Expert Speak Terra Nova
Published on Jun 20, 2024

The claim of CGD network coverage for 98% of the population doesn't guarantee PNG access. It only indicates potential access and is entirely dependent on infrastructure completion and CGD economics.

City gas distribution: The challenge of geography

Natural gas is known to be a relatively clean-burning fossil fuel. Burning natural gas for energy results in fewer emissions of nearly all types of air pollutants and carbon dioxide (CO2) than burning coal or petroleum products to produce an equal amount of energy. As part of its energy transition, India has set a goal of increasing the share of natural gas in its primary energy basket to 15 percent by 2030.  The share of natural gas in India’s primary energy basket (commercial energy, not including energy derived from unprocessed biomass) has fallen from 6.83 percent in 2020 to 5.7 percent in 2022. However, in terms of absolute volume, there is an increase in natural gas consumption.  Natural gas consumption increased by over 11 percent in 2023-24 compared to about 60 BCM in 2022-23. Out of the sectors that consume natural gas, city gas distribution (CGD) which includes consumption as a transportation fuel in the form of Compressed Natural Gas (CNG), and consumption as industrial and domestic fuel in the form of piped natural gas (PNG) has demonstrated rapid growth. The CGD sector is expected to contribute over 60 percent of the growth in consumption required to increase the share of natural gas in India’s primary energy consumption to 15 percent by 2030.  Consumption of natural gas in India was 48.81 BCM (billion cubic meters) in 2013-14 which increased to 66.63 BCM in 2023-24 demonstrating an annual average growth of just over 3 percent.

CGD Consumption

From April 2023-January 2024, the fertiliser sector accounted for 32 percent of natural gas consumption while CGD accounted for about 19 percent of natural gas consumption. Power generation accounted for 12 percent of total consumption while the petrochemical and refinery sectors accounted for another 12 percent of consumption. Other segments accounted for the remaining 25 percent of natural gas consumption. The share of CGD in total natural gas consumption increased from about 12 percent in 2013-14 to about 20 percent in 2023-24. If sectors that consume natural gas feedstock (such as fertiliser) rather than as a source of energy are not included CGD is the largest source of energy-related consumption of natural gas.

Power generation accounted for 12 percent of total consumption while the petrochemical and refinery sectors accounted for another 12 percent of consumption.

Since 2013-14 natural gas consumption by the CGD sector has more than doubled from about 5.6 BCM to about 12.6 BCM in 2023-24. This represents an annual average growth of about 8.4 percent, nearly three times the growth of overall natural gas consumption. In 2014, there were 981 CNG dispensing stations and 2,777,864 PNG connections. In 2024, the number of CNG dispensing stations increased sixfold to 6159, while PNG connections increased more than fourfold to 12,101,398. In 2022-23, the transport segment accounted for 57 percent of gas consumption through the CGD network, the largest share followed by the industrial sector which accounted for 33 percent of consumption. Domestic consumption accounted for 8 percent and commercial consumption accounted for 2 percent of total consumption.

CGD Network

According to the Ministry of Petroleum & Natural Gas (MoPNG), the 11th CGD bidding round increased potential coverage of CGD sector to about 98 percent of the population and 88 percent of the geographical area of the country. At present, there are 300 geographic areas (GAs) authorised by PNGRB (Petroleum & Natural Gas Regulatory Board) for CGD supply licenses. At present, about 23,500 km (kilometres) of gas pipeline network is under operation in the country and around 12,000 km of pipeline is under construction or approved by the PNGRB. The goal of the government is to complete the vision of “one nation one gas grid” by 2030. The 12th CGD bidding round offers seven ‘GAs’ covering five North Eastern states and the union territories of Jammu & Kashmir and Ladakh.

Concentration in consumption

In the first half of FY2023-24 (April to September 2023), total natural gas consumption through the CGD network was 35,342,871 standard cubic meters per day (SCMD). Consumption of CNG by the transport sector accounted for 58 percent of total consumption while the industrial sector accounted for about 32 percent. The domestic and commercial segments accounted for 7.5 percent and 1.8 percent respectively.

Consumption of CNG by the transport sector accounted for 58 percent of total consumption while the industrial sector accounted for about 32 percent.

Though natural gas consumption through the CGD network is growing, consumption remains concentrated in a few states.  In the CNG segment (transport fuel), the top 5 states (Delhi, Gujarat, Maharashtra, Uttar Pradesh & Haryana) accounted for over 84.5 percent of consumption. In the domestic and commercial segments, the same five states account for over 86 percent and 88 percent of the consumption of PNG. Gujarat, Maharashtra, Haryana, Uttar Pradesh and Rajasthan account for 82 percent of the industrial consumption of PNG. Barring Gujarat that has a number of industrial consumers of gas, consumption of PNG in Maharashtra, Delhi, Haryana and Uttar Pradesh is concentrated in the urban townships of Mumbai, Delhi, Noida and Gurgaon.

Challenges

The narrative of 98 percent of the population and 88 percent of the geographic area of the country being covered by the CGD network does not necessarily mean access to PNG for almost the entire population. It merely represents the possibility of access to PNG once the CGD licence holder completes installation of infrastructure and initiates the supply of PNG. These developments may or may not materialise as they depend on CGD economics. As a network industry with monopolistic characteristics, CGD licensees are given exclusive geographic areas in which they operate. This eliminates competition but the licensee has to invest in last-mile connectivity to the consumer. The population density (population per square km) of Mumbai is over 45,000 and that of Delhi is over 20,000. Most of the licenses issued for new CGD connections are for cities and regions that have population densities that are lower by an order of magnitude. Low population density is a significant economic barrier in increasing the number of PNG consumers from the current 14.6 million. The cost of pipeline infrastructure is estimated to be about 50 percent of the project cost and the cost of acquiring and serving customers is about 20-30 percent of project cost. These costs can be significantly higher for regions that are less densely populated.

Low population density is a significant economic barrier in increasing the number of PNG consumers from the current 14.6 million.

Another challenge is the cost of natural gas. About 80 percent of CGD gas supply is domestic gas because CGD receives priority in the allocation of domestic gas supply. This arrangement can continue only if domestic production increases to meet growing demand. If imported natural gas is used for CGD, it would mean price volatility that most consumers will resist and shift to alternatives. Domestic natural gas used as transportation fuel (CNG) is competitive compared to petrol and diesel but this may not be the case if imported gas is used. In the case of domestic consumers, LPG (liquefied petroleum gas) may remain competitive as fuel for cooking compared to PNG if the share of imported natural gas increases in PNG and the price of LPG continues to be regulated. The longer-term challenge for CGD is the energy transition that seeks to electrify everything including cooking and transport. However, in the medium-term, natural gas and CGD are likely to see consumption growth but not on the scale required to increase the share of natural gas to 15 percent by 2030.

Sector Wise Natural Gas Consumption

Source: Petroleum Planning & Analysis Cell


Lydia Powell is a Distinguished Fellow at the Observer Research Foundation.

Akhilesh Sati is a Program Manager at the Observer Research Foundation.

Vinod Kumar Tomar is a Assistant Manager at the Observer Research Foundation.

The views expressed above belong to the author(s). ORF research and analyses now available on Telegram! Click here to access our curated content — blogs, longforms and interviews.

Authors

Lydia Powell

Lydia Powell

Ms Powell has been with the ORF Centre for Resources Management for over eight years working on policy issues in Energy and Climate Change. Her ...

Read More +
Akhilesh Sati

Akhilesh Sati

Akhilesh Sati is a Programme Manager working under ORFs Energy Initiative for more than fifteen years. With Statistics as academic background his core area of ...

Read More +
Vinod Kumar Tomar

Vinod Kumar Tomar

Vinod Kumar, Assistant Manager, Energy and Climate Change Content Development of the Energy News Monitor Energy and Climate Change. Member of the Energy News Monitor production ...

Read More +