CGD Scenario in India
Amit Wankhede
General Manager-Upstream Business Affairs
BP India.

In North India, 2017 will be remembered as a watershed year- unfortunately, not for a positive or a happy reason. From mid-Oc tober onwards, the ver y element on which all living speciessurvive - air - was highly polluted. You may say that it happens every year around this time when winter sets in and air is trapped in the lower atmosphere. But, this year the difference was that in numerous places, the AQI readings went off the char ts! While school children have had Diwali and Christmas vacations, now they expect 'Pollution Vacations'. D id you know that 27 Indian cities figure amongst the top 50 most polluted cities in the world? Our cities are definitely in a state of crisis. We have to ac t now and act decisively. If we want to bequeath a healthy planet to coming generations cleaning up our environment is not a choice anymore. It is a necessity.

There can be no doubt that India's development is heavily dependent on clean and affordable energy on one hand and the growth of cities on the other. A complex scenario which does not present easy solutions. However, one which has proven itself in recent years in various par ts of the country is City Gas Distribution (CGD). Rapid urbanization demands clean and affordable energy for mobilit y, heat, lighting and cooking by domestic, commercial and industrial users. The current sources of energy comprising coal, petrol, diesel, kerosene and furnace oil fail either on the count of not being 'clean' or 'affordable' or both. CGD provides a solution to both problems and on a sustainable basis as well as complements the cleaner Alternative Energy (AE) sources such as solar, wind, hydro- elec tric, etc. It is per tinent to note that experts suggest that AE adoption on scale in Indian cities will take some years due to economic, technology and policy barriers.

Our Prime Minister has mandated that India should transition to a gas-based economy in the next few years. India produces only 50% of its natural gas consumption. However, it has sufficient proven reserves to double the domestic production which can be bought on-stream at market based price. The potential for CGD can be gauged by comparing consumption in New Delhi and Mumbai at 3 &1.5 mmscmd respectively with London at 30 mmscmd!

It is to be noted that CGD despite being sold at market based is still nearly 50% cheaper than comparative liquid fuels (table II). CGD, present in only 41 cities and towns, contributes a meagre 16 % of total natural gas consumed in the country. As India embarks on building 100 smar t cities and eventually 325+ smart cities, one of the key components has to be 'green energy' wherein natural gas supply infrastructure is integrated into the blueprint. This is the only way to stop these cities getting transformed into "gas chambers" with tens of millions of vehicles and commercial and industrial units.


Table 1: Average estimated consumption FY 2017 Sourced from PPAC and other published sources


Table 2:

Current Scenario – Real Challenges & Potential Solutions

Liquid FuelReplacement: To address pollution in cities, a multi -pronged solution is needed wherein we incentivize NG usage for mobility, heating and lighting requirements in and around city areas. We have to build up a world-class digitally connected public transport system with end mile connectivity running on natural gas.Usage of personal vehicles during peak hours on weekdays should be heavily dis-incentivizedto encouragepeople to use public transport.All emergency service vehicles (ambulances, police, fire brigades) fueled on NG needs to be available in abundance.

CGD Infrastructure: Another issue is regarding CGD infrastructure. One ready-made solution is to use those petrol stations (out of the 60000-odd existing petrol stations in India) that are located in and around cities. Retrofitting CNG/LNG in petrol stations is possible in a space efficient modular set up. This addition of LNG/CNG would provide additional fuel choices to consumers and a revenue stream to retailers. This will enhance the revenue generation per square feet for the petrol outlets that are facing viability issues in and around cities due to falling revenues and higher alternative value (HAV) for land.

Pipeline Infrastructure: One of the key challenges is the infrastructure bottleneck. While India needs 30000 KM of pipelines, we only have only 15000 KM today, and that too utilized at less than 40% capacity. There are two solutions: one based on economics and the other on technology. Viability Gap Funding (VGF) on the lines of National Highway Authority of India (NHAI) provides a good solution to de-risk the investors from capacity utilization risks and paves the way for a speedy building-up of infrastructure.

The second solution isTechnology based and is normally known as 'LNG at door step or modular LNG' or 'distributed LNG'. 'Distributed LNG' doesn't need pipelines (regasification terminal is optional), as LNG is transported in modular sized cryogenic ships and then directly off-loaded in into tank trucks that carry it on roadright up to the customers who are provided with(third party owned) in-situ LNG storage facilities. The Distributed LNG module can serve as an intermediate solution and support market development that would complement pipeline utilization as well as extend the reach of natural gas to those cities that are not connected by pipelines.


Figure 1

Bidding Process: In some corners, regulatory framework has drawn flak on the bidding process and the outcome it has yielded. Bidding parameters should be focused on rewarding quantum and speed of committed CGD infra and less on economics which has driven bidders to quote ridiculous rates leading to logjam. PNGRB policy initiatives focusing onTechnical & Financial Capability, rationalization of Geographical Area (GA), extension of exclusivity period, access to third party and connectivity are a step in the right direction . The bidding criteria should focus on a work program with incentives to complete on or before time. There should be a performance bond to act as deterrence for any deliberate delays.

Availability: Any priority allocation or concessions in bidding create distortions in development of gas markets. The CNG, industrial and commercial segments compete with non-subsidized liquid fuels which are market priced and gas availability at market rates will ensure efficiency. Empirical evidence suggests that the incentive for providing low priced domestic gas for the PNG and CNG sectors is not resulting in the intended network expansion. Further, the gas in the PNG and CNG sector competes with non-subsidized diesel and LPG providing CGD operators with "windfall profits" and a perverse incentive to limit the network expansion of low priced domestic gas. Therefore, the incentive of priority domestic gas allocation must be phased out and be replaced by an incentive mechanism which promotes greater network expansion and customer service.

Affordability: It is vital that there is uniformity of tax structure across all states w.r.t. VAT - input tax credit and early inclusion of natural gas into GST regime as competing fuels like LPG, FO, etc. are already under GST. Further, there needs to be a form of carbon levy on polluting fuels to encourage adoption of clean fuel, especially in urban areas to address local air quality concerns. Fostering supply side competition by providing fair and non-discriminatory access to infrastructure will result in reducing prices.

Conclusion

Policy makers and all the players in the energy sector, NGOs and civil society need to come together and give CGD a serious impetus to provide clean energy within the next couple of years. Having a vision of developing a gas based economy is just the start. The key is to ensure legislation, policy, regulations and taxation leversare used in concert to align with the stated vision.It is no longer a matter of options- clean energy has now become an imperative and CGD is a proven, feasible solution that can implemented right away.