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Date of Submission 04/04/2011

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I am extremely grateful to Dr. Pramod Paliwal, School of Petroleum Management, for his timely help, teaching and support throughout the project work.

City Gas Distribution

I am also grateful to Mr. Amit Singh, Assistant Manager, Mahanagar Gas Ltd., Mumbai for his extended support required for the project work. Last but not the least; I would also like to express my heartfelt gratitude to all my friends and library staff for providing me all the available resources which has To:Submitted contributed in this project. Without help of the Dr. Pramod Paliwal persons mentioned above, I would have faced many difficulties while completing this project. Submitted By:Saurabh Dubey (20091046) School of Petroleum City Gas Distribution Management, Gandhinagar
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Executive Summary
City gas distribution has emerged as an area of rapid growth in the oil and gas industry. CGD has spread to 36 geographical areas the petroleum and natural gas regulatory board decided to call for CGD bids for geographical areas rather than cities or towns. The geographical areas are not restricted to municipal limits and have been demarcated so as to include a mix of industrial, commercial and domestic user base. The initial growth of CGD had driven largely by orders from the Supreme Court to control environmental pollution. The current growth, however, is being driven by the commercial attractiveness of it. This report broadly covers all the important aspects of CGD business as such overview of CGD business, infrastructure, gas transportation, supply chain management, project management, market development, customer service issues, commercial issues, regulatory framework, QHSE aspects and international perspectives. The multiple uses of natural gas in the domestic sector and transportation are being recognized by the country at large. Coupled with greater availability of natural gas and the presence of several players willing to invest in CGD, the segment is poised to see explosive growth.

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Acknowledgement.....................................................................................................2 Executive Summary...................................................................................................3 Natural Gas Facts.......................................................................................................5 Introduction............................................................................................................5 Natural Gas Applications.........................................................................................7 Domestic Production...............................................................................................8 LNG Terminals........................................................................................................9 Overview of CGD business in India..........................................................................10 Introduction..........................................................................................................10 CGD Basics...........................................................................................................10 Evolution...............................................................................................................11 Profile of Major Players.........................................................................................13 CGD Infrastructure...................................................................................................15 Gas Transmission & Distribution System..............................................................15 Value Chain of CGD..............................................................................................17 Pipeline Companies..............................................................................................22 Regulatory aspects in laying pipelines..................................................................22 Natural Gas Transportation Networks in India.........................................................23 Supply Chain in CGD................................................................................................26 Project Management aspects of CGD network.........................................................28 Project Management Activities.............................................................................28 Factors affecting the supply chain business.........................................................31 Risk Management.................................................................................................32 Market Development for CGD Business...................................................................33 Benefits of Market Development for Stakeholders................................................34 City Gas Distribution Page 4


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Natural Gas Facts

Natural gas is a combustible mixture of hydrocarbon gases. It is primarily composed of methane, ethane, propane, butane and pentane as shown in exhibit 1. Deposits of natural gas are often found in conjunction with petroleum and, like oil, natural gas is recovered from wells drilled into the earth's surface.
Exhibit 1: Composition of Natural Gas Component Typical Analysis (mole %) 95.2 2.5 0.2 0.03 0.03 0.01 0.01 0.01 1.3 0.7 0.02 trace Range (mole %) 87.0 - 96.0 1.5 - 5.1 0.1 - 1.5 0.01 - 0.3 0.01 - 0.3 trace - 0.14 trace - 0.04 trace - 0.06 0.7 - 5.6 0.1 - 1.0 0.01 - 0.1 trace - 0.02

Methane Ethane Propane iso Butane normal Butane iso Pentane normal Pentane Hexanes plus Nitrogen Carbon Dioxide Oxygen Hydrogen

Specific Gravity City Gas Distribution


0.57 - 0.62 Page 6

Gross Heating Value (MJ/m3), dry basis


36.0 - 40.2

Natural gas is often informally referred to as simply gas, especially when compared to other energy sources such as electricity. Before natural gas can be used as fuel, it must undergo extensive processing to remove almost all material other than methane. The by-products of that processing include ethane, propane, butanes, pentanes and higher molecular weight hydrocarbons, elemental sulfur and sometimes helium and nitrogen as shown in exhibit 2.

Exhibit 2: Typical composition

The demand for natural gas and to generate electricity has risen steadily. In fact, natural gas is projected to be the fastest growing primary energy source in the world through 2025. Much of the supply and production lies in natural gas hydrates around the world. These hydrates hold great promise, due to their abundance, but more research is required to develop this source to its potential. The lifecycle of natural gas is shown in exhibit 3.
Exhibit 3: Natural Gas lifecycle

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Natural Gas Applications

Domestic Usage: Residential applications are the most commonly known use of natural gas. It can be used for cooking, washing and drying, water warming, heating and air conditioning. Domestic appliances are increasingly improved in order to use natural gas more economically and safely. Operating costs of natural gas equipment are generally lower than those of other energy sources. Industrial Usage: Natural gas is used as an input to manufacture pulp and paper, metals, chemicals, stone, clay, glass and to process certain foods. Gas is also used to treat waste materials, for incineration, drying, dehumidification, heating and cooling, and cogeneration. Commercial Purpose: Main commercial users are hotels, food service providers, healthcare facilities or office buildings. Usage also includes cooling, cooking or heating.

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Natural Gas Vehicles: NGVs are natural gas powered vehicles. Natural gas can be used as a motor vehicle fuel in two ways: as compressed natural gas (CNG) which is the most common form and as liquefied natural gas. Natural gas vehicles fleet accounts for about one and a half million vehicles worldwide. Concerns about air quality in most parts of the world are increasing the interest in using natural gas as a fuel for vehicles. Cars using natural gas are estimated to emit 20% less greenhouse gases than gasoline or diesel cars. These vehicles are not a new technology since they have been used since the 1930s. In many countries NGVs are introduced to replace buses, taxis and other public vehicle fleets. Natural gas in vehicles is inexpensive and convenient.

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Domestic Production
India has natural gas recoverable reserves of 1074 BC. Gross Production of Natural Gas in the country at 47.51 billion cubic metres during 2009-10 is 44.63% higher than the production of 32.85 billion cubic metres during 2008-09. Exhibit 4: Domestic production details Year 2005-06 2006-07 2007-08 2008-09 2009-10 Production (Bcm) 31.24 30.8 31.5 31.7 47.7 % growth 1.6 -1.6 2.3 0.9 50

The scenario has changed drastically with the production from RIL KG D6 coming online since April 2009. It is currently producing 60 mmscmd and is expected to increase to 80 mmscmd in the near future. Efficiency measures to increase production from existing fields have resulted in somewhat better than earlier predicted production. ONGC and OIL accounted for 75 percent of the natural gas supplied in the country until 2008-2009. The share of private players and JVs was about 25 percent of the gas supplied during the same period. Key private players in the gas production business include Cairn, British Gas and GSPC. In 2009-2010, RIL emerged as the largest producer of gas in the country. Soon GSPC is also expected to supply 2 mmscmd from KG basin block
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starting 2011. ONGC also expects to supply 25 mmscmd from its KG basin block by 2013. The below diagram shows the current level of production from various fields and expected scenario of production from various fields in five years to come.

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LNG Terminals
The LNG imports in India in 2008-09 were estimated at 30 mmscmd. This constituted about 29 percent of total natural gas supply total capacity of 12.5 MTPA in India in 2008-09. Out of total LNG imports, 63 percent was imported on firm contract basis while 37 percent was imported on the spot basis. The historic demand-supply gap of natural gas has provided an impetus in setting up LNG terminals. Currently India has operational terminals one at Dahej and other at Hazira both are located in Hazira. PLL Dahej has a name plate capacity of 10 mmtpa Exhibit 5: LNG infrastructure
(MTPA) Existing Capacity Petro net LNG Dahej Petro net LNG - Kochi 10 Nil 2.5 in phase 1 to be increased to 5 Shell - Hazira 3.75 ( Nameplate capacity is 5) Adani and GSPC - Mundra IOCL-Enore Ratnagiri Gas and Power Projects Ltd Dabhol ONGC- Mangalore Nil 2.5 2014 Nil Nil Nil 6 2.5 5 2014 2014 2012 5 2014 Beyond 2012 Expansion Commissioning by

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Besides the existing terminal at Dahej and Hazira few other LNG terminals with the combined capacity of 21 MTPA are expected to come before 2015

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Overview of CGD business in India

The city gas distribution (CGD) segment of the natural gas industry is a small fraction of the total gas market, but its share is rapidly expanding. The growth in this segment has been constrained so far because of a lack of a policy focus, and deficient investment in the distribution infrastructure. However the government intending to connect all the cities over 2.5 million population with city gas within the next three years and a regulatory framework that is encouraging competition and the investment in the sector, CGD is poised to see tremendous growth in the coming years. Even though the current share of CGD within the overall natural gas consumption pie is only 7 per cent, it is worth noting that this has been achieved in the past five years itself. Increasing demand from commercial and small industrial customers within the city limits, in addition to the automotive and residential demand, are the key drivers of growth in this segment. Much of the demand in future will continue to be as a result of customers finding natural gas to be more competitive than other fuels coupled with ease of handling and lower pollution. On the supply side expectation of large volumes of gas being made available within the next few years, though both new domestic finds and imports, has created greater compulsions for developing the CGD market.

CGD Basics

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As the name suggests, CGD is the last component of the natural gas value chain delivering natural gas to end users in towns and cities. While large customers such as the power and fertilizer industry receive natural gas directly through the high pressure interstate transmission pipelines, CGD is provided through the network of medium to low pressure distribution pipelines by a local distribution company. The tap off point from where the city distribution network takes its supply from the transmission system for the city distribution system is referred to as the city gate. CGD involves movement of small volumes of gas through small diameter, low pressure pipelines to a large number of retail customers. Typically, the network comprises compressed natural gas (CNG) dispensing stations throughout the network that supplies natural gas for automotive use, and a piped natural gas network that provides natural gas as a fuel for city-based commercial/industrial/domestic purposes. Since natural gas is odorless and colorless, Mercaptan is added to it and when it enters the CGD network, which gives it a typical smell of rotten eggs to ease leak detections.

CGD is not a new business for India. A review of its history reveals that the gas retail business in the country started as early as 1880 by the Calcutta Gas Company, which is operating even today. The company runs on coal gas and faces losses. The other CGD operator, which has now gone out of business, was the Bombay Gas Company that started way back in 1900 and went out of business during the 1960s.

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The Delhi Municipal Corporation operated a gas distribution system in Okhla with biogas, which worked for a long time. The system has now been converted to natural gas. Some of the smaller initiatives in city gas include the networks in ONGC townships in Mehsana, Hazira, etc. Another such social initiative was by Assam Gas in Duliajan. The big impetus for the CGD network came in the 1998 when the Supreme Court issued orders to convert all public transport vehicles plying in Delhi to CNG in response to a public interest litigation on account of rising air pollution in Delhi. This was followed by a similar initiative in Mumbai. Thereafter, it rolled into other cities like Agra, Lucknow, Pune, etc, in 2002, and further to Ahmedabad, Kanpur, Mumbai, Kolkata, Chennai, etc, in 2003. The Gujarat Gas Company Limited

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started with a few CNG stations in Surat and Ankleshwar. Adani came in this business in 2002 and GSPC Gas is the latest entrant in this sector. Exhibit 6: Evolution of CGD business Year
1880 1900 1972 Calcutta Mumbai Vadodara


Calcutta Gas Company Bombay Gas Company Vadodara Municipal Corporation

1980 1982 1985 1986 1989-91 1994 1995 2004 2005 2006 2006-07

Delhi ONGC colony Mehsana Duliajan Sibsagar Surat, Ankleshwar, Bharuch Mumbai Delhi Vadodara, Ahmedabad Hyderabad Kanpur, Lucknow Gandhinagar, Kadi, Vapi, Mehsana, Rajkot, Morbi

Delhi Municipal Corporation ONGC Assam gas company Assam gas company Gujarat Gas Company Ltd. Mahanagar Gas ltd. Indraprastha Gas Adani Bhagyanagar gas CUGL & GGL GSPC/ SGL

Profile of Major Players

Though CGD has been officially rolled out in at least 30 cities across India, there are some players who have generated enough volume sales and

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shown enough momentum that their operations could be now be considered for defining Industrial Standards in this sector. This in no way means that other players wouldnt provide any significant industrial inputs. In fact some of the other players could help in establishing benchmarks for CGD growth in Tier-II and Tier-III cities. Its only that the above three companies should go the extra mile in providing inputs to policy makers for enhanced roll out of CGD. An analogy with the Computing Industry might be IBM and Microsoft which established (and still do) industrial benchmarks, but Computing landscape also has Google, Oracle, Apple and Facebook which have a presence that as of today overshadows there two forefathers. Apart from these GAIL, HPCL and BPCL hold significant stake in CGD companies, it also being speculated that they might venture out on their own. Among the other possible future contenders is Reliance India Limited (RIL) which after bringing as a partner on board might be venturing into City Gas Distribution business. RIL-BP combine have made no secret of the fact that it is Gas marketing which they would their primary focus in the coming years. Given the RILs share in cross country transmission as well as BPs expertise in deep water gas exploration, it wouldnt be a stretch to imagine that this might prove to be a game changer. Exhibit 7: Major CGD players in India
Sr. no. 1 2 3 Entity MGL IGL Avantika GA ( Operating) 1. Mumbai 2. Thane 1. Delhi 2. Noida(1) 1. Indore 1. Faridabad(1) 2. Gurgaon (1) 1. Gwalior GA (Construction) Total 2 4 3 Page 18

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2. Ujjain 4 5 6 CUGL Green Gas Gujarat gas 1. Kanpur 2. Bareily 1. Lucknow (1) 2. Agra 1. Surat 2. Ankleshwar 3. Bharooch 1. Pune, chinchwad 1. Agartala 1. VIjaywada 2. Hyderabad 1. Gandhinagar (1) 2. Mehsana 1. Vadodara (1) 1. Ahmedabad (1) 1. Anand 1. Vadodara 1. Ahmedabad (2) 2. Faridabad (2) 1. 2. 3. 4. 5. 6. Khurja Lucknow (2) Vadodara (3) Noida (2) Jaipur Udaipur 1. Kakinada 2 2 3

7 8 9 10


1 1 3 2

11 12 13 14 15

GAIL HPCL Charotar Gas VMSS Adani energy

1 1 1 1 8



1. Gandhinagar (2) 2. Godhara 3. Hazira

1. Bhavnagar 2. Bhuj


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4. Valsad, Vapi, Navsari 5. Rajkot 6. Morbi 7. Surender Nagar 8. Nadiad 17 18 19 Sity energy Haryana City AGCL Assam 1. Moradabad 1. Gurgaon (2) 1. 2. 3. 4. Duliajan Dilbrugarh Sibsagar Moran, Naharkatia 1. Bhivandi 2. Jhajhar 1 3 4

20 21 22


1. Asansol 2. Durgapur 1. Kolkata 1. 2. 3. 4. dewas kota Sonepat Meerut

2 1 4


Saumya DSM Total 41

1. Mathura 20

1 61

Source: Gas in India 2010

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CGD Infrastructure
Gas Transmission & Distribution System
The natural gas that is received at the City Gate Stations is mostly passed through a cleaner to remove liquids and dust. The primary function of the city gate station is to measure the amount (volume) of incoming gas. It is generally measured through orifice meters. Another function is to reduce the pressure of the gas to be sent for distribution, as the distribution system requires much lesser pressure than that in long distance transmission. Mechanical devices called pressure regulators lower the gas pressure and helps to control the flow rate to maintain desired pressure level throughout the distribution system. With the reduction in pressure, the natural gas also becomes cooler, so sometimes it has to be heated up in regions where the temperature is below zero degree. Last but not the least, at the City Gate station, the odorization of the natural gas takes place. Different types of odorants are used, so that the smell makes the presence of the escaping, unburnt gas recognizable at very low concentrations. This serves as a warning well before the gas accumulates to hazardous levels; a mixture of air and natural gas are explosive over the range of 5% to 15% natural gas. To ensure safety, odorized natural gas is detectable at concentration of just 1%. The piping system also forms a major part in City Gas Distribution. Mainly there are 4 types of piping systems other than supply mains:a) Feeder mains transport gas from the pressure regulator or supply main to the distribution mains. Feeder mains might also have some lines connected to large industrial users.
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b) Distribution mains supply gas primarily to residential, commercial, and smaller industrial consumers. c) Service lines deliver gas from the distribution main in the street to the consumers meter. Service lines are usually the property and responsibility of the utility. However, some utilities own only the portion of the service lines in the public domain. d) Fuel lines are customer piping beyond the meter to various appliances. These lines are the property and responsibility of the building owner. District Regulation Station are installed where the distribution is to be done like in the industrial area and commercial segment. Gas to the various consumers is transferred after being maintained at a pressure of about 4-5 bar. Then the gas is transmitted to Single Stream Regulator (SR) through 4 bar medium pressure PE pipelines. SR further reduces the pressure from 4bar to 100 mbar. From SR the gas is supplied through a 100 mbar low pressure PE pipeline to a G.I. Riser Isolation wall. From this valve the gas is carried through a G.I. (Galvanized Iron) 100 mbar pipelines to end user as shown in exhibit 9. The control valve is placed at the height of 5 ft which controls the flow and School of Petroleum Management 18 City Gas Distribution then a regulator are installed which brings down the pressure to 21 mbar for basic home users. A meter is installed which tells the amount of gas being used depending on which they are charged. Exhibit 8: Gas transmission & distribution system

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Exhibit 9: Details of pressure regimes

Value Chain of CGD

Gathering lines Just as crude oil gathering lines collect crude oil from producing areas, gas gathering lines collect raw gas from same locations. Some gas called associated gas is produced from well in association with the crude oil. Other gas called non associated gas comes from well producing only gas. Gathering station

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The gas produced from the wells has enough pressure to enter gathering lines directly without compression. Sometimes compressors are added to boost the pressure to overcome other gatherings lines pressure. These stations are called gathering station.

City gate station At city gas or town border station transmission lines delivers the natural gas to local distribution stations. At the point pressure regulators reduce pressure down to those allowed in the distribution system also there are metering facilities, quality monitors, and odorization facilities. Sometimes heaters are required to warm the gas that cools as a result of pressure reduction at the station.

The main components of the CGS are

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Pressure Reduction System (PRS) Slam Shut Valve(SSV) Filtering Unit: To remove the impurities & small particles to maintain gas efficiency. Piping with metering equipments (mainly orifice meters).

The pressure at which the gas delivers to CGS is 37-90 bar. CGS reduces the pressure to approx 27 bar through the stepwise pressure reduction system.

The various skids in the City Gas Station includes, a) Gas filtration skid. b) Pressure reduction skid. c) Flow metering skid. Gas filtration skid The skid has been designed in such a way as to accept a single stream only. High efficiency filter separators are used for the removal of liquid and solid particles from the incoming gas stream over the entire operating range. The gas outlet from the processing industry is cautiously maintained at free of impurities, the filtration skid ensures the pure gas distributed to the line. The filter is normally designed to withstand a pressure in the range of 30 49 bar. Pressure reduction skid The pressure reduction skid is installed to reduce the pressure of the incoming gas from the source from the pressure of 37 bar to 27 bar. Mainly

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creep relief valve is being installed in this skid which maintains the downstream pressure. Flow metering skid Flow meters are installed to for a single stream. The normal flow meters used in the CGS is orifice plates. Orifice flow meters find its use as a large pressure drop is required. The various parameters such as temperature in the various sections of the line pressure at the inlet & outlet joints, flow inlet & outlet are controlled by the SCADA systems in the control room. District Regulation Station (DRS) DRS is a device used to reduce the pressure from 27 bar to 4 bar. It is the interface between the steel grid network & the medium pressure network. The location the DRS mainly depends on the requirements of the area i.e., the type of customers to the company. Example, Group of small industries in an area and areal extent to domestic area

The various components in the DRS include the following, Slam shut valves for controlling the flow. Filtering skid. Pressure reduction skid.

The inlet to the DRS is from the steel line and the outlet is also the steel line, where its joined to the PE line using the Steel PE convertor. These Stations are smaller version of CGS They take gas from Steel Network and reduce the pressure to 4 Bar. They supply the gas into a Polyethylene pipeline network
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Odorizing unit Odorizing unit is highly essential to ensure the safe distribution of the both CNG and PNG. The odorants mainly include the mercaptans. These odorant in injected in to the natural gas to detect leaks if any. The odorant used is Ethyl Mercaptan.

Metering system Pipeline customers demand to know they receive the same amount of oil or gas they put in. pipeline companies generally use direct volume meters or inference meters. Some types are as follows (1) Positive displacement meters (2) Turbine meters (3) Orifice meters (4) Ultrasonic meters (5) Coriolis meters

CNG Infrastructure Mother Station

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Mother stations are connected to the pipeline & have high compression capacity. These stations supply CNG to both vehicles & daughter stations (through mobile cascades). The Mother station requires heavy investment towards compressor, dispensers, cascades, pipelines, tubing etc. Online Station CNG vehicles 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 pipelines gas to the pressure of 250 bar for dispensing CNG to the vehicle cylinder. The investment in an online station is midway between daughter station & mother station. Daughter Station The Daughter Stations dispense CNG using mobile cascades. These mobile cascades at daughter stations are replaces when pressure falls & a depleted mobile cascade is refilled at the Mother Station. The investment in a daughter station is least among all types of CNG stations. There is reduction in storage pressure at daughter stations with each successive filing. Once
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the storage pressure drops, the refuelling time increases, while the quantity of CNG dispensed to vehicle also decreases. Daughter-Booster Station

Installing a booster compressor can eliminate drawbacks of daughter stations. Daughter booster (compressor) is designed to take variable suction pressure & discharge at constant pressure of 200 bars to the vehicles being filled with CNG. The investment in daughter booster station is slightly higher than that of daughter station.

Pipeline Companies
The major pipeline manufacturing companies in India involved in manufacturing of pipes and tubes are L&T, Punj Lloyd and PSL. PSL claims to be the largest manufacturer of SAW (Submerged Arc Welded) technology and has been the biggest supplier of GSPL. Similarly pipeline material of various thickness and tensile strength are manufactured by Punj Lloyd as well as L&T.

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Regulatory aspects in laying pipelines

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 nondiscriminatory basis at transportation rates laid down by the Board. The capacity available under open access common carrier basis will be allocated in a transparent and objective manner in line with the regulations to be drafted by the Board in this regard.

Natural Gas Transportation Networks

One of the primary infrastructural necessities of having a robust City Gas Distribution across cities and towns in India is that a network of well developed cross country pipelines exist to serve the purpose of bringing in gas produced from far off fields to within City limits. India unfortunately has been lagging behind in development of a robust Gas Infrastructure in this nation. One of the important reasons being that Natural Gas was never treated at par with other fuels in solving Indias energy needs, Government policy lacked the imagination and prescience to tackle Indias energy issues at a macro level. Lack of exploration activity as far as natural gas is concerned also didnt help the case much. Although post 2000 there has been increased activity in this regard. Until Reliance East West pipeline got commissioned in April 2009 India had only one transmission pipeline to speak of the Hazira-Vijaypur-Jagdishpur pipeline commissioned in 1986.

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However the last few years have seen tremendous strides the pipeline infrastructure is expected to double in 2014. As of today India has effectively 11,402 km length of pipeline with a carrying capacity of 320 mmscmd. It

means that within next 3 years the total pipeline length should be nearer to 22000 kms. It is an ambitious task which is being met with all due diligence. The key players who will be playing a major role in the coming three years are GAIL RGTIL GSPL

Exhibit 10: Company-wise pipeline ownership

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The gas transmission domain in India has been dominated by the GAIL India Limited. It operates the Hazira Vijaipur Jagdishpur (HVJ), Dadri Vijaipur Pipeline (total 3452 Km long), and a few other pipelines, connecting the LNG terminal at Dahej to Vijaipur and Uran and the power plant at Dabhol to Panvel as shown in exhibit 11. With the recent domestic gas finds KG basin off the East coast of India the transmission of gas to the demand centres based in the west and north of the country has assumed greater importance. Reliance Gas Transportation Infrastructure Limited (RGTIL) has implemented the 1385 Km East West Gas Pipeline to carry 80 mmscmd (million standard cubic metres per day ) of natural gas from Kakinada in Andhra Pradesh to Bharuch in Gujarat and traverses through the states of Karnataka and Maharashtra and it has further planned to construct four new cross country pipelines. Gujarat state Petronet Ltd. ( GSPL),a GSPC group company involved in gas transmission arm also has an extensive network of around 2400 Km in Gujarat. The existing Pipeline capacity of 220 mmscmd is expected to increase to 660 mmscmd in the medium term. This expansion in infrastructure would lead to better gas availability, better tapping of demand and thus increase the natural gas demand.
Exhibit 11: Gas network in India City Gas Distribution Page 32

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Supply Chain in CGD

The piped natural gas value chain starts from exploration, storage, transportation and distribution to the various end users as per the regulations in any particular locality as show in Exhibit 12. Exhibit 12: Natural gas value chain

The partners of supply chain in CGD business is shown in Exhibit 13. Exhibit 13: Supply chain partners It also includes financial operators and feasibility experts examining the viability of projects both financially and operationally, gas distribution consultants and project designers/engineers suggesting the best possible design, regulators and authorities regulating the business standards and finally the gas suppliers who provide the gas for city wide distribution as shown in Exhibit 14.
Exhibit 14: Details of the various partners City Gas Distribution Page 34

Issues related to the supply chain in CGD business: Congested city areas Safe operation Leak detection Pigging Pressure variation base checking Corrosion Shortage of skilled staff Third party risk

Project Management aspects of CGD network

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Project Management Activities

The main activities of pipeline consist following aspects: Conception of Project It is very important to do a feasibility study before taking any decision for considering the project. The proper load estimation need to be done so that exact no of consumers and volume of gas can be determined. The project planning also need to be included future expansion and requirement of the natural gas in that particular area. Survey & ROU Once the project has been conceptualized, the first thing to start is survey and RoU work since it consumes good amount of time. Reconnaissance Survey is undertaken for pipeline route giving two to three options. On finalization of the best option of pipeline route, detailed survey is started on the particular chosen route. Subsequently after detailed survey, RoU / RoW along the route are taken up. The following clearances are required for project implementation: Road & Building department Forest department Public health Water Board Optical Fiber Utility Electricity Department Sewage Department

RFP Document Preparation

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Once survey and RoU process has been initiated, the process of basic engineering and RFP document preparation can be started. It is mainly having two parts:Commercial Part: Insurances etc Technical Part: It mainly consists of Scope of Work of the contractor, Design Basis, Specifications of various items, Construction specifications, Basic Drawings (P&IDs, Alignment &Cross Section dwgs, Single Line Diagrams), Survey reports, Soil Investigation Reports etc. Pre-Qualification Process The process starts during the RFP document preparation. It depends upon the length and size of pipeline project to be undertaken, a Pre-Qualification criterion is set for contractors. Past EPC infrastructure projects of certain value executed by the contractor is also set as a criterion. Based on above Pre-Qualification documents are invited from parties. After scrutiny of documents, the list of qualified parties is finalized. Bidding Process The qualified bidders get the order after the finalizing of the RFP document. Also a pre-bid meeting is held in which any queries with respect to the RFP document which the bidders may have can be answered. After the pre-bid meeting and answering of bidder queries, technical bids are invited first. The technical bids are reviewed for compliance with all tender conditions and whether the bidders have agreed to provide the system asked for.
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It consists of commercial terms and conditions like

Payment Terms, Time Schedule, Liquidated Damages, Guarantees and

Subsequently, price bids are invited only from the technically qualified bidders. The price bids are opened and the job is awarded to the lowest bidder.

Project Execution The phases for the project completion are as follows: Engineering Procurement Construction Commissioning The following parties are mainly involved in the project implementation: Client EPC Contractor Project Management Consultant Third party inspection agency The project management aspects of CGD business are:

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Factors affecting the supply chain business

These are the factors affecting the supply chain of CGD business which is need to be faced during the project execution phase.

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Risk Management
Type of Risk Technological Details No such Criteria but Pre-qualification required for bidding. The 10% Security deposit is deducted from each installment of the payment. It is returned after testing of the work. Cost Over-run Time Over-run LSTK EPC Contract Liquidated Damages of 0.75% of the Contract Price per week for the first four weeks of delay and 1.5% of the Contract Price per week thereafter, subject to maximum of 10%. Approval & ROU (Rights of Use) sought from the authorities in the Feasibility stage Supply Side: Long term gas supply from PLL & Niko Demand Side: Hugh demand at Rajkot-Morbi (Ceramic & Automobile Industries) Socio-Political Risk Force Majeure Risk N.A. Project Insurance of 5% of Project Cost

Legal/Political Risk Market Risk

The important points related to the risk management are: Higher Political & social risks in CGD projects lead to more complex project financing.

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commissioned after April, 2006. However, the social and political risks perceived are not high and hence all-debt financing is also witnessed. In India, the project takes more time in construction & procurement in comparison with its foreign counter-parts. The international project spends more time on basic & detail engineering of the project. The above inference can be extrapolated to the fact that the material imported in Indian projects stretches the procurement part. In Indian scenario the pipeline cost that includes materials and etc was 45.33% higher than the cost in international scenario in the same timeframe. This could be because of project duration, type of technology used, length of pipeline been laid down, etc.

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Market Development for CGD Business

City gas distribution develops largely with the help of four key factors: Gas supply, infrastructure, regulations, and economics/drivers. The industry has a natural advantage in building market through replacing existing fuels in domestic, small industrial, commercial, and transportation markets. However, this will depend on the relative price of gas with respect to competing fuels. Responding to this market challenge would require discovering and connecting new supplies in traditional and frontier regions. This in turn would require huge capital investment. Timing of these investments to perfectly match the market requirements would be a challenge for the Indian industry. The ability of the market to develop in such timely phases would determine the health of the gas industry in India. The Indian gas industry needs to develop the market on the same lines as other nations to meet the supply challenges. Integration of the gas markets has become a necessity due to the fact that gas has emerged as an important alternative source of energy. Effective integration of the market will equip the market with the ability to balance risks and conflicting forces across regions and fuels. This would lead to flexibility in fuel consumption pattern which, in turn, would lead to market stability and promote sustainable growth. Asia today accounts for 70 per cent of the total LNG trade; Japan and Korea are meeting their entire gas requirements through imports.19 Today India and China together account for about 3.5 per cent of the global gas consumption.20 However, with greater integration of the natural gas markets at a global level, the share of
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natural gas consumption in China and India together is expected to account for about 7 per cent of the total global natural gas consumption in high oil price scenario by the year 2030 as has been reported in EIA/IEO 2009.21 With growing demand and increased supply options, City Gas Distribution networks have sparked considerable interest amongst prospective players. However, in order to tap this opportunity, the developers need to look at the critical aspects of the projects including demand build up, adequate supply, pricing and risk factors like regulatory interference/facilitation. It is necessary that the Central and State taxes on commercial energy supplies are rationalized to yield optimal fuel choices and investment decisions. Relative prices of fuels may be artificial (and not necessarily based on the principle of sound economics) if taxes, levies, surcharges, and subsidies are not comparable across fuels. As per international practices, this equivalence should be based on calorific value of fuels say, for example, British thermal unit (Btu). In other words, they should be such that producer and consumer choices regarding fuel and technological usage are independent of taxes, levies, and subsidies, etc.

Benefits of Market Development for Stakeholders

The speedy development of CGD networks and ensuing market development offers multitude of benefits to all the stakeholders concerned, especially the customers. Only a few years back, it was very normal to see natural gas being flared-up from the wells where it was discovered, because either its use had not been realized by the industry/users or the industry was not ready with the supply, processing, and transmission and distribution infrastructure. Market development efforts ensure that both the aspects are tackled simultaneously.

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The prerequisite for market development is sufficient infrastructure for the transportation of gas and gas should not only be available but should me more in supply than the demand. However, this is not a situation that India can be into in the near future. Also, with controlled prices and gas allocation prices, there is no mechanism for price discovery. It has been proven across the world that where governments tinker with the markets, the markets do not respond well in terms of market development.

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Customer Service issues in CGD business

Customer service is the at most important in the CGD business although profitable in long term, but switching to natural gas comes along with quite a few issues which consumers are facing today, the biggest is that of irregular supply of gas. Even companies like IGL and MGL are not able to supply gas on a regular basis, and supply disruption actually help all types of customers to a great extent.

Issues in Customer Service

Industrial Customers Continuous Supply of Gas: The most common and critical issue faced by, not only the industrial but by all types of customers. The supply of gas is not continuous, sometime or the other the supply gets disrupted and it affects the industrial customer in a big way. 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. Calorific Value of Gas: Since the calorific value of gas is not always the same it affects the productivity of the customer. Contracts based on seller side: Since there is almost a monopolistic CGD market in a given region in India today, the bargaining power of customer is really low. Hence the contracts are believed to be biased towards the sellers.
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Maintenance Problems:

There have also been several issues with

maintenance and quality of service and equipments used. Domestic Customers: Delay in Registration: There is a long delay since registration is done and gas reaches at home. Though the condition has improved now, still in some cases customers had to wait for almost 2 years after applying. Billing Problems: Still there is no efficient billing system for domestic

customers. Though rules have already been passed by PNGRB for billing, yet there is still large scope for improvement. Long Pay-Back Period: Most of the companies charge around 5 to 10

thousand as installation charges, which is quite high as compared to that of LPG. And if it is a temporary residence then the money is even not refunded quickly at the time of submission of connection. CNG Long time for queuing : As the number of CNG vehicles have reached nearly .5 million and the number of CNG filling stations are still low as compared to the amount of vehicles in a city, there is a long queue at the stations and it creates a lot of problem. Pressure Drop: Drop in supply pressure affects filing time

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Major Commercial Issues

The objectives of the commercial activities are: To operate the business smoothly (Gas sourcing, pricing etc.) and strategic planning for future growth. To maintain the gas sourcing as per the exact requirement of the company and it is also required to be monitored closely. To identify new customers and educate them benefits of Piped Natural Gas. To decide the gas price as per the guidelines of the company. Strategic planning short term as well as long term assuming all the possibilities. To update the management workflow as per the latest guideline provided by the regulatory boards. To maintain gas supply management and preparation of management information system (MIS).

Commercial Activities & Issues in City Gas Distribution

The main commercial activities in CGD are:-

Gas Sourcing Long term and Short term Industrial and Commercial Gas Marketing Pricing of Gas Business Development Activities Strategic planning and business planning Regulatory Compliance Gas Supply Management
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Government Liasoning

The main issues are related with the operating business smoothly and strategic planning for future for expansion of business need to be addresses effectively on time.

The primary concerns with respect to gas distribution are the safety and security of the pipeline network. The mesh of pipelines being used to distribute the gas needs to be maintained at the highest operating level, because any leak can lead to catastrophic accidents. The safety regulations are given the highest priority while issuing new licenses. The main challenges in maintaining the quality, health, safety and environment aspect of this business are:-

Transmission Network
Very high operating pressures > 90 bar Networks spread over longer distances with bigger size pipelines. Increasing levels of awareness along the pipeline route amongst the general population. Operators ability to respond to emergency and contain the damages. Thorough monitoring to minimize third party interference, leakages through probable use of SCADA.

Distribution network
Low awareness among the society about the hazards. Networks running very close to population, buildings, etc.

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Operators preparedness to reach the affected site in case of damages to pipeline and contain the emergency due to congestion on the roads. Customers using non-standard appliances, illegal extension of pipelines within their premises. Concealing of pipes within the houses in the name of beautification. Unplanned digging of the pipelines within the customers premises leading to gas leakages. Gas Ingress leakages issues in the populated areas due to underground


Poor maintenance and no yearly mandatory checks CNG system Use of non-standard cylinders leading to accidents.

on the 200 Bar

Use of expired cylinders/Non standard fitments from unauthorized retro fitment agencies. recertification system for High pressure CNG vehicles Strict enforcement of NO Mobile policy at CNG refueling stations

Major oil and gas transmission pipelines are subjected to Safety Audits by OISD, as per its codes and procedures. City Gas Distribution is not being subjected to any such audit. There is need to study international codes / procedures /practices and adopt best practices. Responsibility can be given either to OISD or Regulatory Board. As City Gas Distribution is expected to expand in near future, Government needs to examine issues related to Safety, Health and Environment and adopt uniform practices all over the country.
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The safety guidelines are coined by the Oil Industry Safety Directorate (OISD), a technical body under the Ministry of Petroleum and Natural Gas (MoPNG). The functions of the OISD are elaborated below: To oversee the implementation of all the decisions of the Safety Council, To keep abreast of the latest design and operating practices in the area of safety and fire fighting in the hydrocarbon processing industry in the developed countries, so as to develop standards and codes that would be suitable for the conditions in India. To liaise with the statutory organizations on current views and developments and help evolve a concerted effort for the industry; To carry out periodic safety audits, review, suggest procedures for improvements and report on the implementation of the suggestions to Safety Council; To collect the relevant information and exchange it with the members of the Oil Industry including information regarding accidents and disasters occurring in the oil industry, and also organize industry meetings for exchange of experience. To carry out enquiries into accidents, whenever required, and provide support to Enquiry Committees set up by the Government. To ensure implementation of all approved codes of practices for industrial hygiene. To review practices in the storage and handling of dangerous chemicals and ensure compliance with latest standards. To review disaster control procedures and company preparedness. To review in plant training programmes with regard to safety.

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Thus we see that this body is entrusted by the government of India to look after the technical standards and specifications that the companies must comply with, to do business in the city gas distribution industry. The network and specific systems are implemented with the assent of the Urban Local Body (ULB) present in the city. The company interested in developing the infrastructure for the distribution of gas, needs to formulate the plan and involve the ULB in the loop. The ULB ensures that the company has an effective master plan and implements adequate safety measures. Few of the measures are: Leak Detection Equipment (LDE), and also follows industry regulations like adding the right amount of Mercaptor in the gas for easy detection in case of leakage. Safety Education Programmes (SEP) are also initiated through different channels public broadcasting channels and locations for example awareness campaigns in schools, colleges. Lastly but not the least, Emergency Preparedness (EP) and disaster management plans are reviewed by the ULB as in this high risk business, the probability of occurrence of accidents cannot be ruled out.

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CGD Regulation
The Petroleum and Natural Gas Regulatory Board Bill, 2005 establishes the Petroleum and Natural Gas Regulatory Board (PNGRB) to regulate downstream activities in the petroleum and natural gas sector . It includes refining, processing, storage, transportation, distribution, marketing and sale of petroleum, petroleum products and natural gas excluding production of crude oil and natural gas.

The main objectives of PNGRB are:

To provide level playing field for all. To protect the interest of consumer and entities. To promote competitive market. To ensure uninterrupted and adequate supply in all parts of country. To provide clear framework of operating rules. To ensure development of essential infrastructure and its optimum utilization.

Role of PNGRB

Registration of entities for: Marketing petroleum, petroleum products & natural gas. Establishment and opening LNG terminal

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Establishment of storage facilities Authorization of entities for : Laying, building, operating or expanding carrier (common or contract) for transportation of natural gas and petroleum products. Laying, Building, expanding or operating city or local gas distribution network. With respect to petroleum, petroleum products and natural gas: Ensure adequate availability. Monitor prices and transport rates. Take corrective measures against restrictive trade practices. Secure equitable distribution of petroleum and petroleum products. Enforce retail and market service obligation. Ensure display of information about the maximum retail prices fixed by the entity for consumers at retail outlets.

Declaration of pipeline as common carrier or contract carrier. Specification of access code. Laying down of technical and safety standards. Levy fees and other charges as determined. Maintain databank of information on activities relating to petroleum, petroleum products and natural gas.

Fostering fair trade and competition. PNGRB will regulate only the city gas pipeline network tariff. The end gas price to the consumers is not covered in the regulation. Exhibit 15: Regulation formation and finalization

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Regulations for Access Code

The Regulation for Access Code for Natural Gas Transmission Pipelines and City or Local Natural Gas Distribution Networks was passed in June 2007. The main objectives of this access code are:1. 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. 2. Prevent abuse of monopoly power. 3. 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. 4. Provide basis for resolution of disputes.

Regulations for Exclusivity

Marketing Exclusivity The entity winning the rights to set up CGD network in a city will have fiveyear 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. However, a company that has operated the CGD network for three years or more prior to the appointment of PNGRB i.e. 1st October
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2007, will have the marketing exclusivity for three years compared with five years. Infrastructure Exclusivity The CGD Company will have lifetime exclusivity of 25 years for the pipeline network. Eligibility Criteria Those who have obtaining rights to set up a city gas distribution network would need to meet the following eligibility criteria: Body Corporate or Company registered under the Companies Act Should have a credible plan for sourcing of natural gas 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 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. Appropriate Technical Assistance Agreement for at least one year with another party having experience of operating and maintenance of CGD network for at least a period of one year

An entity interested in developing a particular city gas project needs to submit "Expression of Interest" to PNGRB with Rs 8-12 lakh as fee depending upon population of the city (non-refundable), Geographical area, Market potential of CNG and PNG, business plan.

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Need of Regulations
CGD Regulations encourage faster network coverage with benefits to both CGD entity and end- consumer. Regulations have been conceptualized considering many parameters: 1. Level playing field to non-energy sector players: Flexibility of entering into technical tieups likely to allow entry of nonenergy sector entities into the CGD space. 2. Intention to have serious bidders with detailed plans: Time allowed by PNGRB for bid submission to allow entities to develop a thorough plan before submission of bids (having 25 year validity). 3. Benefits to new entity (Exclusivity): Five year marketing exclusivity for new cities to encourage faster network penetration with a view to capture maximum customer base and enjoy commodity margins. 4. Benefits to consumer (Open Access): Open access of the distribution network after the exclusivity period to allow competition and choice to consumer. While the biddable parameters are having strong consumer orientation, scope for a large number of assumptions exists while bidding for the parameters. 1. Lowness of Network Tariff and Compression Charge: Regulations Intention: To provide consumers lowest possible network tariff & compression charge. This would eventually reduce the delivered price to customer. Question: Will lowest tariff hamper future expansion plans? 1. Highness of Steel Grid and Nos. of Domestic Connections:
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Regulations Intention: Faster penetration of distribution network and reach to all segments of consumers. Question: How does the regulator plan to monitor the actual development?

Regulations to have a significant bearing on investment flow in infrastructure: Board has Shown commitment to the spirit of the PNGRB Act Shown keenness to move with speed Adopted consultative approach Laid emphasis on transparency Shown preference to less intrusive regulation Signaled independence

Challenges and hurdles

The management needs to take some firm actions for addressing the following issues: Dominance of Central PSUs. Heavy subsidization of kerosene and LPG. Government continues to determine price of diesel marketed by PSUs. PSUs have monopoly over transportation and storage infrastructure. Production, supply and distribution of natural gas controlled by govt. with APM price with allocation on case to case basis. New discovery lead to only one supplier. Even in this case govt. determined price and allocation.
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Ambiguity related to section 16 Notification of Petroleum products by MoPNG Shortage of manpower with relative experience.

CGD Business: International Perspectives

United States
Due to intense cold and power requirements US consumes maximum gas in the world. It has be stand largest infrastructure in the world for the distribution of natural gas. Each day around 70 million consumers depend on national natural gas distribution network for their gas requirements. Out of these 70 million customers, 92 percent are residential units, 7 percent commercial and 1 percent large scale industries and power companies. These 1 percent companies consume more than 60 percent of total gas alone in US. There are more than 1500 distribution companies which include natural gas Local Distribution companies which serve millions of consumers and other small companies which have consumer base of as low as 100. It also includes mainline natural gas pipeline companies that provide direct service mostly to large volume end users, although the bulk of the natural gas transported by pipelines usually reaches end users via LDCs. The LDCs account for more than 60 percent of total gas distributed. The remaining 40 percent gas is distributed via main line pipeline systems.
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Various Natural Gas Distributors in US Investor-Owned: These are the LDCs whose stock is publicly traded, and is generally granted exclusive territorial contracts covering large areas within a State. These are subject to Public Utility Commissions regulations. Privately-Owned: These are the LDCs that are owned by private investors and whose stock is not publicly traded. Like an investor-owned LDC and it is also subject to the State PUC regulations and rate-setting guidelines. Municipal: These LDCs are owned and operated by a municipal

government. Most municipal LDCs were organized in areas located along the long-distance routes of the large interstate natural gas pipelines that were built during the first half of the 20th century but where the potential rates of returns on investment were not attractive enough for investor-owned or privately-owned utilities to build a distribution network. Many municipalities that operate their own natural gas distribution system contract with investor- or privately-owned utilities. City Gas Distribution Cooperative: An LDC that operates on a

cooperative nonprofit basis for the mutual benefit of its members. No interest or dividends are paid out of earnings although the company is obligated to pay, by credits to a capital account for each member, any excess revenues received beyond annual operating costs and expenses. Intrastate Natural Gas Pipeline: A large-diameter mainline system that operates totally within one state. These natural gas pipelines may provide open-access transportation services or engage in purchasing natural gas from producers and suppliers for reselling to large-volume customers such as local natural gas distribution companies, electric utility companies, and

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industrial customers. They are subject to the jurisdiction of a State PUC or State Energy Office.

United Kingdom
Market of natural gas is regulated by OFGEM which also the electricity market regulator. Large, Industrial, Commercial and resident users are free to select their gas suppliers. The market has integrated energy players having presence across value chain. In terms of market development Market has evolved from being PSU controlled to privatized unbundled units. Perfect competition features with multiple gas sources, multiple producers and consumers and a well integrated infrastructure network is prevalent in UK. Talking in terms of prices Wholesale and retail prices are not regulated; transmission and distribution prices are regulated through a five year regime.

The average growth rate has been around 2.5 percent over the last five years. The gas distributors supply gas to 3.4 million households and 105 000 commercial and industry customers, through over 75 000 km of low pressure distribution networks. With a population of 21.5 million residential penetration of gas distribution system is very high at approximately 16 percent. Some local governments also distribute natural gas, such as at Dalby in Queensland. Distributors transport large volumes of gas, at high pressure from a number of locations around the country, including the Carnarvon Basin (NW Western Australia), the Gippsland Basin (Victoria's SE coast), Bass Strait, the Otway Basin and the Cooper and Eromanga Basins (on the

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borders of South Australia and Queensland). These reserves service 3.4 million residential homes via 75,000 km of underground pipes.

China is the fastest growing consumer of the natural gas in the world. But a city gas project in China also includes coal gas and LPG. The total distance of city coal gas grid is much longer than that of natural gas grid in China but natural gas grid is expected to outdo coal gas grid in next 15 years. The use of natural gas is increasing rapidly due to environmental factors. There are many companies involved in city gas business like Towngas, Xinao Gas, Panva Gas, Wah Sang Gas, Zhengzhou Gas and Beijing Gas. Besides these city gas companies, some local governments are taking the steps to get the pipeline gas by upgrading their existing grid or developing a new pipeline network. The development trends of China city gas industry indicates that in the forthcoming years coal gas will be eliminated gradually, while the natural gas will develop rapidly, and the LPG, as the complementary energy for natural gas, will develop steadily. With the increasing proportion of natural gas in China, the city gas market seems to be promising.

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Future Outlook
There are 19 CGD entities operating CGD networks in in 36 geographical areas. This segment consumed about 11 mmscmd during 2009-2010 as against a total demand of 12-13 mmscmd from domestic, vehicles, commercial and industrial customers. Within the next three years, PNGRB predicts that 86 more geographical areas will receive authorization to build and operate CGD networks. The total vehicular demand from these geographical areas is expected to be 2.5 million up from the current 700,000. In the next 5 years, 125 geographical areas are likely to be authorized and the vehicular demand from them is likely to be 3.3 million. The growth of this sector may get limited in the coming years and estimated around 15-16 mmscmd by 2013.

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(2010). Annual Report. Mumbai: Mahanagar Gas Ltd. (2008). CGD in India 2008. New Delhi: India . Dholakia, B. (2009). India Retail Revolution - Challenges & Opportunities for Fuel Retails. Petrotech - 2009. New Delhi. Draft Regulation. Retrieved March 14, 2010, from Petroleum & Natural Gas Regulatory Board: (2010). Gas in India 2010. New Delhi: India Infrastructure Research. Gas Transmission & Distribution System. Retrieved March 18, 2010, from Mahanagar Gas Ltd.: (2010). City Gas India Roundtable 2010. Ahmedabad: Vikalpa Oct- Dec 2010. City Gas Distribution, March 19, 2010: Presentations and Reports: School of Petroleum Management, Gandhinagar

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