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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

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).

● ● ●

Despite major new

natural gas

discoveries in

recent years, India

is considering

large-scale imports

via pipelines and

LNG terminals to

help meet growing

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.

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.

MARKET

Numbers : Few Players on the buyers and sellers market

Ownership : State owned majors, Presence of Foreign JVs

REPLACEMENT

Threat : Possible

Sources : Renewable sources like Nuclear and Hydro power

Pitfall : Heavy Capital investment and costlier end -use

INTENSITY

Industry : Capital Intensive and turn key

FREEDOM

Regualtions : Heavily regulated, Intense Government interference

Control : Pricing controlled

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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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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

of Andhra Pradesh)

22 Tcf (estimated)

GS-15-OA (Off the coast of Andhra Pradesh)

4 new gas finds of unknown quantity

Mahanadi basin (Off the coast of

Orissa)

4 Tcf (estimated)

Mumbai High Fields

GSPC KG-OSN-2001/3 (Krishna

Godavari basin)

1.8 Tcf (estimated)

Reliance Industries Limited KG- D-6 (Krishna Godavari

basin)

11.5 Tcf (estimated)

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.

0

10

20

30

40

50

60

70

80

90

100

99-00 00-01 01-02 02-03 03-04 04-05 05-06 06-07

Pe

rce

nta

geProduction Share

Government

Private

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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;

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.

Sector-wise Offtakes (2007-2008)

Fertiliser

Power

Industrial Fuel

LPG/ Petrochemicals

Others

Captive

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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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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.

MIDDLE EAST (72.56 tcm)

Iran (15.5%)

Qatar (14%)

SA (3.9%)

UAE (3.3%)

Iraq (1.7%)

Kuwait (1%)

Oman (0.5%)

CENTRAL ASIA ((7.21 tcm)

Kazakhastan (1.7%)

Turkmenistan (1.6%)

Azerbaijan (0.7%)

SOUTH-EAST ASIA (5.65 tcm)

Indonesia (1.5%)

Malaysia (1.4%)

Myanmar (0.3%)

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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 venture 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 (Expansion)

Dahej 5 Ras Laffan, Qatar Under construction

Ratnagiri Gas Dabhol 5 Ras Laffan, Qatar Under construction

Petronet LNG

(Current)

Kochi 5 Ras Laffan, Qatar Bidding

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

Network Design Capacity

(MMSCMD) Length (Km) of

Trunkline AVG Present Flow

(MMSCMD)

GSPL Regional 22 1070 12-14

AGCL/OIL Regional 6-8 500 5.0

RGTIL EWPL

Trunkline 120 1400

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

1. RGTIL-Kakinada-Basudebpur-Howrah

Approximate length = 400 km.

Orissa: Bhadrak, Baleshwar and Mayurbhanj. W.B.: East Medinipur, West Medinipur, Howrah and Hugli

2. RGTIL-Vijaywada-Nellore-Chennai

Approximate length = 445km.

Andhra Pradesh: Krishna, Guntur, Prakasam, Nellore, Chittoor.

Tamil Nadu: Thiruvallur and Chennai.

27

3. RGTIL-Chennai-Tuticorin

Approximate length = 670 km.

Tamil Nadu: Thiruvallur, Vellore, Kanchipuram, Tiruvannamalai, Vilupuram, Salem, Namakkal, Karur,

Dindigul, Virudunagar, Tuticorin, Tirunalveli,

Ramanathapuram, Erode, Coimbatore, Dharmapur and

Sivagana.

4. RGTIL-Chennai-Bangalore-

Mangalore

Approximate length = 660 km.

Tamil Nadu: Thiruvallur, Vellore, Krishnagiri. Andhra Pradesh: Chittoor. Karnataka: Kolar, Bangalore Rural, Bangalore, Tumkur,

Mandya, Mysore, Hassan, Chikniagalur, Dakshina

,Kannada.

5. GSPC

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

Districts: Jamnagar, Junagarh, Navsari-Valsad,

Banaskantha, Bhavnagar

6. OIL/AGCL Approx: 300 km, Capacity: 6 MMSCMD, Local network

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 Iran-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

1. Economical Safe and assured supply of gas to domestic, commercial and industrial sectors

a. Cheaper than conventional fuel Convenient to use

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

in same sector

2. Technical No traffic disruption as supplied through pipelines

a. Very high antiknock power (more than 120 ON) allows greater performance compared to petrol one

Continuous supply

b. Does not require refining plant or additive adding and can be used immediately after its extraction

No wastage, no under weight cylinders, no hassle for replacement of cylinder, no need for cylinder booking

c. It has no evaporation leaks and spills of fuel, both during refueling and feeding of the car

No advance payment for consumption of gas, billing will done in once in two months based on consumption

32

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

Type of Vehicle Average Daily running

(Km)

Cost of

Conversion

Annual Savings

(Rs)

Payback Period

(Months)

Car/Taxi (Petrol) 150 40,000 97,282 5

Three Wheeler (Petrol)

100 18,000 38,912 6

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

Petrol/Diesel

Qty of Petrol & Diesel Replaced

(TMT)

Forex Savings

(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.

d. Its combustion produces a very low quantity of carbon deposits (permits a longer life of lubricant oil)

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

exclusivity 30%

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.

No JVC Area of Operation

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

Limited Agartala

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.

No. JVC Area of Operation

1 Adani Energy Limited, Ahmedabad

2 HPCL Ahmedabad

3 Vadodara Mahanagar Seva

Sadan Vadodara

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

5 1982-86 ONGC Colony at Mehsana

& Sibsagar ONGC

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.

13 2006-07 Gandhinagar, Kadi, Mehsana, Rajkot, Morbi,

Vapi GSPC Gas/Sabarmati Gas

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

Gujarat

Ahmedabad Adani & HPCL

Surat, Ankleshwar & Bharuch Gujarat Gas Co. Ltd.

Hazira, Rajkot, Surendranagar GSPC Gas

Vadodara VMSS

Gandhinagar Sabarmati Gas

West

Bengal Asansol

Great Eastern Energy Corp.

Ltd.

Assam Duliajan, Digboi, Dibrugarh, Moran, Naharkatiya, Sivsagar, Nazira,

Simaluguri, Tinsukia Assam Gas Company Ltd.

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

38

S. No. Entity Geographical

Areas (GA)

(Operating)

GAs (Under

Constructio

n) Total

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

7 Maharashtra Natural Gas Company Ltd.

(MNGCL) 1 - 1

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

20 Great Eastern Energy Corporation Ltd.

(GEECL) 2 2

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)

State No. of Potential

Cities

Projected

Demand

MMSCMD Projected Investment (in Rs/Cr)

Andhra Pradesh 37 5.02 2510 Assam 8 5 2500 Bihar 17 1.91 955 Punjab & Himachal

Pradesh 13 3.66 1830

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 &

Uttarakhand 31 7.5 3750

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 & Natural 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

Cities Company Avg, CNG

Gas Sales

Avg. Gas Sales

Domestic

Avg. Gas Sales

Commercial &

Industrial

Total Sales

(MMSCMD)

Delhi IGL 1.692 0.047 0.103 1.842

Mumbai

MGL

1.036

0.165 0.263

1.464

Thane 0.080 0.080

Mira Bhayandar 0.033 0.033

Navi Mumbai 0.006 0.006

Pune MNGL 0.000 0 0 0.000

Kanpur CUGL

0.054 0

0 0.054

Barrielly 0.005 0 0.005

Lucknow GGL

0.054 0 0 0.054

Agra 0.034 0 0.037 0.071

Vadodara GAIL 0.040 0 0 0.040

Vijayawada BGL

0 009 0 0 0.009

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 &

Ankleshwar GGCL 0.15 0.090 3.850 4.090

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

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Gas Supply to CGD Projects (As in April 2009)

CGD Projects Cities Estd. Addl.

Demand

Best

Endeavour

(MMSCMD) 2009 Basis-2009

IGL Delhi, Noida, Gurgaon, Faridabad & Greater

Noida 0.20 0.20

MGL Mumbai, Navi Mumbai, Thane, Mira

Bhayander 160 1.60

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

Proj. Various Cities 0.04 0.04

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