The City Gas Distribution (CGD) projects in India are emerging as an important driver for overall natural gas value chain development. The new bidding parameters, diversity & vastness of the notified geographical areas and government’s push for a natural gas fuelled nation are indicating towards an enhanced enthusiasm in the upcoming bidding round.
However, a major challenge for both experienced bidders and new entrants alike is the development of a robust demand assessment model (baseline and forecasted demand), network layout, technical configuration/simulation and most importantly a bottom-up assessment of viable CNG station location.
As experienced before, the biggest ask of bidders (and consultants supporting these bidders) is the limited timeframe for conducting the assessment and putting together a robust strategy for a winning bid.
This report offers CGD industry stakeholders a strategic insight on the potential & viability of the notified individual geographical areas.
India has sustained a strong economic growth, above 7% mark, since 2014 surpassing China and emerged as a high economic growth nation amongst other emerging and developing economies in the world.
In 2016, India registered a 7.1% y-o-y growth in GDP at Constant Price, whereas, China stood at 6.7%. The GDP growth average of emerging and developing economies in the world was 4.3% (2016). In absolute terms, India’s share of Global GDP (at current prices, USD Bn) was 3% (India: ~2,264 Bn USD and World: ~75,368 Bn USD).
At an impressive 5.1% CAGR (2010-2016), India’s primary commercial energy growth testifies the need for energy (actual ~724 MTOE, 2016). Natural Gas (actual ~45 MTOE, 2016) has a number of economic & environmental merits and is also endorsed the government.
India’s commitment towards clean energy and carbon reduction offers a tremendous adoption potential for natural gas by targeting Oil (multiple drivers & incentives for switching over to gas) and Coal (mostly policy push) - Both having major share in India’s total primary commercial energy consumption.
India has been registering a sustained growth in terms of demand for natural gas and its outlook towards sourcing LNG from global supply destinations has been nothing less than promising. The positive sentiments around India’s LNG adoption and a key market received a significant push when India (at COP 21, Paris) committed to reduce its carbon intensity by a third from 0.37kg per capita of GDP in 2005. All the same, the government’s plan to double the share of natural gas in India's energy mix - from 6.5% in 2015 to 15% over the medium term goes well with the positive perception of India’s outlook towards developing its gas market.
Strong alternate fuel segment consumption growth and regulatory & policy push for City or Local Gas distribution projects by GoI/MoPNG gives significant leverage to future natural gas penetration via CGD, RLNG Terminals and Gas Pipeline.
India’s natural gas consumption is currently driven by the CGD. MoPNG has accorded priority to PNG (Domestic) and CNG (Transport) segments of CGD sector in domestic gas allocation. At present, domestic gas is being supplied to meet entire requirement of CNG (transport) and domestic PNG segments based on last six-monthly consumption data by the respective CGD networks. Further, Government has envisaged to connect One crore households with PNG supplies for cooking purpose by 2020. It has also been envisaged to expand the coverage of CGD networks in addition 146 GAs in coming years. Guidelines have been issued for allowing the development of PNG network into defence establishments across the country. Further, Public Sector Undertakings have been advised to have the provisions of PNG in their residential complexes.
Despite the regulatory control on the consumption of polluting fuels (Ban on consumption of Furnace Oil and Petcoke in North Indian states), strong growth in alternate fuels are a good indicator for industrial growth. Alternate fuels in transportation sector also showed a healthy trend which makes a strong case for CGD led investments in the country.
The upcoming CGD Round IX Bidding is different from the previous rounds not just in terms of a change in bidding guidelines and evaluation parameters, but also, in terms of the magnitude of the geographical areas and the way these projects are uniformly covering all regions of the country.
As on December 2017, nearly 31 CGD entities are developing CGD (PNG & CNG) network in 81 geographical areas (mostly on Northern, Western and Southern region) in 21 States/Union Territories. A total number of 32,500 industrial and commercial units are currently connected on a PNG network and around 1,282 CNG stations are established overall in India, according to various public domain sources. Interestingly, of the total 107 geographical areas identified (from CGD bidding round 1 - 8) only 51 geographical areas (roughly 50%) were finally awarded to successful bidder.
It is important to note that while most of the existing CGD projects are state or PSU run, the last eight rounds have also witnessed winning bids from private sector players such as Adani, Sanwariya, Jay Madhok, Mahesh Resources, Megha Engineering, Unison, IRM Energy, Perigon Infratech and IMC limited. All the same, unlike previous round, the CGD round IX bidding includes geographical areas marking each region of the country. The round IX announced list includes 86 geographical areas covering 156 complete districts and 18 part districts.
1. Executive Summary
2. Analysis of Existing CGD Projects in India
a. Evolution of CGD projects in India, based on:
i. CGD projects awarded on nomination basis: Basis of formation, Entity Structure, etc.
ii. CGD projects awarded on competitive bidding basis: Basis of selection, Performance till date, etc.
b. Overview of entities & stakeholders engaged in CGD business in India and their positioning on the CGD business life cycle;
c. Gas consumption trend of existing CGD projects
i. Entity wise; and
ii. Region wise
d. CGD infrastructure of existing CGD projects
i. Entity wise; and
ii. Region wise
3. Executive Analysis of previous PNGRB Bidding Rounds
a. Scale and number of Geographical Areas in each of the previous bidding rounds
b. Profile of interested bidders and bidder strength (nos.)
c. Bidding Trend - How did the winning bid looked like?
d. Time scale - Gap between each stage from notification of GA to letter of authorization
4. Business Performance of Existing CGD Projects: Business Environment, Business Models, Growth Drivers and Strategies adopted by key CGD entities in:
c. GAIL Gas
e. Gujarat Gas
5. Critical Elements of a CGD Project - Infrastructure, Gas Sourcing, Market Base, Investments, Retailing & Marketing
i. Sub-Transmission Pipeline;
ii. City Gate Station;
iii. Odorization System;
iv. Carbon Steel Main Ring;
v. Field Regulating Station;
vi. CNG Station & Compressors;
vii. Piped Natural Gas;
viii. Last Mile Connectivity; and
b. Natural Gas Sourcing
i. Factors influencing the Natural Gas Sourcing mix;
ii. Issues & Challenges in Natural Gas Sourcing
c. Market Base
i. Consumer segmentation;
ii. Consumer categorization based on potential demand criticality
iii. Ranking based on affordability level/switch over potential of consumer segment;
d. Investments (Capital Cost of the project)
i. Listing of Capital Cost items;
ii. Break-up of capital cost into material cost and implementation cost;
iii. Capital outflow trend over the life of a CGD project;
e. Natural Gas Retailing & Marketing
i. Approach for competitive pricing of CNG and PNG;
ii. Measures for market penetration and conversion;
iii. Measures for early realization of returns and demand ramp-up;
6. Expert level commentary on CGD regulations (Focus on Bidding)
a. Evolution of regulations and bidding parameters
b. Underlying reasons for frequent changes in regulations for bidding
c. Snap-shot of CGD Round IX Bidding Regulations
d. Highlighting key concerns of the stakeholders on the regulations for CGD Round IX bidding
7. Analysis of IX Round CGD Projects (All 86 Geographical Areas discussed individually)
a. Introduction of Geographical Area
b. Geographical Area profiling
i. Industrial Area Profile
ii. Demand Clusters
iii. Population Density
iv. Major Roads & Highways
c. Natural Gas Connectivity
i. Status of nearest natural gas pipeline
ii. Details of gas pipeline in proximity of the GA - Pipeline name, entity, capacity, diameter, utilization, etc.
iii. Proximity of any existing CGD project
iv. Proximity to nearest RLNG terminal
v. Details of RLNG terminal - Operating status, capacity, utilization, entity
d. Growth trend of alternate fuel consumption in the district (FO, LDO, HSD, LPG-Bulk, LPG-Packed, Naphtha, Auto LPG, etc.)
e. SWOT analysis
8. Demand Potential of Round IX Geographical Areas: Baseline and 20 Year Projection
a. Present baseline demand based on alternate fuel consumption and potential to convert
b. Analysis of historic growth trends
c. Projected consumer segment wise demand potential - 5, 10, 15, 20 and 25 year projection
d. Highlighting key demand driver for the geographical area
e. Geographical Area wise summary & ranking of natural gas demand potential
9. Infrastructure requirement for Round IX Geographical Areas
a. Assessment of peak demand of the overall CGD network
b. Assessment of peak demand for each consumer segment
c. Sub transmission pipeline requirement and length & diameter
d. Major infrastructure sizing: gas connections, CNG compressors, MDPE, CS Pipeline, pressure reducing skid, etc.
10. Capital and Operating expenses for Round IX Geographical Areas
11. Outlook on overall project feasibility (Go/No Go) for Round IX Geographical Areas - Considering parameters such as:
a. Technical parameters: Terrain, Urbanization, Execution bottlenecks
b. Financial parameters: Overall capital and operating expenses
c. Market parameters: Gas sourcing, Gas offtake potential and revenues
12. Unlocking investment potential for major CGD stakeholders from the upcoming round IX bidding:
a. Investment opportunities in CGD projects as a CGD entity enjoying marketing and infrastructure exclusivity
b. Opportunity for Gas Pipeline Manufacturers in terms of pipeline requirement
c. Opportunity for Equipment Manufacturers: Critical assets such as CNG Compressor, Pressure Reducing Skid and CNG cylinder
d. Opportunities for Project Management Companies for CGD network PMC work
e. Opportunities for IT Companies: Scada & Automation
List of Tables & Figures