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