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Gas Business In India

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Gas business in India

August 27, 2009

Submitted to Dr.Subrat Sahu

Submitted by Sparshy Saxena (20081035)

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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
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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) Industry structure of the gas verticals

2) Legal and regulatory aspects of the business, with the effective governmental intervention
3) Pricing methods and structures
4) Present market and infrastructure positioning and statistics among the existing players
5) 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.
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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)

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

demand
● ● ●
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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.
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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.

REPLACEMENT
MARKET
Threat : Possible
Numbers : Few Players on the
buyers and sellers market Sources : Renewable sources like
Nuclear and Hydro power
Ownership : State owned
majors, Presence of Foreign JVs Pitfall : Heavy Capital investment
and costlier end -use

FREEDOM
INTENSITY Regualtions : Heavily regulated,
Industry : Capital Intensive and Intense Government
turn key 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.
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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.
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Production Share
100
90
80
70
Percentage

60
50 Government
40
Private
30
20
10
0
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 Block- Area Quantity of Reserves

ONGC KG-DOWN-98/2 (Off the coast 22 Tcf (estimated)
of Andhra Pradesh)
GS-15-OA (Off the coast of 4 new gas finds of unknown
Andhra Pradesh) quantity
Mahanadi basin (Off the coast of 4 Tcf (estimated)
Orissa)
Mumbai High Fields
GSPC KG-OSN-2001/3 (Krishna 1.8 Tcf (estimated)
Godavari basin)
Reliance Industries Limited KG- D-6 (Krishna Godavari 11.5 Tcf (estimated)
basin)
Reliance + BG International Tapti (Off Mumbai High)
Panna (Off Mumbai High)
Mukta (Off Mumbai High)

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.
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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.
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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)
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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.
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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 : Rs.3,600/MSCM
OIL : Rs.4,040/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.
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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.
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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 :

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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%)

Malaysia (1.4%)
Oman (0.5%)
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.
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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
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The various players in place for the current LNG imports are as follows;

Company MMTPA Location Contract

Petronet LNG 5 Dahej Long term – till 2027
Shell 2.5 Hazira 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 Location MMTPA Supplier Progress

Petronet LNG Dahej 5 Ras Laffan, Qatar Under construction
(Expansion)
Ratnagiri Gas Dabhol 5 Ras Laffan, Qatar Under construction
Petronet LNG Kochi 5 Ras Laffan, Qatar Bidding
(Current)
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. Long-
term growth in demand for LNG remains unclear however, as price is an issue of contention in India and increasing domestic
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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 long-
term 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.
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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%.
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Transportation
Domestic pipeline network
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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 1070
Grand Total 9233
Table 9: Pipeline Network
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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.
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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 Length (Km) Design Capacity (MMSCMD)

Kelaras-Malanpur 95 2
Thulendi-Phulpur 139 2.8
Vijaipur-Kota 192 3.47
Jagoti-Indore-Pithampur 92 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 of Design Capacity Length (Km) of AVG Present Flow

Network (MMSCMD) Trunkline (MMSCMD)
GSPL Regional 22 1070 12-14
AGCL/OIL Regional 6-8 500 5.0
RGTIL EWPL 120 1400
Trunkline
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-Himmatnagar-
Mehsana-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 Distance (km)

Paguthan-Baroda 83.5
Baroda-Ahmedabad-Kalol 143
Mora-Sajod 58
Kalol-Himmatnagar 63
Kalol-Mehsana 40
Anand-Rajkot-Morbi 290
Mora-Vapi 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.

RGTIL-Kakinada-Basudebpur-
1. Orissa: Bhadrak, Baleshwar and Mayurbhanj.
Howrah
W.B.: East Medinipur, West Medinipur, Howrah and Hugli

Approximate length = 445km.

Andhra Pradesh: Krishna, Guntur, Prakasam, Nellore,

2. RGTIL-Vijaywada-Nellore-Chennai
Chittoor.
Tamil Nadu: Thiruvallur and Chennai.
 27

Approximate length = 670 km.

Tamil Nadu: Thiruvallur, Vellore, Kanchipuram,

Tiruvannamalai, Vilupuram, Salem, Namakkal, Karur,
3. RGTIL-Chennai-Tuticorin
Dindigul, Virudunagar, Tuticorin, Tirunalveli,
Ramanathapuram, Erode, Coimbatore, Dharmapur and
Sivagana.

Approximate length = 660 km.

Tamil Nadu: Thiruvallur, Vellore, Krishnagiri.

RGTIL-Chennai-Bangalore- Andhra Pradesh: Chittoor.
4.
Mangalore Karnataka: Kolar, Bangalore Rural, Bangalore, Tumkur,
Mandya, Mysore, Hassan, Chikniagalur, Dakshina
,Kannada.

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

5. GSPC Districts: Jamnagar, Junagarh, Navsari-Valsad,

Banaskantha, Bhavnagar

Approx: 300 km, Capacity: 6 MMSCMD, Local network

6. OIL/AGCL 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 an-
Pakistan-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 gas-
based 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

2007-08 2008-09 2009-10 2010-11 2011-12

Gas Demand (MMSCMD) 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

Safe and assured supply of gas to domestic,

1. Economical
commercial and industrial sectors

a. Cheaper than conventional fuel Convenient to use

Economically more viable compared to other fuels
b. Pay back period is short
in same sector

2. Technical No traffic disruption as supplied through pipelines

Very high antiknock power (more than 120 ON) allows greater
a. Continuous supply
performance compared to petrol one
No wastage, no under weight cylinders, no hassle
Does not require refining plant or additive adding and can be
b. for replacement of cylinder, no need for cylinder
used immediately after its extraction
booking

No advance payment for consumption of gas,

It has no evaporation leaks and spills of fuel, both during
c. billing will done in once in two months based on
refueling and feeding of the car
consumption
 32

Its combustion produces a very low quantity of carbon deposits

d.
(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

Average Daily running Cost of Annual Savings Payback Period

Type of Vehicle
(Km) Conversion (Rs) (Months)
Car/Taxi (Petrol) 150 40,000 97,282 5
Three Wheeler
100 18,000 38,912 6
(Petrol)
Bus (Diesel) 200 4,00,000 1,72,216 28
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 converted to CNG From Qty of Petrol & Diesel Replaced Forex Savings
Petrol/Diesel (TMT) (Cr)
20 17019 25,886
50 42548 64,715
75 63822 97,072

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. Body Corporate or Company registered under the Companies Act

b. Should have a credible plan for sourcing of natural gas
c. 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
d. 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. Rs 8-12 lakh as fee depending upon population of the city (non-refundable)

b. Geographical area of the city to be covered in the business plan
c. Market potential of Compressed Natural Gas (CNG) for Automobile/Piped Natural Gas (PNG) for
domestic consumption/industrial consumption
d. Likely business plan without divulging business secret
e. 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. 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)
b. Bid Bond (Rs 0.5 crore to Rs 5.0 crore depending upon population of the city)
c. Credible Gas Sourcing Plan
d. Detailed Technical Plan
e. 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. 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.
b. 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.
c. 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).
d. 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.
e. Service Obligations: The authorized entity has the following service obligations:

i. Provide domestic PNG connection as per the bid

ii. Lay and build steel pipeline as per the inch-kilometer bid
iii. Reach all areas or wards in the authorized area through pipelines of adequate size to meet the
demand of the consumers
iv. 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

f. 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. 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;
b. the confidentiality of customer information collected in the course of providing CGD service is maintained;
and
c. 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. JVC Area of Operation

No
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. JVC Area of Operation

No.
1 Adani Energy Limited, Ahmedabad
2 HPCL Ahmedabad
3 Vadodara Mahanagar Seva Vadodara
Sadan
4 GSPC Rajkot, Morbi, etc.
5 Assam Gas Company Limited Duliajan, Digboi, Tinsukia, Dibrugarh, Naharkatia, Moran, Nazira,
Sivsagar etc.
 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
ONGC Colony at Mehsana
5 1982-86 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.
Gandhinagar, Kadi,
13 2006-07 Mehsana, Rajkot, Morbi, GSPC Gas/Sabarmati Gas
Vapi
14 2006 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.
Gujarat Hazira, Rajkot, Surendranagar GSPC Gas
Vadodara VMSS
Gandhinagar Sabarmati Gas
West Great Eastern Energy Corp.
Asansol
Bengal Ltd.
Duliajan, Digboi, Dibrugarh, Moran, Naharkatiya, Sivsagar, Nazira,
Assam Assam Gas Company Ltd.
Simaluguri, Tinsukia

As per February 2009, the status of City Gas Projects in India is as follows:
 38

Geographical GAs (Under

S. No. Entity 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
Maharashtra Natural Gas Company Ltd.
7 1 - 1
(MNGCL)
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) 1
18 Haryana City Gas 1 1.2 3
19 Assam Gas Company Ltd. (AGCL) 1.4 4
Great Eastern Energy Corporation Ltd.
20 2 2
(GEECL)

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)

Projected
No. of Potential
State Demand Projected Investment (in Rs/Cr)
Cities
MMSCMD
Andhra Pradesh 37 5.02 2510
Assam 8 5 2500
Bihar 17 1.91 955
Punjab & Himachal
13 3.66 1830
Pradesh
Haryana 17 2.61 1305
Gujarat 25 19.16 9580
Jharkhand 5 0.5 250
Karnataka 26 3.89 1945
Kerala 14 2.52 1260
Madhya Pradesh 5 0.97 485
Maharashtra & Goa 12 8.08 4040
Orissa 6 1.28 640
Rajasthan 4 1.67 835
Tamil Nadu 28 5.95 2975
Uttar Pradesh &
31 7.5 3750
Uttarakhand
West Bengal 50 4.62 2310
Total 298 74.34 37170

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 Geographical Areas

By 2010 85+
By 2013 125
By 2018 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
Avg. Gas Sales
Avg, CNG Avg. Gas Sales Total Sales
Cities Company Commercial &
Gas Sales Domestic (MMSCMD)
Industrial
Delhi IGL 1.692 0.047 0.103 1.842
Mumbai 1.036 1.464
Thane 0.080 0.080
MGL 0.165 0.263
Mira Bhayandar 0.033 0.033
Navi Mumbai 0.006 0.006
Pune MNGL 0.000 0 0 0.000
Kanpur 0.054 0 0.054
CUGL 0
Barrielly 0.005 0 0.005
Lucknow 0.054 0 0 0.054
GGL
Agra 0.034 0 0.037 0.071
Vadodara GAIL 0.040 0 0 0.040
Vijayawada 0 009 0 0 0.009
BGL
Hyderabad 0.005 0 0 0.005
Agartala TNGCL 0 003 0.013 0.009 0.025
Lndore AGL 0.000 0 0 0.000
Surat Bharuch &
GGCL 0.15 0.090 3.850 4.090
Ankleshwar
Ahmedabad AEL 0.2 0.011 0.190 0.401
Gandhinagar SCL 0.04 0.002 0.012 0.054
Total 3.441 0.3286 4.464 8.2336
 41

Gas Supply to CGD Projects (As in April 2009)

Estd. Addl. Best

CGD Projects Cities
Demand Endeavour
(MMSCMD) 2009 Basis-2009
Delhi, Noida, Gurgaon, Faridabad & Greater
IGL 0.20 0.20
Noida
Mumbai, Navi Mumbai, Thane, Mira
MGL 160 1.60
Bhayander
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 0.04 0.04
Proj.
Total 4.03 4.03
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