0.000

0

0

0.000

Surat Bharuch & GGCL Ankleshwar

0.15

0.090

3.850

4.090

Ahmedabad

AEL

0.2

0.011

0.190

0.401

Gandhinagar

SCL

0.04

0.002

0.012

0.054

3.441

0.3286

4.464

8.2336

Total

41 Gas Supply to CGD Projects (As in April 2009)

CGD Projects

Estd. Demand

Cities

(MMSCMD)

2009

Addl. Best Endeavour Basis-2009

IGL

Delhi, Noida, Gurgaon, Faridabad & Greater 0.20 Noida

0.20

MGL

Mumbai, Navi Bhayander

160

1.60

CUGL

Kanpur & Bareilly

0.50

0.50

GGL

Lucknow & Agra

0.40

0.40

MNGL

Pune, Pimpri, Chinchwad

0.40

0.40

BGL

Hyderabad & Vijayawada

0.20

0.20

AGL

Indore, Gwalior & Ujjain

0.66

0.66

TNGCL

Agartala

-

-

GAIL

Vadodara

0.03

0.03

GAIL Gas Ltd.- New Various Cities Proj.

0.04

0.04

Total

4.03

4.03

Mumbai,

Thane,

Mira

Excludes CGD project other than GAIL GAIL/JVCs of GAIL are augmenting the CNG infrastructure and number of CNG stations in the respective cities to meet the increased requirement of conversion of vehicles to CNG. Further, the Ministry of Petroleum & Natural Gas (MoPNG) has formulated the gas utilization policy for utilization of natural gas produced from NELP blocks and has allocated 5 MMSCMD of natural gas to the city gas projects from 40 MMSCMD natural gas expected to be available from Reliance KG Basin fields in the first quarter of 2009.

42