Past, Present and Future of City Gas Distribution in India
Sanjay Kar
Head - Department of Management Studies
Rajiv Gandhi Institute of Petroleum Technology

City gas distribution (CGD) serves as an energy circulatory system in a city. Developed countries have well developed infrastructure for distribution of natural gas within cities. Primary reasons for better development of city gas distribution are availability of natural gas and government's willingness towards green fuels like natural gas. Most of the European countries have quite robust city gas distribution system; even Asian countries like Japan, China, South Korea, and Pakistan have done remarkable progress in this field. In comparison, India remains far behind its neighbours in terms of city gas connectivity and natural gas distribution. This article throws insights into city gas distribution progress, challenges, opportunities, and future scope. Further, this article discusses enablers of CGD growth and highlights strategic actions for faster transition to gas based Indian economy.

In the past, gas available at through away prices was not considered worthy of developing gas market in some of the resource rich places in India. Natural was then considered just as a byproduct with limited usability. However, now scenario has changed and natural gas is considered to be one of the precious commodities. Today availability of natural gas at competitive price holds paramount importance for growth and development of city gas distribution in the country. Some cities like Delhi and Mumbai saw unprecedented growth of natural gas use owing to judicial interventions. Whereas some industrial towns/cities like Morbi, Thangargh, and Surat saw natural growth primarily due to favourable factors like availability of pipeline network, LNG terminal, and active involvement of state government.

Further, formation of Petroleum & Natural Gas Regulatory Board (PNGRB) through the Petroleum & Natural Gas Regulatory Board Act, 2006 was intended to fast track expansion of city gas distribution beyond metros and industrial towns. Currently 38 cities or geographical areas (Table 1) are authorised by PNGRB under Regulation 5 of PNGRB (Authorising entities to la , build, operate or expand city of local natural gas networks, 2008) regulations for laying, building, operating or expanding CGD network.

Since 2008, over six rounds of CGD bidding the Regulator received mixed responses. The Regulator as well as the entities is going through the learning curve. The regulator has been constantly evolving to maintain fair competition and protect interest of all the stakeholders. In the process many important regulations like Authorising entities to lay, build, operate or expand city or local natural gas distribution network 2008, Exclusivity for city or local natural gas distribution network 2008, Code of Practice for Quality of Service for City or Local Natural Gas Distribution Networks 2010, and Access Code for City or Local Natural Gas Distribution Networks 2010 have been introduced.

Considering response to the first round of bidding and success rate the Regulator anticipated greater response during the subsequent rounds of CGD bidding. Unfortunately, responses to subsequent rounds of bidding were not quite successful as compared to the first round. For an instance, the 6th Round of bidding invited bids for almost 6 times of geographical areas (GAs) offered in the first round, but number of GAs authorised was the same.

It is visible that there is a quantum jump in number of GAs available for bid but there are hardly any takers for some of the GAs. Entities are certainly looking for commercial viability of GAs on offer and devising their bidding strategies accordingly. Based on their strategic intent entities are willing to pay higher performance bond (Table 2) for better business potential in the GAs.

Also, PNGRB accepted Central Government authorisation for 17 CGD networks under Regulation 5. Fur ther, under regulation 18 (1) PNGRB accepted authorisation of 10 CGD networks authorised by State Governments. For all practical purposes 65 CGD networks received authorisation from the PNGRB. However, all of them are not operational as some of the GAs are under project planning/development/implementation stages. Many of the GAs are yet to achieve their milestones declared during their bidding stage.

Already operational CGD networks are providing access of clean fuel without any hassle to thousands of domestic, industrial, and commercial customers across the country. As of September 2015, close to 30 lakh domestic customers were getting benefit of domestic piped natural gas connections across the country. Distribution of these connections were highly skewed as Gujarat contributed 48 percent of these connections followed by Maharashtra (29 percent), Delhi/NCR (20 percent), and the rest of around 4 percent shared by 7-8 states. States like Odisha and Bihar don't have CGD foot prin , whereas states like West Bengal has rudimentary network. Similarly in case of industrial and commercial customers, Gujarat is far ahead of any other states with dominating share of 65 per cent and 72 percent respectively.

Over a period of time and six rounds of CGD bidding the Regulator is constantly trying to improvise on selection of CGD network, bidding criteri , selection process, bid bond, and monitoring process. Progress of CGD developments has been rather slow, which could be ascribed to many factors including shortage of domestic gas, high price of imported liquefied natural gas (LNG), lack of pipeline connectivity, delay in project execution, and legal entangle.

Despite various bottlenecks the regulator is constantly striving to expand CGD footprint across the country. Recently on 31 March 2016, under the 7th Round the PNGRB invited bids for 11 proposed smart cities. Subsequently, after receiving feedback/comments from various stakeholders 6 smart cities namely Bhubaneswar, Jabalpur, Vishakhapatnam, Coimbatore, Guwahati, and Chennai excluded from the actual list and rest five cities namely Jaipur, Solapur, Davanagari, Udiapur, and Bhopal went for bidding. This is an indication that there is lot of work to be done for identifying cities or geographical areas having realistic chance of getting serious bidders.

It is pertinent to note that lack of availability of domestic gas and high price of LNG impacted penetration of natural gas in the country. Major demand drivers of natural gas in the country are industrial and transport sectors, which show high level of resistance to upward price revision and explore competitive alternative fuel. In the past, subsidised diesel negatively impacted higher consumption of natural gas in the transport sector. Similarly, highly cost competitive coal adversely impacted penetration of natural gas in various industries. However, the competitive fuel like coal has greater negative impact on environment. Possible consideration of other externalities would make natural gas more cost competitive compared to coal.

Natural gas has been successfully marketed in states like Gujarat, Maharashtra, and Delhi. Such success could be replicated other parts of India. Future of city gas distribution is quite promising in the country because the Government, Regulator, and Entities are very much charged to transform this sector. The Hon'ble Minister of Petroleum & Natural Gas has been quite proactive and moving state machineries with a sense of urgency. Be it domestic policy reforms or international oil diplomacy one could see the strategic intent of the Government. The domestic natural gas production has been the prime subject of discussion over several years primarily due to linkage of pricing and cost recovery mechanism. Recently introduced Hydrocarbon Exploration Licensing Policy (HELP) is expected to address the pricing concerns of the prospective investors; therefore greater amount of investment in exploration and production activities is anticipated. If this happens, production level of natural gas is bound to increase again. This would certainly augment domestic supply and spur demand in CGD sector. In addition, import through TAPI pipeline would reduce demand-supply gap. Further, future import of Iranian gas through pipeline or LNG could play a significant role in transforming CGD sector in India.

Future of growth natural gas market in India would depend on success of HEL , expansion of LNG infrastructure, timely completion of under construction cross- count y natural gas pipelines, improved capacity utilisation of existing pipelines, domestic gas allocation policy, and timely completion of authorised CGD networks. Considering increasing demand for natural gas and falling domestic production, LNG import is bound to go up in the future. Figure 1 suggests that LNG import has been constantly increasing in India since 2012-13. Whereas Figure 2 confirms that net availability of domestic natural gas has been declining since 2011-12.

India's CGD sector needs transformation from slow growth to rapid expansion. To achieve much needed transformation it is better to realise that there are very little alternatives available than sourcing natural gas at competitive price from the global market. The Regulator aims to targets to offer bids for developing CGD in 51 remaining smart cities in the near future. Currently about 102 cities/geographical areas are either directly connected through natural gas pipelines/natural gas sources or in close proximity of the same are target for CGD developments. Further, additional 126 GAs are potential candidates for CGD bidding as they are expected to be connected to upcoming/under-construction natural gas pipelines in the near future.

During the course of transformation, the sector could face multiple challenges including shortage of skilled manpower at all levels starting from conducting feasibility studies to day-to-day maintenance of operational CGD network. The Hydrocarbon Sector Skill Council along with the sector specific institutions like Rajiv Gandhi Institute of Petroleum Technology, PDPU, IIPE, UPES, etc. could play important role to address emerging manpower skill gap by conducting suitable short term training and skill development programs. Further, there is a very strong need for developing platform to link academia, think-tanks, industry, regulatory body, and the government to share potential problems of the sector and possible solutions .

It is fair to conclude that Indian natural gas market is moving in the right direction. Irrespective of domestic gas production or availability, the country should target to develop Pan-India natural gas network connecting each and every potential geographical areas to improve natural gas accessibility and availability. Affordability being dependent on market forces, so all parameters need to be carefully evaluated to increase natural gas penetration in India.