Sanjay K. Kar, Associate Professor, Energy & Marketing, Department of Management Studies, Rajiv Gandhi Institute of Petroleum Technology
India is the fastest growing major economy and the third largest energy consumer in the world. Increasing energy demand causes serious concerns for climate change as energy contributes significantly to emissions, thus leading to climate change. India’s energy mix shows a dominance of polluting fossil fuels, coal and oil (86 per cent), with only 6.2 per cent of natural gas. Globally, natural gas contributes around 24 per cent in the world’s energy mix. The world is moving towards-energy and within fossil fuels, away from coal and oil in favour of gas, to address climate change concerns. India needs to be a part of this transition by increasing low-carbon energy in the country’s energy mix.
Natural gas is the cleanest fossil fuel which emits negligible particulate matter and the lowest air pollutants as compared to coal and oil. The government has set a target of increasing the share of natural gas in the total energy mix from 6.2 per cent (2018) to 15 per cent by 2025 to make India a leading gas-based economy. With lessons from developed natural gas markets, it has been proven that well-established natural gas infrastructure for the transportation and distribution of natural gas will help pave the way for developing a domestic natural gas market. India is striving to establish an extensive national natural gas grid to enhance the access to the fuel to the remotest part of the country.
This article has a detailed analysis of the need, current status, challenges, and the key policy initiatives taken so far for the development of a natural gas grid in the country. After a comprehensive review and analysis of the progress so far, the author has provided key recommendations to increase the penetration of natural gas.
Need for national gas grid development
Today, India has around 16,700 km of natural gas pipelines, which are predominantly spread across the western and northern regions of the country. Arguably, this has caused not only regional imbalances in terms of access to natural gas infrastructure but has also led to the underutilisation of the existing natural gas pipeline infrastructure. At present, on average, about 45 per cent of the total designed capacity of the existing natural gas pipelines is being utilised (Petroleum Planning and Analysis Cell [PPAC], 2018). Some argue that the existing gas pipeline infrastructure remains heavily underutilised, so additional pipelines may prove to be unproductive. However, India must expand gas pipeline connectivity to bring regional market integration and improve the efficiency of the infrastructure. Additional pipeline infrastructure will benefit industries, the transport sector, and the domestic sector.
A fully functional national gas grid will:
- Be key to a gas-based economy and bring parity in terms of pipeline connectivity and access across the country.
- Create new demand centres and facilitate energy-intensive green energy industrial corridors leading to employment generation.
- Develop the city gas distribution (CGD) network and increase the use of compressed natural gas (CNG) and liquefied natural gas (LNG) in the transport sector leading to a reduction in emissions.
- Meet the energy needs of smart cities and smart villages.
- Complement the development of transnational pipelines (such as the Turkmenistan-Afghanistan-Pakistan-India pipeline and South Asia Gas Enterprise Private Limited’s Middle East to India deepwater pipeline) and LNG terminals along the coast.
- Help in electricity grid stabilisation during peak load demand with the help of gas-based power and supplement the renewable energy development target of 175 GW by 2030.
- Drive the development of domestic gas fields including isolated and small fields.
- Achieve the United Nations’ Sustainable Development Goal 7: Ensure access to affordable, reliable, sustainable and modern energy for all.
At present, the country’s operational natural gas pipeline infrastructure spans over 16,769 km. Another 14,000 km of pipelines are at various stages of development or planning. Upon completion of the national gas grid, the inherent issue of regional imbalance of gas connectivity is likely to be addressed.
- Economic viability of existing pipelines is under threat: Existing gas pipeline developers are under severe financial pressure due to underutilisation of pipelines. It is to be noted that in 2017, the average capacity utilisation of the existing pipeline network was only 45 per cent. Lower utilisation of capacity means lower revenue generation, which threatens the economic viability of pipelines. It has been found that post-tax returns on the major pipelines are far below the industry standard of 12 per cent (2018) on the total capital employed as stipulated in the tariff regulations notified by the Petroleum Natural Gas Regulatory Board (PNGRB).
- Demand constraints: Natural gas demand and supply constraints are key challenges to the techno-commercial viability of under-construction pipelines. The lack of availability of natural gas demand/anchor load customers on the proposed section of natural gas pipelines make them economically unviable. For example, recently the PNGRB cancelled the authorisation of GAIL (India) Limited’s Surat-Paradip natural gas pipeline (about 2,100 km) as GAIL could not meet the minimum regulatory requirements due to viability issues of the pipeline. Similar viability issues are being faced by other under-construction pipelines due to the non-availability of anchor load customers en route the pipelines.
- Supply constraints: Many pipeline sections were developed or envisaged to evacuate natural gas to be produced from potential gas fields such as those of Reliance Industries Limited in the Krishna-Godavari (KG) basin. Owing to techno-commercial issues, the anticipated production of natural gas from the KG basin dwindled to below 10 million metric standard cubic metres per day (mmscmd). Undoubtedly, this underproduction led to underutilisation of the existing East-West pipeline of East West Pipeline Limited (erstwhile Reliance Gas Transportation Infrastructure Limited). Similarly, Gujarat State Petronet Limited (GSPL) faces viability challenges for its Mallavaram-Bhopal-Bhilwara-Vijaipur pipeline, which is being developed in a joint venture (JV) with Indian Oil Corporation Limited (IOCL), Bharat Petroleum Corporation Limited and Hindustan Petroleum Corporation Limited.
- Right of use (RoU)/Local constraints: Natural gas pipelines pass through thousands of villages and farms. Often villagers or landowners create hindrances in acquiring RoU by implementing companies/agencies. GAIL’s Kochi-Kottanad-Bengaluru-Mangaluru pipeline is a classic example of farmers’ agitation leading to delays in project execution.
Key initiatives so far
- Government intervention to develop national gas grid: The central government has set a target of developing an additional natural gas pipeline network of around 15,000 km to build a national gas grid of 30,000 km by 2025. The Prime Minister’s Office and the Ministry of Petroleum and Natural Gas (MoPNG) are monitoring the development of under-construction natural gas pipelines closely. More importantly, the government has paid special attention to connecting the eastern and north-eastern regions to the national gas grid.
- Budgetary support to pipeline projects: GAIL is developing the 2,539 km long Jagdishpur-Haldia and Bokaro-Dhamra pipeline (JHBDPL) from Jagdishpur (Uttar Pradesh) to Haldia (West Bengal) and Bokaro (Jharkhand) to Dhamra (Odisha). To ensure the economic viability of the JHBDPL project, in October 2016, the Cabinet Committee on Economic Affairs (CCEA) approved a 40 per cent capital grant of around Rs 51.76 billion to GAIL. The total estimated project cost is Rs 129.4 billion. Further, the CCEA has also approved the development of CGD networks in the cities along these pipelines. These networks are being developed by GAIL in collaboration with the respective state governments. This will help GAIL optimise capacity utilisation and returns on investment. In order to make other proposed pipeline projects viable, similar support should be given by the government with the long-term objective of completing the national gas grid.
- North-eastern gas pipeline to connect with the national gas grid: The government has a clear vision of connecting the underserved north-eastern region with the national gas grid. Four public sector undertakings – Numaligarh Refinery Limited, Oil India Limited, IOCL and GAIL – have formed a JV to develop gas pipelines in the region. Two pipeline projects currently being developed are the 700 km Barauni-Guwahati pipeline at an estimated cost of around Rs 45 billion and the 1,500 km North Eastern Gas Pipeline at an estimated cost of around Rs 60 billion. Under these two projects, state capitals of the north-eastern states are being connected to the national grid in the next three-four years.
- Regulatory intervention to develop CGD business across the country: The CGD segment was accorded the highest priority in the domestic gas allocation policy by the MoPNG, and the PNGRB is now aggressively working on the CGD bidding process. In the recently concluded ninth round of bidding, the PNGRB has awarded CGD licences for 86 geographical areas (GAs) covering 174 districts. With the completion of the ninth bidding round, CGD infrastructure will be set up in 178 GAs comprising 280 districts spread over 26 states and union territories covering more than 50 per cent of the population and 35 per cent of the GA. This will enable the development of a robust transmission pipeline network as part of the national gas grid and improve the capacity utilisation of the existing pipeline infrastructure.
Case for developing a natural gas grid/market in Gujarat
Of the total 16,700 km natural gas pipelines, around 26 per cent (or 4,600 km) are in Gujarat. GSPL alone has around 2,600 km of natural gas pipelines spread across 26 districts of the state. The presence of a well-established regional natural gas pipeline infrastructure across the state will enable the development of a natural gas grid/market in Gujarat. Currently, natural gas accounts for an approximately 25 per cent share in the state’s energy mix, which is more than the global average of 24 per cent. Also, the widespread presence of natural gas pipelines across the state enabled the PNGRB to authorise all 33 districts to develop CGD infrastructure making Gujarat the first state in the country to be fully covered under CGD.
The following are key recommendations for developing a national gas grid and natural gas market in the country:
- Capital grant support from the government to enhance commercial viability of seemingly non-viable pipelines.
- Promoting gas-based industries along the pipeline network.
- Local government support to acquire RoU for project execution.
- Developing a regional gas grid in other states on the lines of Gujarat, to supplement the development of the national gas grid.
- Rationalisation/Unification of transmission tariffs for pipelines.
- Advancing the idea of a gas trading hub to develop a natural gas market.
- Promote LNG as an auto fuel in heavy vehicles and a bunker fuel in shipping.
- Maintain a strong relationship with gas supplying countries through energy diplomacy. n
(The author has used various sources including BP Statistical Review of World Energy 2018, June 2018; Gujarat State Petroleum Corporation; MoPNG; PPAC; PNGRB; PIB; news articles; etc.)