City Gas Distribution - 1
What is city gas distribution?
An integrated network of steel, PE/ MDPE pipelines including city gate, CNG
stations & related infrastructure for supply of natural gas in identified geographical
area (*) over economic life of project (25 years) to -
automobiles as CNG &
residential customers, industrial & commercial segments with volume
requirement of < 50,000 SCMD as piped gas
(*) geographical area shall be decided by PNGRB based on principle of
contiguity (economics by geography) through open seasons process
CGD network (#) is further divided into charge areas, where each charge area is a
convenient sub-set network of pipelines to reach all individual customers
(#) concept similar to Local Development Zone (LDZ) in developed economies
Typical geographical area of a proposed CGD network
Geographical area demarcationregulatory challenge
CA 2
CA 2
CA 1
CA 3
CA 1
CA 4
CA 4
CA 5 Vs
CA 11
CA 10
CA 9 CA 3
CA 5
CA 6
CA 7 CA 6
CA 8
objectivity in earmarking geographical service obligations
area & carving of charge areas would
decide competition post-exclusivity
quickness in infrastructure built-up would eventually guide viability of
CGD network, corresponding bidding
ability to service customers interest as well as protection of
consumer interest
investment levels
Why City Gas Pipeline Network?
Benefits of using natural gas through City Gas Pipeline Network -
Environment friendly relatively lower emission of Green House
Gases
Enhanced convenience
Higher reliability uninterrupted supply
Higher safety
Economical compared with LPG (cooking fuel), petrol & diesel
(automobile fuel), naphtha & fuel oil (industrial fuel)
Fuel Replacement
How ?
Through pipelines PNG
Through dispensing stations CNG
Delivery point ?
PNG : at outlet of meter/ regulator near burner
Pressure : 4 bar, 1 bar, 20-35 millibar
CNG: at dispensing station into cylinder
Pressure : 160 190 bar
Creation of a City Gas Distribution Network
Step 1 Market Survey
How to go about it ?
Establish present & future projected demand of gas in each sector :
Potential segments - automobile, industrial, commercial & domestic
Willingness of customer in natural gas conversion viewing
Convenience
Ease of operation
Price of existing fuels vis--vis natural gas
Associated gas connection deposit
Conversion or replacement costs
Stringent pollutions control norms being stipulated by State & Central
Government
Step 2 Route Selection
How to go about it ?
Assess availability of gas supply & develop system design for providing
facilities at tap-off & City Gate Station:
Shortest length of grid pipeline
Minimum rail, major road & river / major canal crossing
Availability of space for right of way
Avoiding HT transmission lines
Minimum ecological impact
Availability of infrastructure facility e.g. land, electricity, water, etc.
for SV stations, CNG stations & DRS
Step 3 Locating CNG Stations
How to go about it ?
Selection Criteria for CNG Mother Stations(*) location:
Location along highways, free ways, etc. near city for
maximum utilization of CNG filling stations
Likely availability of plots of adequate size
Proximity to proposed Daughter Booster Stations & city
bound traffic
(*) Mother Station: Mother stations are connected to pipeline & have high compression
capacity. These stations supply CNG to both vehicles & daughter stations (through
mobile cascades). Typically they have facility of filling all types of vehicles & require
heavy investment towards compressor, dispensers, cascades, pipelines, etc.
How to go about it ?
Selection Criteria for CNG On-line Stations location:
Location at populous centres of city
Availability of sufficient area at existing petrol / diesel retail outlets
Willingness of existing petrol / diesel retail outlet owner to install CNG
stations at his premises
Online Station: CNG vehicle storage cylinders need to be filled at a
pressure of 200 bars. On line Stations are equipped with a
compressor of relatively small capacity, which compresses low
pressure pipeline gas to a pressure of 250 bar for dispensing CNG to
vehicle cylinder. Investment in an online station is midway between
daughter station & mother station
How to go about it ?
Selection Criteria for CNG Daughter Booster Stations
location:
Location at populous centres in city located away from main grid
line
Availability of sufficient free space at existing petrol/ diesel retail
outlets
Willingness of existing petrol/ diesel retail outlet owner to install
CNG stations at his premises
Willingness of enterprise to setup Daughter Booster Stations on
wet lease or Build-Own-Operate (BOO) basis
Daughter Booster Station
Daughter Station:
Daughter Station dispense CNG using mobile cascade, which is replaced
when pressure falls & is refilled at Mother Station. There is reduction in
storage pressure at daughter stations with each successive filling. Once
storage pressure drops, the refueling time increases, while quantity of CNG
dispensed to vehicle also decreases
Daughter-Booster Station:
Installing a booster compressor can eliminate drawbacks of daughter
stations. Mobile cascade can be connected to dispensing system through a
booster. Daughter booster (compressor) is designed to take variable
suction pressure & discharge at constant pressure of 200 bars to vehicle
being filled with CNG. Investment in daughter booster station is slightly
higher than that of daughter station
Step 4 Safety Measures
How to go about it ?
Selection Criteria for Sectionalizing Valve (SV) Stations
location:
Location must be one that allows continuous access to valve
Inter distance between two valves to be about 2.5 kms
Conservation of gas
Time to blow down isolated section
Continuity of gas service
Expected future expansion between two sectionalizing valves
Operation and security of the line
Availability of plot of minimum size 5m X 5m
How to go about it ?
Selection Criteria for District Regulatory Stations location:
Location must be at those residential & commercial areas with
potentially maximum conversion
Easy & convenient accessibility
Continuity of gas service
Availability of plot of adequate size
Step 5 Statutory Approvals
Approvals
Approvals
Central Govt. State Govt. Other
Provisions of Petroleum Rules 2000 Statutory/
Provisions in the proposed Regulatory Bill Regulatory
Provisions relating to Central / State Acts/Rules
CCOE
NHAI
Mandatory OISD
Actions Excise authorities
Commercial Tax authorities
Officials / quasi judicial authorities of Labour Dept.
Central Govt.
State Ministries/ Depts. Port
Dept. Authority
Fire
Police
Service
Labour
Railways
Dept.
Permissions
&
Clearances
Defence CCOE
Surface
Revenue Authority
Transport
Shipping
District Magistrate
Area Development
Ministry
Authority
Likely Impediments
Payment Rules Bottlenecks Administrative Issues
Price Fixation for Land Land Availability Coordination
Annual Rent Non Co-operation from Central Ministries
OMCs transport,
Regulatory/
Criterion - Could cooking & industrial fuel
Licensing Authorities
commercial basis be market erosion
a viable option ? State Government
Employment demand
Departments
Demand from Mode of management of
Need for High Powered
CNG outlets
Excise authorities Committee to resolve
Law & Order issues speedily
State Commercial
Tax Authorities Interference from
Traffic police
State Authorities
Judiciary
Important to have a
focused team from Day 1
investment in typical CGD network
Small sized CGD Network
Rs. Crore 18%
33% Common Pipelines
common pipelines 60
CNG compression
CNG compression 17-20
LMC
LMC 70-80 CNG Dispensation
40% 9%
CNG dispensation 33-40
total 180-200
higher sized CGD network capex Rs.300+ crore
typically 70 to 75% of investment shall be during exclusivity period
greater area of CGD network generally implies higher investments in LMC & CNG
dispensation
typical debt-equity structure is 70:30 with overall PIRR of 20% plus
yet due diligence of project risks & competition is must
typical demand profile in small CGD network
demand mix
segment/ year driving factors
3 4 5 6 7
vertical versus horizontal spread, density/ sq.
Domestic 7% 10% 11% 9% 8% km & willingness to pay upfront deposit of
Rs.5,000
Commercial 5% 5% 5% 5% 5% Hotels, mess, canteen & restaurants
Industrial 74% 62% 57% 56% 55% as replacement of FO, LDO & HSD
mandatory conversion to clean fuels, CNG kit
Transport 14% 22% 27% 29% 32%
costs, bus population & traffic pattern
demand typically takes 5 to 6 years to
MMSCMD 0.10 0.13 0.17 0.21 0.23
double & stabilizes thereafter
regulations require gas tie-up of at least
Y-to-Y growth 33% 34% 23% 14% 50% each years estimated demand during
exclusivity period
rapid industrialization & growth due to gas availability to SMEs & distributed power
solutions (gas-based micro CHP) further boosts demand
highly dependent on industrial PNG off- take in initial years
CNG segment grows fast
balanced sales mix 55%:45% in 7th year or so
Gas & Product Pricing Strategies
in nascent stages of development of
CGD Networks, product pricing
strategies expected to be guided by
netback pricing R-LNG at current levels unviable in long-run
given gas price at city gate skewed petroleum product pricing reaps-in
better gas product prices, till VAT loss is
price of alternative fuels sought to be re-cooped
reasonable return on investments function of hurdle PIRR rate, post-exclusivity
commitments
marketing margin
ability to source gas on competitive terms-
post marketing exclusivity, affiliate code of
conduct provisions coupled with unbundling
would effect bundled price advantage
commercial demand least + low
investments + highest margins
internal price pooling - to subsidies &
domestic demand low + huge capex +
cross-subsidies end-product prices
low/ negative margins
possible way-out
Industrial demand high + low capex +
high margins
CNG demand dependent on mandation +
high capex + moderate margins
Typical Netbacks in gas value chain: wellhead to burner tip
$/ MMBTU Rs./ SCM Sales mix
Netback for producer 4.33 7.40
Royalty 0.43 0.74
Wellhead price 4.76 8.14
Transmission cost (Transporters Netback) 1.00 1.71
VAT 0.72 1.23
Price at city gate 6.48 11.09
CGD Network tariff 4.00
Online compression charge for CNG 3.00
Weighted Average Netback for CGD entity (at 90% of current RSP) 7.61
PNG domestic 0.38 5%
PNG Commercial 11.86 10%
PNG industrial 3.55 55%
CNG 14.84 30%
RSP of Alternative products
LPG domestic 17.18
LPG commercial 29.94
FO 20.71
Diesel 36.59
Assuming domestic gas supply in a medium sized CGD network
Typical netbacks in gas value chain: wellhead to burner tip
C GD Ent it y Producer
Producer
40% 40%
Transport er
R oyalt y & Taxes
R oyalt y &
Taxes Transport er
C GD Ent it y
11% 9%
Financial closure in CGD Project
So far, majority of CGD Projects have come up on following patterns:
Co-Promoters (two PSUs- GAIL + BPC/ IOC/HPC) equity stake (each at
22.5%) - 45%
Local state Government equity stake - 5% (ensures speedy approvals)
Balance equity stake to FIs/ Banks 50% (to be divested later when IPO
takes place)
Thus, it is a private company more flexibility in terms of decisions
FIs/ Banks bring in finances upfront in hope of reaping in benefits at the time of
IPO
Equity divestment is done through IPO at premium- IGL IPO was at Rs.25
premium on Rs. 10 equity share- current market price Rs.150 +
Major CGD entities in India
IGL GAIL/ BPCL for Delhi, Ghaziabad, Noida & Greater Noida
MGL GAIL/ BG for Mumbai & Thane
GGCL BG for Surat & Bharuch
SGL BPCL/ GSPC in Gandhinagar, Sabarkhanta
CUGL GAIL/ BPCL for Kanpur
MNGL GAIL/ BPC for Pune
Green Gas Limited GAIL/ IOC for Lucknow & Varanasi
BGL - GAIL/ HPC for Hyderabad, Kakinada
Reliance Gas Company- Yanam
Avantika Gas Limited GAIL/ HPC for Bhopal
Adani small presence in Ahmedabad
City Energy Moradabad
GAIL Gas - Kota, Sonepat, Meerut & Dewas
Many more CGD projects on anvil likely combinations with oil marketing
companies to leverage their marketing infrastructure & retailing skills
Way Forward
D
Date
0
Date
Agreements
Top up
Approvals Approach
Internal & External
DFR, Technology tie-ups
Crack Team, Pre-Feasibility, Identify Key
Factors, Assessing Demand Potential,
Image build-up in favour of NG
Compressed Natural Gas (CNG)
What is it ?
Natural Gas has less energy density as compared to Liquid Fuel & hence
is compressed to over 200 Kg/cm (g) pressure to make it CNG for use in
automobiles
In its natural form, it is colourless, odourless, non-toxic & non-carcinogenic
Non-toxic Natural gas being lead / sulphur free substantially reduces
harmful engine emissions. When natural gas burns completely, it gives out
carbon dioxide and water vapour - the very components we give out while
breathing!
Natural gas is mixed with an odorant to add flavour similar to LPG in a
domestic cylinder to facilitate detection of its leakage
CNG is considered safer than other gaseous fuel like propane (LPG)
because it is lighter than air & may rise into the sky in event of a leak
CNG Filling Station
Typical composition of CNG
Methane 88%
Ethane 5%
Propane 1%
CO2 5%
Others 1%
Benefits of CNG
Green fuel - Commonly referred to as green fuel because of lead free & sulphur free
character
Reduces harmful emissions
Being non-corrosive, enhances the longevity of spark plugs
Due to absence of any lead or benzene content, lead fouling of spark plugs & lead or
benzene pollution are eliminated
Increased life of oils
Dry gaseous fuel does not dilute the lubricating oil, thus saving on oil filters and oil
chargers
Mixes evenly in Air
Being a gaseous fuel CNG mixes in the air easily and evenly
Improves fuel consumption & engine efficiency
When CNG & air in right proportions are brought together, they mix thoroughly &
rapidly, thereby improving combustion efficiency, while engine stays clean internally
Reduces exhaust emission pollution
Benefits of CNG
Safety - CNG has a high auto-ignition temperature (540 degrees
centigrade) & a narrow range (5%-15%) of inflammability. This high
ignition temperature and limited flammability range makes
accidental ignition or combustion very unlikely
Low operational cost - Operational cost of vehicles running on CNG,
as compared to those running on other fuels, is significantly low. At
prevailing price of fuel in Delhi, operational cost of CNG vehicles is
68% lower than petrol & 36% lower than diesel
Reduces demand for finite petroleum supply
Problems with CNG
Driving complaints due to loss of power with CNG - Dynamometer tests
indicate that CNG-fuelled vehicles have 10-15% lower power output
than petrol engines
Increased exhaust-valve wear in CNG-operated vehicles are
anticipated due to drying effect of gaseous fuel
Limited service availability higher dispensing time
High cost of conversion
The additional weight of CNG cylinders does pose a problem
Difficulties in developing CNG Infrastructure
Limited natural gas allocation leading to delay in management decisions
on capital expenditure
Uncertainty about conversion of vehicles & CNG demand
Lack of indigenous technology
Capital intensive project - a mother station cost 5-6 times that of a petrol
pump & pipeline needs to be in place
Infrastructural constraints (Electricity, land etc.)
Delay in getting permissions from statutory authorities & objection from
local people
Low storage capacity of on board cylinders, thus requiring frequent refills
Factors Influencing Success of CNG Project
Government commitment to program
Appropriate CNG technologies
Appropriate program management
Original Equipment Manufacturers support
Safety of CNG vehicles & CNG economics key to success of CNG
program
CNG Program at IGL - Lessons
Study of geographical spread of CNG vehicles movement is a must to analyze peak
demand at individual CNG stations
Pipeline distribution infrastructure needs to be in place
Dedicated & adequate mobile cascade filling arrangement to ensure continuous
supply of gas to daughter stations
Involvement of local government/ transport authorities
Genuine cylinder kits & spare parts be used for CNG vehicles to avoid accidents
Suitable codes/ standards are to be in placed for CNG kit fitment, testing etc
Safety & performance standards should be in place, monitored & enforced
CNG stations need to be built in large open space to allow multi vehicle & multi point
dispensing
Development of CNG infrastructure needs to be in line with growth of CNG vehicles
Long term advance planning needs to be carried out
Piped Natural Gas
What is it ?
Natural gas supplied to residential & commercial areas for
use as fuel in cooking, heating, cooling, etc is termed as
Piped Natural Gas (PNG)
Extensive Polyethylene Pipeline network is laid in various
parts of city for supplying PNG to households & hotels
where it is used for multiple fuel requirements such as
cooking, boilers, Air-conditioning, etc
Benefits of PNG
Green Fuel
Uninterrupted supply no storage required
Unmatched convenience No requirement to bring/ change
LPG cylinders
Safe to use
No spillage & pilferage
Economical in use
Lower maintenance cost - With PNG, soot or ash
accumulation & greasy spillages are absent in burner.
Maintenance costs are thus, driven down
Natural Gas for small Industrial Consumers
What is it ?
Natural gas is also supplied to small industrial consumers
through City Gas Distribution Network
These consumers ideally require small quantities of gas at
low pressure (3-4 bar) to run their small to medium scale
units
Extensive Polyethylene & GI Pipeline network is laid in
various parts of the city for supplying natural gas to these
units
Benefits to consumers
Green Fuel
Uninterrupted supply no storage required
Safe to use
No spillage & pilferage
Economical in use in comparison to other fuels like HSD,
Naphtha, fuel oil, etc
Road Ahead.
In August 2003, Honble Supreme Court of India issued a
directive to Union of India & state governments to draw
plans to introduce clean fuels in 11 cities apart from existing
cities of Delhi & Mumbai. These are Kolkata, Surat,
Chennai, Lucknow, Bangalore, Kanpur, Hyderabad, Agra,
Ahmedabad, Pune
What will determine future of development of City Gas Distribution in
India ?
Efforts of PNGRB to invite bids for development of CGD networks across
country
Govt. Intervention through policy initiatives
Economic Benefit
