CGD Business in India

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CGD Business in India

  1. 1. Sandeep Prasad 20104005Exe-MBA10’ Overview of CGD Business in IndiaSchool of Petroleum Management, PDPU
  2. 2. LIST OF ACRONYMS AND ABBREVIATIONS BCM Billion cubic meter CGD City Gas Distribution CNG Compressed Natural Gas DCF Discounted Cash Flow GGCL Gujarat Gas Company Limited GHG Green House Gas GI Galvanized Iron IGL Indraprastha Gas Limited LNG Liquefied Natural Gas MGL Mahanagar Gas Limited MOTE Million Tonnes of Oil Equivalent PNG Piped Natural Gas PNGRB Petroleum and Natural Gas Regulatory Board PSC Production Sharing Contract SGL Sabarmati Gas Ltd TCM Trillion Cubic Meters WACC Weighted Average Cost of Capital 2
  3. 3. Executive SummaryThe share of natural gas in the country’s primary energy mix hasincreased to nearly 10.6% still India’s natural gas consumption lagsfar behind the global average, primarily due to the low availability ofnatural gas and inadequate transmission and distributioninfrastructure. Domestic production of India were 1437 bcm as of 1stApril 2010.India currently doesn’t have any pipeline connection allthe 12.15 bcm gas imported are LNG majorly from Qatar andAustralia. The CGD business in India dates back to 1857 whenCalcutta Gas Company and Bombay Gas Company commencedoperations. The initial growth of CGD had driven largely by ordersfrom the Supreme Court to control environmental pollution. Theconsumers of natural gas via CGD network are classified intodifferent categories based on their capacity and end use. CGDinfrastructure consists of CGS, DPRS, metering etc. Policy ofdevelopment of natural gas pipelines came in effect in 2006 topromote investment in NG pipelines, facilitate open access. GAIL hasnetwork of about 8000km. The supply chain in CGD are fromproduction stage to processing stage followed by various otherstages in between till it reaches end consumer. Investment in theCGD network involve estimation of market size, cost of the project,supply options, technical and financial feasibility, selling price andrisk profiling are the generally applicable for all the projects, somepeculiarity in CGD network project are market size and supplyoptions. The CGD segment is expected to witness significant growthin coming years due to the rapid increase in natural gas consumptionin the transportation, industrial, commercial and residential sectors.Customer Service in CGD business is as important as in any otherbusiness. Major commercial issues in CGD business are like gassupply, pricing, regulatory clearance. PNGRB has issued theregulation in 2008 on T4S. The creation of the regulator in 2006paved the way for the long-term growth of the midstream anddownstream segments, as it has ushered in greater regulatory clarityin areas such as CGD and laying of gas-transmission pipelines. PNGRBhas issued various gazettes like regulation on access code, networktariff, exclusivity and many more. 3
  4. 4. Contents Executive Summary 031. India Natural Gas Facts 052. Overview of CGD Business in India 103. City Gas Distribution Infrastructure 134. Natural Gas Transportation Networks - India 175. Supply Chain in City Gas Distribution 196. Project Management aspect of CGD Network 217. Market Development for CGD Business 228. Customer service issues in CGD Business 249. Major Commercial Issues 2510. QHSE in City Gas Distribution 2611. CGD Regulation-India 27 References 31 4
  5. 5. Chapter 1India’s Natural Gas factsGrowing economy and growing population have resulted in increasedconsumption of primary energy sources, such as coal, oil, and naturalgas in India. The primary energy consumption of India for 2010 is524.2 mtoe, growth of 9.2% over 2009. The share of natural gas inthe country’s primary energy mix increased from 9.36% in 2009 to10.62% in 2010. However, this share is quite low compared to theglobal average (24%).Table 1 Natural Gas facts-India At the end of At the end of Percentage 2009 (bcm) 2010 (bcm) Change Proved Reserve 1074 1437 3.4 Onshore 287 829 Offshore 787 609 Production 39.2 50.2 29.7 Consumption 51 61.9 21.5Source: BP statistical Review 2011; & Basics of Statistics on Indian Petroleumand Natural Gas 2009-10Going forward, given its increasing availability, cheaper price ascompare to other primary energy and new discoveries natural gas isexpected to account for a significant share of the country’s primaryenergy mix.India’s natural gas market is characterized by a supply deficit,primarily due to the low availability of natural gas and inadequatetransmission and distribution infrastructure. In the past, demand fornatural gas increased significantly. Due to this major deficit of naturalgas 12.15 bcm of LNG was imported in 2010 to meet the ever-increasing demand for energy. India’s domestic gas production in 5
  6. 6. FY10, received a boost with the commencement of production at Reliance Industries’ KG D6 field. Domestic Production Proven reserves of natural gas in India were 1437 bcm as of 1 April 2010, slightly up from 1074bcm as of April 2009. The vast majority (829 bcm) represents onshore gas (609 bcm is offshore) according to the Ministry of Petroleum and Natural Gas Figure 1 Domestic net gas production by region 50000 45000 40000 35000 30000 BCM 25000 20000 15000 10000 5000 0 2005-06 2006-07 2007-08 2008-09 2009-10 Gujarat Assam/ Nagaland Arunachal Pradesh Tripura Tamil Nadu Andhra Pradesh Rajasthan West Bengal(CBM)Source: Basics of Statistics on Indian Petroleum and Natural Gas 2009-10 6
  7. 7. LNG in IndiaAs India currently doesn’t have any pipeline connection all the12.15bcm gas imported in 2010 is LNG.LNG import capacity India is currently 13.6 mtpa. India joined globalLNG market in March 2004 when Dahej terminal of Petronet LNGlimited a JV went into operation. The second LNG terminal is theShell and Total with 3.6 bcm capacity terminal located in Hazira,which was commissioned in April 2005.In 2009-10, out of the total LNG import of India nearly 75% wasimported from Qatar & Australia (65% Qatar & 9% Australia),andremaining 25% from Trinidad and Tobago, and Russia as well as froma few other countries.Table 2 India LNG imports by country (bcm) 2004- 2005- 2006- 2007- 2008- 2009- 05 06 07 08 09 10 Abu 0.09 0.08 0.13 0.16 Dhabi Australia 0.09 0.16 1.11 Indonesia 0.08 Malaysia 0.09 0.09 0.08 0.25 Oman 0.27 0.27 0.41 0.35 Qatar 3.49 6.98 8.24 9.43 8.34 7.95 Algeria 0.09 0.55 0.53 0.16 Nigeria 0.09 0.77 0.38 0.32 T&T 0.24 0.23 0.68 Egypt 0.62 0.09 0.24 0.33 E.Guinea 0.42 0.25 Norway 0.08 Russia 0.68 Others 0.17 Total 3.49 6.98 9.59 11.52 11.16 12.31Source: Natural Gas in India 2010 working paper-IEA 7
  8. 8. LNG Import Infrastructure Imports of LNG are expected to continue to play a crucial role in partially bridging the country’s natural gas demand-supply gap. As per estimation of E & Y, “LNG supplies to increase to around 140 mmscmd, and to account for approximately 26% of the total natural gas demand by FY20”. This significant increase in supplies will be from the proposed brownfield expansion of two existing terminals, Dahej and Hazira; as well as from greenfield projects; the commissioning of new terminals in Kochi, Ennore and Mundra; and the commencement of operations at the Dabhol terminal.Figure2 Existing and upcoming LNG terminalsSource: Exploring Opportunities-E&Y 8
  9. 9. Table 3 Existing and upcoming LNG terminals Terminal Partners Capacity Dahej Petronet LNG,GDF 10 mtpa Suez,ADB & Private share holder Hazira Shell , Total 3.5 mtpa Dhabol NTPC, GAIL, Indian 5.5 mtpa Bank, MSEB Mundra GSPC , Adani Group 6.5 mtpa Kochi Petronet LNG 2.5 mtpa Ennroe TIDCO, Oil India 5 mtpaSource: Natural Gas in India 2010 working paper-IEA 9
  10. 10. Chapter 2Overview of CGD Business in IndiaThe CGD business in India dates back to 1857 when Calcutta GasCompany and Bombay Gas Company commenced operations inKolkata and Mumbai respectively, with coal gas as the primary input.Subsequently however, the industry remained by and large dormant,until Oil and Natural Gas Corporation Limited (ONGC) and Assam GasCompany Limited entered the business in the mid- to late-1980s. Thereal impetus to the sector came from the establishment of Gujarat GasCompany Limited (GGCL), when GOI allocated gas for development ofCity gas .In early 90’s Supreme Court on a PIL directed that the City Gas shouldbe implemented in Delhi, Mumbai and Baroda by GAIL. In pursuant tothis direction, the CNG was introduced in all these three towns in1993. In Mumbai a JV of GAIL, BG and Government of Maharastra wasformed to pursue city Gas Business. A company was registered in 1995as Mahanagar Gas Ltd. In Delhi GAIL formed a JV with BPCL createdcompany in 1998 by the name of Indraprastha Gas Ltd.The commercial success of these companies in the ensuing periodalong with improving gas supplies has drawn a number of newentrants to the CGD business in the recent past. Even while theindustry has been gathering momentum, GOI has set up a regulator,the Petroleum and Natural Gas Regulatory Board (PNGRB), which has,among other mandates in the hydrocarbon sector, the mandate ofregulating the CGD business. 10
  11. 11. Major CGD Players in India & Customer SegmentTable 4 Major Indian Player in CGD Sector Statewise State Company City Maharashtra MGL Mumbai, Thane, Mira-Bhayendar, Navi-Mumbai Delhi IGL Delhi Madhya Avantika Gas Ltd Indore, Ujjain and Gwalior Pradesh Andhra Bhagyanagar Gas Vijayawada & Hyderabad Pradesh Ltd Uttar Central UP Gas Ltd Kanpur & Bareilly Pradesh Adani Energy Ltd Faridabad, Noida & Lucknow Green Gas Ltd Agra & Lucknow Gujarat Charotar Gas Anand GAIL-HPCL JV Vadodara, Ahmedabad GGCL Surat, Bharuch, Valsad Adani Energy Ltd Ahmedabad, Vadodara GSPC Gas Gandhinagar, Morbi SGL Gandhinagar, Mehsana , Sabarkantha Tripura Tripura Natural Agartala Gas Company Ltd Source: City gas India Round table 2010-Vikalpa 11
  12. 12. The consumers of natural gas via CGD network are classified intodifferent categories based on their capacity and end use. Domesticcustomer also called as residential customers. This set of customers isprimarily use gas for cooking purpose and also for heating waterthrough gas geysers. While hotels, restaurants, sweetshops, hospitalsoffice etc would primarily require gas for cooking and hot waterrequirement .Industrial consumer are also served by the CGDcompanies which are having requirement between 50000 to100000.Transportaion sector need NG for transportation purpose andcatered through the development of CNG stations network.PricingThe natural gas pricing scenario in India is complex and heterogeneousin nature. There are wide varieties of gas price in the country. Atpresent, there are broadly two pricing regimes for gas in the country -gas priced under APM and non-APM or free market gas. The price ofAPM gas is set by the Government. As regards non-APM/free marketgas, this could also be broadly divided into two categories, namely,domestically produced gas from JV fields and imported LNG. Thepricing of JV gas is governed in terms of the PSC provisions. It isexpected that substantial gas production would commence from thegas fields awarded by the Government under the New ExplorationLicensing Policy. As regards LNG, while the price of LNG importedunder term contracts is governed by the Special Purchase Agreementbetween the LNG seller and the buyer, the spot cargoes are purchasedon mutually agreeable commercial terms. Due to supply constrainedscenario spot price are driven by LNG imports. As the pricederegulation will come in effect, gas from new sources would be soldat market rate determined by the demand-supply dynamics.Development of the infrastructure gas infrastructure depends uponthe pricing as the revenue from sale will decide the viability of thenatural gas project. 12
  13. 13. Chapter 3CGD InfrastructureCity Gate StationCity Gate Station also known as CGS; City Gate Measuring andPressure Regulating Station means the point where custody transfer ofnatural gas from natural gas pipeline to CGD network take place. Mainfunction of CGS is to measure the amount of incoming gas. Pressure isalso reduced at CGS before distribution as distribution system requireslesser pressure as compare to long distance transmission. Odorizationis done at CGS so that the smell makes the presence of the escaping,un-burnt gas recognizable at low concentration.Main Components of CGS are: Pressure Reduction System (PRS) Slam Shut Valve(SSV) Filtering Unit Piping with metering equipmentsThe pressure at which the gas delivers to CGS is 37-90 bar. CGSreduces the pressure to approx 27 bar through the stepwise pressurereduction system.The various skids in the City Gas Station includes,a) Gas filtration skid.b) Pressure reduction skid.c) Flow metering skid.District Regulation Station are installed where the distribution is to bedone like in the industrial area and domestic or commercial segment.Gas to the various consumers is transferred after being maintained ata pressure of about 4-5 bar. Then the gas is transmitted to SingleStream Regulator (SR) through 4 bar medium pressure PE pipelines. SRfurther reduces the pressure from 4bar to 100 mbar. From SR the gas 13
  14. 14. is supplied through a 100 mbar low pressure PE pipeline to a G.I. RiserIsolation wall. From this valve the gas is carried through a G.I. 100mbar pipelines to end user.MeteringMeters are placed at the gas consumer premises for recording of theamount of gas delivered to the consumer. Various type of meter usedby the CGD companies are:(1) Positive displacement meters(2) Turbine meters(3) Orifice meters(4) Ultrasonic meters(5) Coriolis metersPipeline CompaniesA well-developed and interconnected network of pipelines is of crucialimportance for transportation natural gas from remote productionareas to end consumers. The web of pipelines acts as the artery thatno CGD companies can do without it. It is deemed as the, mostconvenient and cost-effective method for quick and smoothdistribution of gas to consumer. The major pipeline manufacturingcompanies in India involved in manufacturing of pipes and tubes areL&T, Punj Lloyd and PSL. PSL claims to be the largest manufacturer ofSAW (Submerged Arc Welded) technology and has been the biggestsupplier of GSPL.Regulatory Aspects-Laying PipelinePolicy of development of Natural Gas Pipelines and City or LocalNatural Gas Distribution network came in effect from 20th December2006. Objective of regulatory reforms permit and encourage marketforces to enhance competition and produce a more competitive andefficient industry structure i.e. promote investment from public aswell as private sector in natural gas pipelines and city or local naturalgas distribution networks, to facilitate open access for all players to 14
  15. 15. the pipeline network on a non-discriminatory basis, promotecompetition among entities thereby avoiding any abuse of thedominant position by any entity, and secure the consumer interest interms of gas availability and reasonable tariff for natural gas pipelinesand city or local natural gas distribution networks.Major aspect Authorization for gas pipeline shall be granted to any entity only if the design pipeline capacity is at least 33% more than the capacity requirements of the concerned entity plus the firmed up contracted capacity (termed as total capacity) and this extra capacity is available for use on common carrier basis by any third party on open access and non-discriminatory basis at transportation rates laid down by the Board. The entity authorized to lay, build, operate or expand a city or local natural gas distribution network will need to follow the marketing service obligations as may be prescribed by the Board in accordance with the provisions of the Act.Pressure PipelinesA typical CGD Network should comprise of one or more or all of thefollowing: Primary network: A medium pressure pipelines normally constructed using steel pipes and connects one or more transmission Pipeline to respective CGS or one or more CGS to one or more DPRS. The maximum velocity in the pipeline network should be limited to 100 ft / sec (30 m/sec) immediately after pressure regulating instrument. Secondary Network: A low Pressure distribution system usually constructed using thermoplastic piping (MDPE) and connects DPRS to various service regulators at commercial, industrial, and domestic consumers. The network shall be sized for maximum flow velocity of 100 ft / sec (30 m/sec). 15
  16. 16. Tertiary Network: A service pressure distribution systemcomprising of Service Lines, Service Regulators and customer /consumer Meter Set Assemblies constructed using acombination of thermoplastic (MDPE) piping and GI / coppertubing components. 16
  17. 17. Chapter 4Natural Gas Transportation Networks -IndiaFor the growth of the City gas Distribution across country, Indian musthave developed cross country pipelines. Development of gastransportation network is to serve the purpose of bringing in gasproduced from far off fields to within City limits. India unfortunatelyhas been lagging behind in development of a robust gas transportationnetwork.Historically, the transport infrastructure has been developed to linkproduction centers or LNG import terminals located mainly in thenorthwest coast to the primary consumption centers located in theNorth West. GAIL was having monopoly before the entries of otherplayer in the transportation business. GOI decided to encourage theconstruction of more transmission pipelines in the country and endedGAIL’s monopoly in December 2006, enabling RIL to step in.GAIL has a network of about 8,000 km with transmission capacity ofabout 120 mmscmd, representing nearly 73% of India’s transmissionbusiness. The very first major long-distance gas transportationpipeline, the Hazira-Vijaipur-Jagdishpur (HVJ) line, was built by GAIL.In 2008, RIL completed the 1400 km long EWPL connecting Kakinada inAndhra Pradesh to Baruch in Gujarat. EWPL connects with GAILs HVJline and Dahej-Vijaipur pipeline network at Ankot in Gujarat, Dahej-Uran and Dabhol-Panvel pipeline network at Mashkal in Maharashtra.GSPL, which is a pure transmission company, operates a grid of 1900km. It intends to expand its grid reaching regions in the North but alsoin the East. The company is expanding its pipeline network in Gujaratto 2,400 km in FY12. The three pipeline contracts it won in consortiumwith Indian Oil, BPCL and HPCL is set to make it a leading inter-stategas transporter from intra-state at present. These three pipelines with 17
  18. 18. a combined length of 4,000 km and capacity of 125 MMSCMD are expected to get ready within three years. Table 5 India’s Existing Gas Transportation infrastructure Player Design Length(Km) Avg. Present Capacity including Spurline flow (mmscmd) (mmscmd) GAIL 155 8000 120 GSPL 40 2000 40 AGCL/OIL 08 500 06 RGTIL EWPL 80 1400 50 Total 283 11,900 166 Source: GAILFigure 3 Existing and Proposed NG pipeline-IndiaSource: PetronetLNG 18
  19. 19. Chapter 5 Supply Chain in CGD The supply chain in CGD begins with exploration at the commercialization phase the extracted gas often requires processing to separate the methane from liquids and gases that may be present, and to remove any impurities, such as water and hydrogen sulphide. High pressure transmission pipelines are used to transport natural gas from source over long distances to markets or natural gas is cooled to -1660 c to transfer through LNG ship. A network of distribution pipelines are then used to deliver gas from points along the transmission pipelines to industrial customers and from gate stations for the reticulation of gas in cities & towns. Figure 4 Supply chain in CGD EndProduction Processing Transmission Storage Distribution consumer 19
  20. 20. The supply chain partner to CGD companies includes E&P companieswhich extract the natural gas example RIL, ONGC. It also includeFinancial operator and feasibility experts examining the viability ofprojects both financially and operationally, gas distributionconsultants and project designers/engineers suggesting the bestpossible design, regulators and authorities regulating the businessstandards and finally the gas suppliers who provide the gas for citywide distribution 20
  21. 21. Chapter 6Project Management aspect of CGD NetworkAs the population grow, cities expand and therefore the CGD networkexpand.CGD network are lifelong (read 25 years), as the network growbusiness also grow. Due high investment in building the network thegestation period is very high. Design of the network needs toincorporate safe operations, maintenance, future demand, andexpansion. Investment in the CGD network involve estimation ofmarket size, cost of the project, supply options, technical and financialfeasibility, selling price and risk profiling are the generally applicablefor all the projects, some peculiarity in CGD network project aremarket size and supply options. In any CGD project pipeline networkcost around 60% of entire project cost, it is very import to have chalkout the proper plan for each and every activity to execute the projectin budgeted time and cost.In geographical area while planning for the CGD network, demand ofthe market is to be assessed for all four segments: industrial,domestic, commercial, & automotive. For example for industry thephysical capacity of production units to be served & their deliveryneeds have to be worked out. The feasible size of various physicalcomponents, like pipeline diameter, has to be evaluated. They alsoneed to maintain the highest safety standards to ensure thatpreventable accidents are avoided. Before the execution of the projectclearance from road & building department, public health, waterboard, electricity department, sewage department need to be taken.The main activity involved in building of CGD network involves:Conception of ProjectSurvey and ROURFP Document PreparationCommercial feasibilityTechnical feasibilityPre-Qualification ProcessBidding Process 21
  22. 22. Chapter 7Market Development for CGD BusinessAs CGD comes at the end of the natural gas value chain, itsdevelopment is contingent on the development of the rest of thevalue chain. It is up to the Government and industry players to ensureadequate supply of natural gas in the CGD market. This can happenonly if the country has a fully integrated gas infrastructure withuniform natural gas pricing and affordable end user prices withfavorable and clear regulatory policies.CGD’s gas consumption is on rise but the constrained by supplyshortage of natural gas in the country and gas allocation to prioritysector will dampen the growth of the sector. To bridge the demandsupply gap would require discovering new field or finding supplysource along with building new import terminal and capacity additionin the existing one for LNG import. The second factor for thedevelopment of the sector is capital, industry being a capital intensiveindustry which have very long gestation period. Investment and supplysource will determine the health India’s gas industry.The CGD segment is expected to witness significant growth in comingyears due to the rapid increase in natural gas consumption in thetransportation, industrial, commercial and residential sectors. Thephasing out of the subsidy on domestic LPG could lend further impetusto residential natural gas consumption. The CGD segment is expectedto emerge as one of the fastest-growing segments of the Indiannatural gas industry, as the development of CGD networks across thecountry is likely to gather momentum with the commissioning ofcross-country and regional gas pipelines. The segment is witnessingoverwhelming interest from various players. Both existing and newplayers propose to establish new CGD projects in many more cities inIndia. 22
  23. 23. Key factor for market development of CGD business: Development of alternate users for city gas Affordable end-user prices Local government support Participation/support of financial institutions Participation of gas supply and pipeline companies Appropriate regulatory frame work 23
  24. 24. Chapter 8Customer Service issues in CGD BusinessCustomer Service in CGD business is as important as in any otherbusiness. When concept is new, customer service become moreimportant because of the switching cost for the customer. Thecompanies must take care of customer from pre-purchase to the postpurchase service. Inspite of the customer service importance followingare the issues are faced by CGD customers: Supply of Gas Reliability of the gas supply is a major issue for all the type of Consumers. The disruption in the supply affects the industrial consumer in big way as compare to the rest of the segment. Time lag- between registration and gas delivery There is a long delay since registration is done and gas reaches at home. Billing Problems There is no efficient billing system for domestic customers. Though rules have already been passed by PNGRB for billing. Long Queue at CNG station The number of CNG vehicle are increasing day by day but neither the dispensing unit nor the number of retail outlet are increasing with the same pace as the vehicles are which leads to the long queue at the existing retail outlet. Metering Issues There have also been some issues with the metering, as there has been complains about meter malfunctioning, and if you are dealing with large volume of gas it really affects Maintenance Problem There have also been several issues with maintenance and quality of service and equipments used. 24
  25. 25. Chapter 9Major Commercial IssuesCustomer loyalty and satisfaction are keys to CGD business if thecustomer is not happy with the product or services; companies willmiss the top line and bottom line target issues will not only impactbalance sheet but brand value of the company will be at risk as well.Inspite of efforts from the CGD companies as well as support fromregulatory bodies there are uphill task for the CGD companies toexceed the customer expectation. Some of the commercial issues inthe CGD business are as follows: Gas Supply Continuous gas supplies are very important for the consumer & maintain the uninterrupted gas supply is the major challenge for the CGD companies. Sometime CGD companies face technical problem in transportation of gas to consumer due to fault in the pipelines or issues can be at the production field which may lead to disruption in the supply. Beyond specified time limit of supply cut off CGD companies has to pay heavy fines. Pricing Fluctuation in the supply of gas due to decline in the production volume at major field like KG-D6 or other fields lead CGD company to buy the LNG cargo at spot price to maintain the supply escalate the expense of the company. Regulatory Clearance CGD companies have to take clearance from various government bodies as there is no single window for clearance to start the operation whether for laying trunk or spur line or setting up the last mile connectivity which takes lot of time and leads to time and cost overrun for CGD project. 25
  26. 26. Chapter 10QHSE in City Gas DistributionAfter the last mile connectivity, it’s not the only responsibility of theCGD company to maintain the continuous supply of gas but also toprovide quality gas along with the safe operation of the networkwithout disturbing the environment. PNGRB has issued the regulationin 2008 on T4S (Technical Standards and Specifications includingSafety Standards) specifying the every aspect of materials andequipment to be used; what kind of welding & welding standards needto be followed; piping system components and fabrication details;selection of design for CGD network according to required flow rate,gas properties; operation and maintenance procedures; & corrosioncontrol procedures. Technology is playing role in big way indevelopment, operation, maintenance of CGD network and businessand provide safe environment to work.Due to technological advancement CGD companies are using SACADAand are able to effectively monitor the pressure, flow, quality on thepipeline network due to which they are able to maintain the requiredpressure and flow rate which are required at the burner tip otherwisegas will lose its usability. By using technology company are able tosupply quality gas. By the use of GIS companies are easily able to mappipeline network and can locate the location of the leakage in thepipeline easily.Natural gas supplied through CGD Network shall have a distinct odourstrong enough to detect its presence in case of leakage PNGRBrecommend the use of automated odorisation system. 26
  27. 27. Chapter 11CGD Regulation-IndiaCGD and gas transmission sectors come under the purview of PNGRB,which also regulates refining, processing, storage, transportation,distribution, marketing and sale of petroleum products. PNGRB isestablished by an act of parliament. The creation of the regulator in2006 paved the way for the long-term growth of the midstream anddownstream segments, as it has ushered in greater regulatory clarityin areas such as CGD and laying of gas-transmission pipelines. PNGRBhas enacted various regulations to encourage investments throughprospects of promising returns as well as promotion of competition toimprove service delivery. PNGRB aims to ensure fair trade; registerstandards and authorize entities for specified activities, lay downtechnical and safety standards, monitor tariffs and prevent restrictivetrade practices.Function of PNGRB: Register entities for — Marketing petroleum, petroleum product and natural gas; — Establishing & operating LNG terminals; — Establishing storage facilities; Authorize entities to — lay, build, operate or expand a common carrier or contract carrier; — lay, build, operate or expand CGD network; Declare pipeline as common carrier or contract carrier Monitor prices and take corrective measures to prevent restrictive trade practice by the entities; PNGRB will regulate only the city gas pipeline network tariff. The end gas price to the consumers is not covered in the regulation. 27
  28. 28. Maintain a data bank of information on activities relating to petroleum, petroleum products and natural gas; Levy fees and other charges as determined by regulations; Secure equitable distribution of petroleum and petroleum products. Ensure display of information about the maximum retail prices fixed by the entity for consumers at retail outlets; Access to common carrier or contract carrier and for that purpose specify pipeline access code; Transportation rates for common carrier or contract carrier; Access to CGD network as per pipeline access code;Overview of PNGRB Gazette Notifications RegulationsRegulation for Access CodeRegulations for Access Code for Natural Gas Transmission Pipelinesand City or Local Natural Gas Distribution Networks was passed in2007Objective of access code regulation Promote the development of a competitive gas market by establishing uniform principles for owners and users of gas pipelines to allow transparent and non-discriminatory access to the gas pipelines and CGD networks. Prevent abuse of monopoly power Ensure that a pipeline/CGD owner provides minimum service of access to available capacity on a "firm service" basis and/or on "interruptible service" basis. Provide basis for resolution of disputes. 28
  29. 29. Regulation of Network TariffRegulations for Determination of Network Tariff for City or LocalNatural Gas Distribution Networks regulation 2007.The transportationtariff of City or Local Natural Gas Distribution Network shall bedetermined in accordance with the following principles: A reasonable rate of return on investments; Investments resulting in creation of an efficient & safe infrastructure; and Normative level of operating expenses required for efficient operation of city or local natural gas distribution network.The tariff to be charged for a period shall be the calculated based onDCF methodology considering reasonable rate of return determinedby rate of return on capital employed and shall not be higher than theaverage rate of long-term Government Securities issued by the RBIduring the period of 12 months prior to submission of application +X%. The X% shall normally be fixed for a period of at least one yeartaking inter alia into account the WACC. Considering the economicscenario in the country and the area / region to be served, the Boardmay review this X%, even before the completion of one year period.Regulation for Declaring Petroleum or Petroleum Product Pipeline asCommon Carrier or Contract CarrierGuiding Principles Declaring Petroleum or Petroleum Product Pipelineas Common Carrier or Contract Carrier regulation 2011Objective of regulation Pipelines are efficient, economical and safe mode of bulk transportation of petroleum or petroleum product from refinery or an installation to demand center. Consumer interest is best served by promoting competition, avoiding infructuous investment by optimum utilization of infrastructure pipelines. 29
  30. 30. The concept of allowing capacity in pipeline to be utilized by any entity or customer on a non discriminatory basis shall promote independent activity of marketing of petroleum of petroleum products through contract carrier or common carrier arrangements with entities laying building, operating or expanding petroleum or petroleum product pipelines, which in turn shall lead to development of competitive markets.Regulation of ExclusivityExclusivity from the purview of common carrier or contract carrierThe entity winning the rights to set up CGD network in a city will havefive year marketing exclusivity. After five years, the network will bethrown open to competition but a fresh entrant will not be allowed tolay a new pipeline. It will have to use the network for which it has topay a fee to the CGD Company. However, a company that hasoperated the CGD network for three years or more prior to theappointment of PNGRB i.e. 1st October 2007, will have the marketingexclusivity for three years compared with five years.Exclusivity for city or local natural gas distribution networkThe Board may allow entity exclusivity for laying, building orexpanding of CGD Network over the economic life of the project.During the economic life which is normally expected to be twenty fiveyears of the CGD network project consisting of network of pipelines,online compressors and other allied equipments and facilities, theauthorized entity shall carry out further expansions required throughpipeline capacity building and CNG infrastructure as well as carry outreplacements and upgradation of assets. 30
  31. 31. References1. Petroleum Statistics Ministry of Petroleum and Natural Gas website http://petroleum.nic.in/Monthly_Production/P_Sep_11.pdf accessed on 29th Nov 20112. The Economics time news article dated 21st Sep 2011 http://economictimes.indiatimes.com/news/news-by-industry/energy/oil-gas/india- seeks-long-term-lng-purchase-deals-with-brunei-indonesia-australia-and-malaysia-as- it-plans-to-double-capacity/articleshow/10065464.cms accessed on 29th Nov 20113. Petronet LNG corporate presentation http://www.petronetlng.com/PDF/Petronet_Corporate_Presentation_June_2011.pdf accessed on 29th Nov 20114. EIA Country specific analysis http://www.eia.gov/countries/cab.cfm?fips=IN accessed on 29th Nov 20115. Business standard article Shell, Total to expand Hazira LNG capacity http://business- standard.com/india/news/shell-total-to-expand-hazira-lng-capacity/454062/ accessed on 30th Nov 20116. Platts RSS Feed http://www.platts.com/RSSFeedDetailedNews/RSSFeed/NaturalGas/8544829 accessed on 30th Nov 20117. IEA working paper Natural Gas India http://www.iea.org/textbase/nppdf/free/2010/natural_gas_india_2010.pdf accessed on 30th Nov 20118. http://www.vikalpa.com/pdf/articles/2010/Vik354-06-Colloquium.pdf accessed on 5th Dec 20119. PNGRB regulation http://www.pngrb.gov.in/exclusivity.pdf accessed on 6th Dec 201110. Ministry of Petroleum and Natural Gas Gazette notification http://petroleum.nic.in/policy%20of%20pipelines.pdf accessed on 6th Dec 201111. http://duncansfertiliser.blogspot.com/2011/05/india-is-expanding-its-gas- pipeline.html accessed on 6th Dec 201112. Gail Website http://gailonline.com/final_site/naturalgas_transmission.html accessed on 7th Dec 201113. The Economics time news article dated 23rd June 2011 http://articles.economictimes.indiatimes.com/2011-06- 23/news/29694751_1_mmscmd-kg-basin-pipeline-network accessed on 7th Dec 201114. Petronet LNG corporate presentation http://www.petronetlng.com/PDF/Petronet_Corporate_Presentation_June_2011.pdf accessed on 7th Dec 201115. Analyst Presentation, GAIL (India) Limited website http://gailonline.com/final_site/pdf/Investor_Presentation_Mumbai_June_2011.pdf accessed on 9th Dec 201116. City Gas Distribution in India Key Trends and Outlook by CRISIL Infrastructure Advisory http://www.crisil.com/pdf/infra-advisory/4-city-gas-distribution.pdf accessed on 9th Dec 201117. http://www.pngrb.gov.in/draft/acfinal.pdf accessed on 9th Dec 201118. Control System Solutions for CGD http://pptfree.com/Indiaoilgas/CGD/Control_System_Solutions_For_Cgd.pdf accessed on 16th Dec 2011 31

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