Energy transformation has been a cornerstone of Prime Minister Modi’s first term.
India needs to rapidly accelerate on this path and evolve a consistent policy in the years to come.
When you think of the term smarter cities, you think of hyper connected public spaces making full use of a new generation of intelligent systems and sophisticated technology. You think of smarter ways to access electricity, food security, better traffic management, superior healthcare, and public safety. You would probably not think of a smarter gas grid as part of a smarter community but it is this component that is going to be among the most critical for India to achieve growth.
In November 2018, Prime Minister Narendra Modi laid the foundation stone for the 10th round of City Gas Distribution (CGD) projects in 50 cities covering 124 districts (112 complete and 12 in part) in 14 states. This included the cities approved under the smart cities programme. This extended city gas coverage to 18 per cent of India’s geographical area and to 24 per cent of its population. This translates into a minimum work commitment of setting up 2.2 crore domestic piped natural gas (PNG) connections, 4,600 compressed natural gas (CNG) stations, and laying 1.16 lakh kilometres of steel pipeline. In totality, factoring in past rounds, the CGD network would now cover 400 districts, and 70 per cent of the country’s population. The ninth round, a few months ago, was the biggest, with 86 permits on the block for selling CNG and piped cooking gas in 174 districts in 22 states and Union territories.
Companies with a net worth of Rs 150 crore could bid for geographical areas (GAs) with a population of 50 lakh. The net worth eligibility criterion came down to Rs 5 crore for GAs with a population of less than 10 lakh. Bidders for their part, are building robust demand assessment models that include technical configurations, network layout and, most importantly, evaluation of viable locations for building CNG stations.
The government of India is looking to increase the share of natural gas in the primary energy basket to 15 per cent from 6.2 per cent at present (daily consumption of 142 million standard cubic metres). World average consumption stands at 24 per cent. Prime Minister Narendra Modi has also committed to giving piped cooking gas to 1 crore households by 2020, which will be triple the current number of households covered. In fact, industry experts are looking at close to 1 lakh crore worth of investments in the natural gas value chain over the coming decade.
The Petroleum and Natural Gas Regulatory Board (PNGRB) in its press release, said that “this initiative would help in creating a robust infrastructure by bringing an investment of about Rs 50,000 crore, generate employment and play a significant role in achieving the shift towards a gas-based economy, with natural gas as the next generation, cheaper and environment-friendly fossil fuel.”
The CGD network is going to provide cooking fuel (PNG) as well as transportation fuel through retail stations (CNG). Already CGD has cornered the highest priority in gas allocation, both for PNG and CNG. If the government’s dream of according a bigger role to natural gas is implemented, it would be a source of uninterrupted energy supply to virtually all corners of the country for domestic, commercial and business usage. Gujarat has natural gas at 25 per cent of its energy basket. That has encouraged a few states to introduce special policies and guidelines to help grow the CGD network in India.
But what is the imperative behind this push for a natural gas-based economy?
Safe For The Environment
For starters, India has committed in the COP21 Paris Convention in 2015, to reduce its 2030 carbon emission intensity by 33 per cent of the 2005 level of 0.37kg per capita of gross domestic product (GDP). Indian cities make up a majority of the top-10 most-polluted cities in the world. This necessitates a push for clean, green fuel for domestic as well as commercial purposes.
More Economical Than Traditional Sources
Piped natural gas at a consumer's doorstep is safer, cleaner and economical for both storage space and the household budget. It’s nearly 60 per cent cheaper than petrol and 45 per cent cheaper than diesel, making it a viable transportation alternative. As PNG, it is almost 40 per cent cheaper than liquefied petroleum gas (LPG) at market price.
More Players, More Competition, Better Distribution, And Better For Consumers
There are almost 40 players in the CGD market, vis a vis fuel retail that has fewer players. While there are more than 60,000 retail fuel stations versus 1,500 CNG stations across India, the planned distribution capacity and subsequent consumer loyalty, will differentiate the CGD market.
Green Employment Generation
A completely different skill set is required for this sector. Experts that the newspaper LiveMint spoke with, estimate that specific opportunities will be created in engineering and procurement, gas mechanics and general labour. In view of this demand, domain experts anticipate plenty of training and skilling opportunities as well.
Government Push For Adoption
The government has implemented stringent emission levels for vehicles that target oil (which has other, diverse drivers and incentives to make the green switch). There are also plans to develop entire green corridors that will reduce India’s carbon footprint, thus impacting consumption of coal. Further guidelines to defence establishments across the country allow the development of PNG networks. Public sector undertakings (PSUs) have also been tasked to provision for PNG in their residential buildings.
Red Carpet For Investors With Differentiated Rules For Diverse Categories Of Sedimentary Basins
The newest oil and gas exploration permits will not be uniform contracts across all sedimentary basins in the country. The government intends to charge only royalty rates and forego a share of profit on hydrocarbons extracted from less explored Category-2 and Category-3 basins. The blocks will be awarded based on international competitive bids on exploration work programme.
Category-1 sedimentary basins like the Krishna Godavari (KG) Basin, Mumbai Offshore or Assam etc, where commercial production is established, will continue to be charged a 70:30 share of revenue from the oil and gas produced. Blocks here will be awarded based on bided exploration work.
To show further commitment to earning investor confidence, the contractor will have full marketing and pricing freedom to sell on arm’s length through transparent, competitive bidding. There will be no exports and no government allocation either. The contractor will be able to transfer and/or exit the block if they adhere to the work schedule, non-compliance will invite penalty.
The critics of the CGD model and associated policies cite the 100 per cent domestic gas allocation to CGD, the hidden subsidies on CNG, lock-in periods of over 25 years for contractors and investors and less investment in oil and gas exploration than in subsidies as deal-breakers over CGD. However, with new moves to woo investors, unwavering commitment to cleaner, greener, safer and smarter cities, the government has showed that it is serious about the importance of natural gas in the larger scheme of India’s energy demand.
This stress on creating a gas-based infrastructure also has long-term geopolitical implications. India will be less dependent on oil imports, and hence will have foreign policy space to realign its strategic interests.
Energy transformation has been a cornerstone of Prime Minister Modi’s first term. India needs to rapidly accelerate on this path and evolve a consistent policy in the years to come.