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Executive Summary
The share of natural gas in the countrys primary energy mix has increased to nearly 10.6% still Indias natural gas consumption lags far behind the global average, primarily due to the low availability of natural gas and inadequate transmission and distribution infrastructure. Domestic production of India were 1437 bcm as of 1st April 2010.India currently doesnt have any pipeline connection all the 12.15 bcm gas imported are LNG majorly from Qatar and Australia. The CGD business in India dates back to 1857 when Calcutta Gas Company and Bombay Gas Company commenced operations. The initial growth of CGD had driven largely by orders from the Supreme Court to control environmental pollution. The consumers of natural gas via CGD network are classified into different categories based on their capacity and end use. CGD infrastructure consists of CGS, DPRS, metering etc. Policy of development of natural gas pipelines came in effect in 2006 to promote investment in NG pipelines, facilitate open access. GAIL has network of about 8000km. The supply chain in CGD are from production stage to processing stage followed by various other stages in between till it reaches end consumer. Investment in the CGD network involve estimation of market size, cost of the project, supply options, technical and financial feasibility, selling price and risk profiling are the generally applicable for all the projects, some peculiarity in CGD network project are market size and supply options. The CGD segment is expected to witness significant growth in coming years due to the rapid increase in natural gas consumption in the transportation, industrial, commercial and residential sectors. Customer Service in CGD business is as important as in any other business. Major commercial issues in CGD business are like gas supply, pricing, regulatory clearance. PNGRB has issued the regulation in 2008 on T4S. The creation of the regulator in 2006 paved the way for the long-term growth of the midstream and downstream segments, as it has ushered in greater regulatory clarity in areas such as CGD and laying of gas-transmission pipelines. PNGRB has issued various gazettes like regulation on access code, network tariff, exclusivity and many more.
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Contents
Executive Summary 1. India Natural Gas Facts 2. Overview of CGD Business in India 3. City Gas Distribution Infrastructure 4. Natural Gas Transportation Networks - India 5. Supply Chain in City Gas Distribution 6. Project Management aspect of CGD Network 7. Market Development for CGD Business 8. Customer service issues in CGD Business 9. Major Commercial Issues 10. QHSE in City Gas Distribution 11. CGD Regulation-India References 03 05 10 13 17 19 21 22 24 25 26 27 31
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Source: BP statistical Review 2011; & Basics of Statistics on Indian Petroleum and Natural Gas 2009-10
Going forward, given its increasing availability, cheaper price as compare to other primary energy and new discoveries natural gas is expected to account for a significant share of the countrys primary energy mix. Indias natural gas market is characterized by a supply deficit, primarily due to the low availability of natural gas and inadequate transmission and distribution infrastructure. In the past, demand for natural gas increased significantly. Due to this major deficit of natural gas 12.15 bcm of LNG was imported in 2010 to meet the everincreasing demand for energy. Indias domestic gas production in
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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
LNG in India
As India currently doesnt have any pipeline connection all the 12.15bcm gas imported in 2010 is LNG. LNG import capacity India is currently 13.6 mtpa. India joined global LNG market in March 2004 when Dahej terminal of Petronet LNG limited a JV went into operation. The second LNG terminal is the Shell 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% was imported from Qatar & Australia (65% Qatar & 9% Australia),and remaining 25% from Trinidad and Tobago, and Russia as well as from a few other countries. Table 2 India LNG imports by country (bcm) 2004- 2005- 2006- 200705 06 07 08 Abu 0.09 0.08 Dhabi Australia 0.09 Indonesia Malaysia Oman Qatar Algeria Nigeria T&T Egypt E.Guinea Norway Russia Others Total 3.49 6.98 9.59 11.52
Source: Natural Gas in India 2010 working paper-IEA
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200809 0.13 0.16 0.08 0.41 8.34 0.53 0.38 0.23 0.24 0.42 0.08 0.17 11.16
200910 0.16 1.11 0.08 0.25 0.35 7.95 0.16 0.32 0.68 0.33 0.25 0.68 12.31
Table 3 Existing and upcoming LNG terminals Terminal Dahej Partners Petronet LNG,GDF Suez,ADB & Private share holder Shell , Total NTPC, GAIL, Indian Bank, MSEB GSPC , Adani Group Petronet LNG TIDCO, Oil India Capacity 10 mtpa
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Maharashtra MGL Delhi Madhya Pradesh Andhra Pradesh Uttar Pradesh IGL Avantika Gas Ltd Bhagyanagar Gas Ltd
Central UP Gas Ltd Kanpur & Bareilly Adani Energy Ltd Green Gas Ltd Charotar Gas GAIL-HPCL JV GGCL Adani Energy Ltd GSPC Gas SGL Faridabad, Noida & Lucknow Agra & Lucknow Anand Vadodara, Ahmedabad Surat, Bharuch, Valsad Ahmedabad, Vadodara Gandhinagar, Morbi Gandhinagar, Mehsana , Sabarkantha Agartala
Gujarat
Tripura
The consumers of natural gas via CGD network are classified into different categories based on their capacity and end use. Domestic customer also called as residential customers. This set of customers is primarily use gas for cooking purpose and also for heating water through gas geysers. While hotels, restaurants, sweetshops, hospitals office etc would primarily require gas for cooking and hot water requirement .Industrial consumer are also served by the CGD companies which are having requirement between 50000 to 100000.Transportaion sector need NG for transportation purpose and catered through the development of CNG stations network.
Pricing
The natural gas pricing scenario in India is complex and heterogeneous in nature. There are wide varieties of gas price in the country. At present, there are broadly two pricing regimes for gas in the country gas priced under APM and non-APM or free market gas. The price of APM gas is set by the Government. As regards non-APM/free market gas, this could also be broadly divided into two categories, namely, domestically produced gas from JV fields and imported LNG. The pricing of JV gas is governed in terms of the PSC provisions. It is expected that substantial gas production would commence from the gas fields awarded by the Government under the New Exploration Licensing Policy. As regards LNG, while the price of LNG imported under term contracts is governed by the Special Purchase Agreement between the LNG seller and the buyer, the spot cargoes are purchased on mutually agreeable commercial terms. Due to supply constrained scenario spot price are driven by LNG imports. As the price deregulation will come in effect, gas from new sources would be sold at market rate determined by the demand-supply dynamics. Development of the infrastructure gas infrastructure depends upon the pricing as the revenue from sale will decide the viability of the natural gas project.
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Chapter 3
CGD Infrastructure
City Gate Station
City Gate Station also known as CGS; City Gate Measuring and Pressure Regulating Station means the point where custody transfer of natural gas from natural gas pipeline to CGD network take place. Main function of CGS is to measure the amount of incoming gas. Pressure is also reduced at CGS before distribution as distribution system requires lesser pressure as compare to long distance transmission. Odorization is 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 equipments 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. District Regulation Station are installed where the distribution is to be done like in the industrial area and domestic or 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
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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. 100 mbar pipelines to end user.
Metering
Meters are placed at the gas consumer premises for recording of the amount of gas delivered to the consumer. Various type of meter used by the CGD companies are: (1) Positive displacement meters (2) Turbine meters (3) Orifice meters (4) Ultrasonic meters (5) Coriolis meters
Pipeline Companies
A well-developed and interconnected network of pipelines is of crucial importance for transportation natural gas from remote production areas to end consumers. The web of pipelines acts as the artery that no CGD companies can do without it. It is deemed as the, most convenient and cost-effective method for quick and smooth distribution of gas to consumer. 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.
the pipeline network on a non-discriminatory basis, promote competition among entities thereby avoiding any abuse of the dominant position by any entity, and secure the consumer interest in terms of gas availability and reasonable tariff for natural gas pipelines and 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 Pipelines
A typical CGD Network should comprise of one or more or all of the following: 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).
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Tertiary Network: A service pressure distribution system comprising of Service Lines, Service Regulators and customer / consumer Meter Set Assemblies constructed using a combination of thermoplastic (MDPE) piping and GI / copper tubing components.
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a combined length of 4,000 km and capacity of 125 MMSCMD are expected to get ready within three years. Table 5 Indias 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 RGTIL EWPL Total
Source: GAIL
08 80 283
06 50 166
Source: PetronetLNG
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Production
Processing
Transmission
Storage
Distribution
End consumer
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The supply chain partner to CGD companies includes E&P companies which extract the natural gas example RIL, ONGC. It also include Financial operator 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
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Chapter 6
Project Management aspect of CGD Network
As the population grow, cities expand and therefore the CGD network expand.CGD network are lifelong (read 25 years), as the network grow business also grow. Due high investment in building the network the gestation period is very high. Design of the network needs to incorporate safe operations, maintenance, future demand, and expansion. Investment in the CGD network involve estimation of market size, cost of the project, supply options, technical and financial feasibility, selling price and risk profiling are the generally applicable for all the projects, some peculiarity in CGD network project are market size and supply options. In any CGD project pipeline network cost around 60% of entire project cost, it is very import to have chalk out the proper plan for each and every activity to execute the project in budgeted time and cost. In geographical area while planning for the CGD network, demand of the market is to be assessed for all four segments: industrial, domestic, commercial, & automotive. For example for industry the physical capacity of production units to be served & their delivery needs have to be worked out. The feasible size of various physical components, like pipeline diameter, has to be evaluated. They also need to maintain the highest safety standards to ensure that preventable accidents are avoided. Before the execution of the project clearance from road & building department, public health, water board, electricity department, sewage department need to be taken. The main activity involved in building of CGD network involves: Conception of Project Survey and ROU RFP Document Preparation Commercial feasibility Technical feasibility Pre-Qualification Process Bidding Process
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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
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After the last mile connectivity, its not the only responsibility of the CGD company to maintain the continuous supply of gas but also to provide quality gas along with the safe operation of the network without disturbing the environment. PNGRB has issued the regulation in 2008 on T4S (Technical Standards and Specifications including Safety Standards) specifying the every aspect of materials and equipment to be used; what kind of welding & welding standards need to 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; & corrosion control procedures. Technology is playing role in big way in development, operation, maintenance of CGD network and business and provide safe environment to work. Due to technological advancement CGD companies are using SACADA and are able to effectively monitor the pressure, flow, quality on the pipeline network due to which they are able to maintain the required pressure and flow rate which are required at the burner tip otherwise gas will lose its usability. By using technology company are able to supply quality gas. By the use of GIS companies are easily able to map pipeline network and can locate the location of the leakage in the pipeline easily. Natural gas supplied through CGD Network shall have a distinct odour strong enough to detect its presence in case of leakage PNGRB recommend the use of automated odorisation system.
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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;
Regulation of Network Tariff Regulations for Determination of Network Tariff for City or Local Natural Gas Distribution Networks regulation 2007.The transportation tariff of City or Local Natural Gas Distribution Network shall be determined 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 on DCF methodology considering reasonable rate of return determined by rate of return on capital employed and shall not be higher than the average rate of long-term Government Securities issued by the RBI during the period of 12 months prior to submission of application + X%. The X% shall normally be fixed for a period of at least one year taking inter alia into account the WACC. Considering the economic scenario in the country and the area / region to be served, the Board may review this X%, even before the completion of one year period. Regulation for Declaring Petroleum or Petroleum Product Pipeline as Common Carrier or Contract Carrier Guiding Principles Declaring Petroleum or Petroleum Product Pipeline as Common Carrier or Contract Carrier regulation 2011 Objective 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.
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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 Exclusivity
Exclusivity from the purview of common carrier or contract carrier
The entity winning the rights to set up CGD network in a city will have five year marketing exclusivity. After five years, the network will be thrown open to competition but a fresh entrant will not be allowed to lay a new pipeline. It will have to use the network for which it has to pay a fee to the CGD Company. However, a company that has operated the CGD network for three years or more prior to the appointment of PNGRB i.e. 1st October 2007, will have the marketing exclusivity for three years compared with five years. Exclusivity for city or local natural gas distribution network The Board may allow entity exclusivity for laying, building or expanding of CGD Network over the economic life of the project. During the economic life which is normally expected to be twenty five years of the CGD network project consisting of network of pipelines, online compressors and other allied equipments and facilities, the authorized entity shall carry out further expansions required through pipeline capacity building and CNG infrastructure as well as carry out replacements and upgradation of assets.
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References
1. Petroleum Statistics Ministry of Petroleum and Natural Gas website http://petroleum.nic.in/Monthly_Production/P_Sep_11.pdf accessed on 29th Nov 2011 2. The Economics time news article dated 21st Sep 2011 http://economictimes.indiatimes.com/news/news-by-industry/energy/oil-gas/indiaseeks-long-term-lng-purchase-deals-with-brunei-indonesia-australia-and-malaysia-asit-plans-to-double-capacity/articleshow/10065464.cms accessed on 29th Nov 2011 3. Petronet LNG corporate presentation http://www.petronetlng.com/PDF/Petronet_Corporate_Presentation_June_2011.pdf accessed on 29th Nov 2011 4. EIA Country specific analysis http://www.eia.gov/countries/cab.cfm?fips=IN accessed on 29th Nov 2011 5. Business standard article Shell, Total to expand Hazira LNG capacity http://businessstandard.com/india/news/shell-total-to-expand-hazira-lng-capacity/454062/ accessed on 30th Nov 2011 6. Platts RSS Feed http://www.platts.com/RSSFeedDetailedNews/RSSFeed/NaturalGas/8544829 accessed on 30th Nov 2011 7. IEA working paper Natural Gas India http://www.iea.org/textbase/nppdf/free/2010/natural_gas_india_2010.pdf accessed on 30th Nov 2011 8. http://www.vikalpa.com/pdf/articles/2010/Vik354-06-Colloquium.pdf accessed on 5th Dec 2011 9. PNGRB regulation http://www.pngrb.gov.in/exclusivity.pdf accessed on 6th Dec 2011 10. Ministry of Petroleum and Natural Gas Gazette notification http://petroleum.nic.in/policy%20of%20pipelines.pdf accessed on 6th Dec 2011 11. http://duncansfertiliser.blogspot.com/2011/05/india-is-expanding-its-gaspipeline.html accessed on 6th Dec 2011 12. Gail Website http://gailonline.com/final_site/naturalgas_transmission.html accessed on 7th Dec 2011 13. The Economics time news article dated 23rd June 2011 http://articles.economictimes.indiatimes.com/2011-0623/news/29694751_1_mmscmd-kg-basin-pipeline-network accessed on 7th Dec 2011 14. Petronet LNG corporate presentation http://www.petronetlng.com/PDF/Petronet_Corporate_Presentation_June_2011.pdf accessed on 7th Dec 2011 15. Analyst Presentation, GAIL (India) Limited website http://gailonline.com/final_site/pdf/Investor_Presentation_Mumbai_June_2011.pdf accessed on 9th Dec 2011 16. 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 2011 17. http://www.pngrb.gov.in/draft/acfinal.pdf accessed on 9th Dec 2011 18. Control System Solutions for CGD http://pptfree.com/Indiaoilgas/CGD/Control_System_Solutions_For_Cgd.pdf accessed on 16th Dec 2011 31