cgd final report

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UNDERSTANDING CITY GAS

DISTRIBUTION BUSINESS IN INDIA

Submi tted by

KRUNAL PATEL (11BPE056)

UMANG MODI (11BPE084)

MOHMADSAJID MALEK (11BPE085)

SUNIL SONAGARA (11BPE091)

DARSHAN CHAUDHARY (11BPE095)

HIREN PATEL (11BPE096)

SHASHANK JAIJANIYA (11BPE100)

VIRAJ PARMAR (11BPE103)

SCHOOL OF PETROLEUM TECHNOLOGY

PANDIT DEENDAYAL PETROLEUM UNIVERSITY

DECEMBER 2014


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UNDERSTANDING CITY GAS

DISTRIBUTION BUSINESS IN INDIA

PROJECT REPORT

Submitted in partial fulfilment of the requirement of

B.Tech in Petroleum Engineering

by

Krunal Patel (11BPE056), Umang Modi (11BPE084), Mohmadsajid Malek(11BPE085), Sunil Sonagara (11BPE091), Darshan Chaudhary (11BPE095),

Hiren Patel (11BPE096), Shashank Jaijaniya (11BPE100), Viraj Parmar

(11BPE103)

Under the guidance of

Mentor: Co-mentor:

Ms. Shreya Sahajpal Dr. Anirbid Sircar

Lecturer SPT, Director SPT,

PDPU PDPU

SCHOOL OF PETROLEUM TECHNOLOGY

PANDIT DEENDAYAL PETROLEUM UNIVERSITY

Gandhinagar382007. Gujarat - INDIA

December

2014


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Approval Sheet

This report entitled Understanding City Gas Distribution Business in Indiaby Krunal Patel

(11BPE056), Umang Modi (11BPE084), Mohmadsajid Malek (11BPE085), Sunil Sonagara

(11BPE091), Darshan Chaudhary (11BPE095), Hiren Patel (11BPE096), Shashank Jaijaniya

(11BPE100), Viraj Parmar (11BPE103) is recommended for the degree of B.Tech in Petroleum

Engineering.

Examiners

_______________________

_______________________

_______________________

Supervisors

_______________________

_______________________

_______________________

Chairman

_______________________

Date: 1StDecember 2014


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Student Declaration

We, Krunal Patel (11BPE056), Umang Modi (11BPE084), Mohmadsajid Malek (11BPE085),

Sunil Sonagara (11BPE091), Darshan Chaudhary (11BPE095), Hiren Patel (11BPE096),

Shashank Jaijaniya (11BPE100), Viraj Parmar (11BPE103), hereby declare that this written

submission represents our ideas in our own words and where others idea or words have been

included, we have adequately cited and referenced the original sources. We also declare that

we have adhered to all principles of academic honestly and integrity and have not

misrepresented or fabricated or falsified any idea / data / fact / source in my submission. We

understand that any violation of the above will be cause for disciplinary action by the PANDIT

DEENDAYAL PETROLEUM UNIVERSITY and can also evoke penal action from the

sources which have thus not been properly cited or from whim proper permission has not been

taken when needed.

Name of student Roll no. Signature

Krunal Patel 11BPE056

Umang Modi 11BPE084

Mohmadsajid Malek 11BPE085Sunil Sonagara 11BPE091

Darshan Chaudhary 11BPE095

Hiren Patel 11BPE096

Shashank Jaijaniya 11BPE100

Viraj Parmar 11BPE103

Date: 1stDecember 2014


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I

Acknowledgement

It has been an immense pleasure and truly enriching experience doing our project at School of

Petroleum Technology, PDPU.

We are extremely thankful to our mentor Ms. Shreya Sahajpal and co-mentor Dr. Anirbid

Sircar under whose guidance we executed this project. Their constant guidance, ideas and

willingness to share their vast knowledge made us understand this project and its manifestations

in great depths and inspired us to work with sheer commitment.

We are also taking this opportunity to express our gratitude to everyone who supported us

throughout the course of this B. Tech project.


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II

Abstract

21stcentury is said to be the gas century as the environmental impact of the usage of liquid

fuels are deeply concerning. Natural gas is all set to strengthening energy security of India as

the share of natural gas in energy basket of India is expected to reach 20% by FY 2025. The

availability of natural gas by domestic production and R-LNG has driven the development of

natural gas sector. Being a last mile of natural gas value chain, CGD is a mean to provide

natural gas to end-users like industrial, domestic, commercial and automotive, through

interconnected pipelines. The natural gas scenario in India vis--vis world has been discussed

in this report. CGD business in India dates back to 1880, when Calcutta Gas Company

commenced operation. After a long hiatus, city gas distribution took place in 1972 in Vadodara,

Delhi and Mumbai. Considering high environmental pollution in the metro cities, the judiciary

mandate for enforced conversion of public vehicles to CNG provided a thrust for the

development of CGD sector in India. The evolution of CGD business in India as well as the

profiles of major CGD business players have been discussed in detail. The Government of India

and Ministry of Petroleum and Natural Gas was giving authorization to CGD entities for

business before 2007. However, to protect the interests of consumers and increase the

confidence of stakeholders, an independent regulatory body Petroleum and Natural Gas

Regulatory Board (PNGRB) was established in 2007. This report highlights the role and

functions of PNGRB as well as the important regulations given by PNGRB. The regulations

are interpreted and the loopholes have been highlighted in the report. This report equally

emphasizes on the technical aspects of CGD business i.e. CGD value chain. The entire CGD

value chain - starting from gas gathering lines through the CGS, DRS stations to end users of

PNG and CNG - is thoroughly understood and well discussed in the report. Risk assessment is

of vital importance to any business, which will be covered in detail in the later part of the

project. A case study of an undergoing CGD project will be carried out to understand the project

management aspects of a CGD business. Field trips to various stations and pipelines will be

done to help understand the technical aspects of CGD value chain thoroughly. The project aims

to take account of the technical, managerial, commercial and regulatory aspects of a CGD

business in order to achieve a complete understanding of CGD business.


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III

Table of Content

No. Title Page no.

1. Natural Gas Overview1

1.1 Introduction 1

1.2 Natural Gas: World Scenario 1

1.3 Natural Gas in India 3

1.4 Natural Gas in Gujarat 5

2. City Gas Distribution 6

2.1 Overview 6

2.2 Evolution Of CGD Business in India 6

2.3 CGD Sector Natural Gas Demand 8

2.4 CGD Business in Gujarat 8

2.5 GSPC GasIndias Largest CGDCompany 9

2.6 Profile of Major CGD Players in India 10

3. Regulations in CGD: Developments And Critique 12

3.1 Pre-PNGRB Era 12

3.2 Need for the Independent Regulatory Body 13

3.3 PNGRB Emergence 13

3.4 Role of PNGRB 13

3.4.1 Functions of PNGRB 14

3.5 Important Regulations by PNGRB 14

3.5.1 PNGRB (Access Code for City or Local Natural

Gas Distribution Networks) Regulations, 2011

14

3.5.2 PNGRB (Authorizing Entities to Lay, Build,

Operate or Expand City or Local Natural Gas

Distribution Networks) Regulations, 2008

15

3.5.3 PNGRB (Exclusivity for City or Local Natural Gas

Distribution Network) Regulations, 2008

15


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IV

3.5.4 PNGRB (Technical Standards and Specifications

including Safety Standards for City or Local

Natural Gas Distribution Networks) Regulations,

2008

15

3.5.5 PNGRB (Determination of Network Tariff for City

or Local Natural Gas Distribution Networks and

Compression Charge for CNG) Regulations, 2008.

15

3.5.6 PNGRB (Code of Practice for Quality of Service

for City or Local Natural Gas Distribution

Networks) Regulations, 2010

16

3.5.7 Salient features 16

3.6 Post PNGRB 16

3.6.1 Challenges faced by PNGRB 16

3.6.2 Notification of Section 16 17

3.7 Critique 18

4. CGD Value Chain 19

4.1 Introduction19

4.2 Value Chain 20

4.2.1 Gathering Lines 20

4.2.2 Gathering Station 20

4.2.3 City Gas Station 20

4.2.4 District Regulation System 21

4.2.5 Piping system 22

4.2.6 Piped Natural Gas (PNG) 24

4.2.7 CNG Infrastructure 25

5. Way forward 27

6. References 28


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V

List of Tables

Table no. Page no.

1.1 Top ten Gas producing countries in the world 2

1.2 Top ten Gas consuming countries in the world 2

1.3 Sector wise natural gas consumption in India 4

2.1 Summary of History of CGD in India 7

2.2 Profile of Major CGD Players in India 10

List of Figures

Figure no. Page no.

1.1 Energy Mix of India in 2011 3

1.2 Reserves of Natural Gas in India 4

4.1 CGD Value Chain 19

4.2 Main Gas Transmission Pipeline 23

4.3 CGD Pressure Regimes 24

4.4 Gas Transmission and Distribution system 25

4.5 CNG Stations 26


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VI

Abbreviation

AGL Adani Gas Limited

ASME American Society of Mechanical Engineers

AEL Adani Energy Limited

bcm Billion Cubic Meter

btu British Thermal Unit

BG British Gas

BGL Bhagyanagar Gas Limited

BPCL Bharat Petroleum Corporation Limited

CGD City Gas Distribution

CGS City Gas Station

CGSML Charotar Gas Sarkari Mandali Limited

CNG Compressed Natural Gas

DRS District Regulating Station

FY Financial Year

GA Geographical Area

GGCL Gujarat Gas Company Limited

GGL Green Gas Limited

GGS Gas Gathering Station

GSPC Gujarat State Petroleum Corporation

GSPL Gujarat State Petronet Limited

IGL Indraprastha Gas Limited

LPG Liquefied Petroleum Gas

mmscmd Million Standard Cubic Meter per Day

MDPE Medium Density Polyethylene

MGL Mahanagar Gas Limited

MNGL Maharashtra Natural Gas Limited

MoPNG Ministry of Petroleum and Natural Gas

ONGC Oil and Natural Gas Corporation

PNG Piped Natural Gas

PNGRB Petroleum and Natural Gas Regulatory Board

R-LNG Regasified Liquefied Natural Gasscm Standard Cubic Meter


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Understanding City Gas Distribution Business in India

School of Petroleum Technology, PDPU Page 1

CHAPTER 1 - NATURAL GAS OVERVIEW

1.1INTRODUCTION

Natural Gas is gaseous fossil fuel consisting primarily of Methane. NG may also content other

gaseous heavier hydro carbon namely, Ethane, Propane Butane etc. Sometime Nitrogen,

helium, Carbon dioxide, Traces of Hydrogen sulphide & water is also present in Natural gas.

The Exact composition of Natural gas varies between gas fields. Natural Gas is a vital

component of the world's supply of energy. It is one of the cleanest, safest, and most useful of

all energy sources.

Properties of Natural Gas:

1. Natural Gas is colourless, odourless clean gas.

2. It is lighter than Air so tend to dissipate.

3. Explosive concerns of compressed natural gas are almost non-existent.

5. Processed natural gas is, in itself, harmless to human body.

6. Natural gas is a simple asphyxiated particularly in confined place and can kill if it displaces

air.7. Natural Gas has high calorific value. (Anonymous, 2011)

1.2NATURAL GAS: WORLD SCENARIO

Natural gas reserves of 6,647,341 billion cubic feet, with Natural gas production 309 billion

cubic feet in 2010-11.

The global energy consumption slowed down in 2008-2009 given the global economic

slowdown and high energy prices. This was true for each of the fossil fuels. Unlike oil, global

natural gas consumption grew by 2.5% in 2008. The largest incremental growth came from

China with a consumption growth of 15.8%.

As per BP Statistical Review 2013, the estimated worldwide proven gas reserves are to the tune

of 187 TCM with India sharing only 0.7% of these reserves i.e. 1.3 TCM. The world natural

gas production has been pegged at 9216 mmscmd. At the current rate of production, the natural

gas reserves will last for 60 years. (Standing Committee on Petroleum & Natural Gas, 2013)


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Table 1.1 Top ten Gas producing countries in the world (BP Statistical review2013)

Rank CountryProduction in 2012

(BCM)

Production in 2012

(MMSCMD)

1 US 681.39 1886.81

2 Russian Federation 592.27 1622.67

3 Iran 160.50 439.73

4 Qatar 157.05 430.27

5 Canada 156.55 428.89

6 Norway 114.92 314.84

7 China 107.22 298.75

8 Saudi Arabia 102.80 281.64

9 Algeria 81.50 223.29

10 Indonesia 71.07 194.70

Table 1.2 Top ten Gas consuming countries in the world (BP Statistical review2013)

Rank Country

Consumption in

2012 (BCM)

Consumption in

2012 (MMSCMD)

1 US 722.1 1978.48

2 Russian Federation 416.2 1140.38

3 Iran 156.1 427.64

4 China 143.8 394.09

5 Japan 116.7 319.83

6 Saudi Arabia 102.8 281.64

7 Canada 100.7 275.90

8 Mexico 83.7 229.20

9 United Kingdom 78.3 214.48

10 Germany 75.2 206.13


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1.3NATURAL GAS IN INDIA

Natural Gas Despite major new natural gas discoveries in recent years, India is considering

large-scale imports via pipelines and LNG terminals to help meet growing demand. (US Energy

Information Administration)

In 2011, coal accounted for 41 per cent of total primary energy demand. (India Brand Equity

Foundation, 2013)

The bulk of Indias natural gas production comes from the western offshore regions, especially

the Mumbai High complex. The onshore fields in Assam, Andhra Pradesh, and Gujarat states

are also significant sources of natural gas. The Bay of Bengal has also become an important

source of natural gas for the country.

Fig 1.1 Energy Mix of India in 2011 (Energy Information Administration)

The share of natural gas in the energy mix of India is expected to increase to 20% in 2025 as

compared to 11% in 2010.

Natural Gas demand was 242.6 MMSCMD in 2012-13 which all set to grow significantly to

746 MMSCMD in 2029-30.


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The total supply of natural gas is expected to grow from 145.7 MMSCMD in 2012 to 400

MMSCMD by 2021-22 and 474 MMSCMD by 2029-30.

The availability of natural gas in India is expected to fall short of the total natural gas demand

by around 97 MMSCMD in 2012-13. However, this shortfall will reduce by 2017-18 due to

substantial addition in regasification capacity and natural gas supply through cross border

pipeline (TAPI).(Industry Group for Petroleum & Natural Gas Regulatory Board, 2013)

Fig 1.2 Reserves of Natural Gas in India (Directorate General of Hydrocarbons)

Table 1.3 Sector wise natural gas consumption in India mmscmd, January 2013 (Ministry of

Petroleum & Natural Gas)

SectorDomestic

GasRLNG

Total

Consumption

% of total

supply

Power 30.36 5.80 36.2 28%

Fertilizers 31.02 8.37 39.4 31%

CGD/CNG 6.69 7.28 14.0 11%

Court Mandated Customers 0.98 2.89 3.9 3%

Shrinkage for liquid

extraction - LPG etc.6.02 0.37 6.4 5%

Refineries 2.07 8.62 10.7 8%


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Petrochemicals 3.5 1.37 4.9 4%

Sponge Iron/Steel 1.11 3.49 4.6 4%

Small consumers

(


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CHAPTER 2 - CITY GAS DISTRIBUTION

2.1 OVERVIEW

A City gas distribution means a distribution system in which CNG & PNG sold to various

segments by interconnecting gas pipeline & related equipments. In CGD system, high pressure

steel pipeline has been laid across various areas of city. The city gas distribution accounts for

4-6 MMSCMD in the country. It is assumed to increase to an amazing 20 MMSCMD in the

next three years.

The city gas distribution in the India is increasing at a rapid rate for the usage of PNG for the

domestic, commercial, industrial and CNG for transportation. Two factors that will drive this

growth are increase in gas production and the development of the infrastructure. (Anonymous,

2011)

2.2EVOLUTION OF CGD BUSINESS IN INDIA

The CGD business in India dates back to 1857 when Calcutta Gas Company & Bombay Gas

Company commenced operations in Kolkata and Mumbai respectively, with coal gas as the

primary input.

As a pilot project first city gas distribution project was taken up with the help of ONGC at

Vadodara city in 1972. Gujarat Gas Company Ltd. (GGCL) was the first commercial city gas

distribution company in India. GGCL in association with British Gas developed distribution

network in Bharuch and Ankleshwar cities. Subsequently, they expanded their network to

Surat.

Mahanagar Gas Limited (MGL) started city gas distribution in Mumbai in 1995. The focus of

the company was to supply gas to domestic households and to transport sector and in an event

of surplus cater to the industrial demand.

Indraprastha Gas Limited (IGL) started city gas distribution in Delhi in 1998. The focus of the

company was to supply gas to transport sector.


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India today has a vast network of underground pipelines being used for transportation and

distribution of natural gas. As on date, gas is available in 41 cities in India and in another 14

cities establishment of gas pipeline network is in project stage. (Gupta, 2009)

Taking a look in the Indian history, the CGD started in the late 1800s. The following is a

summary regarding the history of CGD in India:

Table 2.1 Summary of History of CGD in India (Dubey, 2011)

Year City Company

1880 Calcutta Calcutta Gas Company

1900 Mumbai Bombay Gas Company1972 Vadodara Vadodara Municipal Corporation

1980 Delhi Delhi Municipal Corporation

1982 ONGC colonyMehsana ONGC

1985 Duliajan Assam gas company

1986 Sibsagar Assam gas company

1989-91 Surat, Ankleshwar, Bharuch Gujarat Gas Company Ltd.

1994 Mumbai Mahanagar Gas ltd.1995 Delhi lndraprastha Gas

2004 Vadodara, Ahmedabad Adani

2005 Hyderabad Bhagyanagar gas

2006 Kanpur, Lucknow CUGL & GGL

2006-07 Gandhinagar, Kadi, Vapi, Mehsana,

Rajkot, Morbi

GSPC/ SGL


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2.3CGD SECTOR NATURAL GAS DEMAND

City Gas Distribution (CGD) sector in India has seen rapid growth in recent years and

consumes approx. 13.6 MMSCMD of natural gas. Natural gas demand for CGD sector is

expected to rise steadily due to the addition of gas networks in new cities, price advantage of

CNG and increased use of PNG in domestic, industrial and commercial sectors.

The cumulative sales volumes for three major CGD players IGL, MGL and GGCL grew at

around 8%-9% from 2007 to 2011. However, this rate of growth is expected to slow down as

the existing businesses become mature on higher base effect. Therefore, the natural gas demand

from the existing CGD entities has been assumed to grow at a rate 20%-30% lower than their

growth rate in the past five years till the end of 13th five year plan. The total demand from

CGD sector is expected to grow from 15.3 MMSCMD in 2012-13 to 85.6 MMSCMD in 2029-

30 at a CAGR of 10.7%. (Industry Group for Petroleum & Natural Gas Regulatory Board,

2013)

2.4CGD BUSINESS IN GUJARAT

Gujarat is the showcase for piped gas in India. It has a consumer base of over 7.67 lakh

industrial, commercial and domestic users, connected through over 10,000 km long pipeline

network that carries about 8 mmscmd of gas.

CGD Sector has proved a saviour for ceramic, pharma and chemical industries. On account of

steep crude price rise post 2007 coupled with competition from China, state-based energy-

intensive industrial units were struggling to survive. However, piped gas network made

business viable for the industry in Gujarat. In the absence of gas allocation from RIL's D6, the

CGD companies in Gujarat are banking on expensive imported gas.

According to a recent study by the government of Gujarat, the state has the potential to have

20 lakh piped gas consumers and over 300 CNG stations in next five years from 225 today.

Gujarat claims that it can reduce the huge subsidy burden of the Centre if it is allotted cheaper

gas as PNG network requires government assistance. (Thakkar, 2011)


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2.5GSPC GASINDIAS LARGEST CGD COMPANY

Gujarat State Petroleum Corporation (GSPC) is the chief of its related group that holds eight

other huge companies. The Government of Gujarat along with its public sector undertakings

holds more than 97% of equity of Gujarat State Petroleum Company GSPC operate the largest

gas transmission and distribution network in the state of Gujarat.

GSPC work through its subsidiaries and associates to supply gas services across the state.

Gujarat State Petronet Limited (GSPL) is a gas transmission company working on a common

carrier basis. GSPS Gas and Sabarmati Gas are two entities engaged in City Gas distribution

and related pipeline infrastructure and Piped Natural Gas services. GSPC Gas is playing a vital

role to cater to the natural gas demand up to the last mile of the retail network.

GSPC Gas is supplying natural gas to more than 347,909 domestic households, 1,292

commercial and non-commercial segments and 1,629 industrial customers. GSPC Gas also

supplies natural gas in the form of Compressed Natural Gas (CNG) through 137 CNG stations

across the state that caters to more than 75,000 vehicles per day. Presently, the daily gas sales

volume is in tune of 4.3 MMSCMD catering to a variety of domains and segments for various

applications through PNG and CNG. (Anonymous, 2011)


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2.6PROFILE OF MAJOR CGD PLAYERS IN INDIA

Table 2.2 Profile of Major CGD Players in India (Dubey, 2011)

Sr. no. Entity GA (Operating) GA (Construction) Total

1 MGL Mumbai

Thane

2

2 IGL Delhi

Noida(1)

Faridabad (1)

Gurgaon (1)

4

3 Avantika Indore Gwallior, Ujjain 3

4 CUCL Kanpur

Bareily

2

5 Green Gas Lucknow (1)

Agra

2

6 Gujarat Gas Surat

Ankleshwar

Bharuch

3

7 MNGCL Pune, Chinchwad 1

8 TNGCL Agartala 1

9 BGL Vijaywada

Hydrabad

Kakinada 3

10 Sabarmati Gandhinagar (1)

Mehsana

2

11 GAIL Vadodara (1) 1

12 HPCL Ahmedabad (1) 1

13 Charotar Gas Anand 1

14 VMSS Vadodara 1

15 Adani energy Ahmedabad (2)

Faridabad (2)

Khurja

Lucknow (2)

Vadodara (3)

Noida (2)

Jaipur

Udaipur

8


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16 GSPC Gas Gandhinagar (2)

Godhara

Hazira

Valsad, Vapi,Navsari

Rajkot

Morbi

Surendranagar

Nadiad

Bhavnagar

Bhuj

10

17 Sity energy Moradabad 1

18 Haryana city Gurgaon (2) Bhivandi

Jhajhar

3

19 AGCL Assam Duliajan

Dilbrugarh

Sibsagar

Moran, Naharkatia

4

20 GEECI Asansol

Durgapur

2

21 GCGCL Kolkata 1

22 Gail Gas Dewas

Kota

Sonepat

Meerut

4

23 Saumya DSM Mathura 1

Total 41 20 61


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CHAPTER 3 - REGULATIONS IN CGD: DEVELOPMENTS AND

CRITIQUE

3.1 PRE-PNGRB ERA

Till 2007, the CGD sector in India was governed by Government of India and MoPNG.

However, to increase the private participation and augment investors confidence, an

independent regulator for the downstream sector, Petroleum and Natural Gas Regulatory Board

(PNGRB) was established in 2007.

Historically, the natural gas market was entirely serviced through the PSUs with a direct control

of the central government. The major initiative for CGD development in the country was

undertaken by GAIL which started a pilot project at Delhi, Mumbai and Vadodara in 1992 for

promoting CNG as an automobile fuel. The Government of India and MoPNG has initiated and

driven the CGD progress in the country prior to the establishment of the regulator.

The CGD business in India was initiated in 1880 with the inception of Calcutta Gas Company.

The natural gas distribution business in India was also established at Mumbai in 1990,

Vadodara in 1972 and Okhla, Delhi in the past. However, the growth of CGD sector did notattain the critical mass owing to the lack of infrastructure and reluctance on the part of end

users for fuel conversion.

The primary impetus for progress of CGD sector in India was driven by the judiciary mandate

for the enforced conversion of public transport fleet into CNG at Mumbai and Delhi. The high

levels of pollution in the cities and the lower quality of liquid fuels were the catalyst for the

mandate which accelerated the expansion of CNG in country.

Once the CGD sector gained momentum in the country, the central government authorized

several CGD entities for CGD operations in particular Gas. A total of 11 companies were

authorized for 21 GAs by the central government. The entities authorized by central

government include Indraprastha Gas Ltd. (IGL), Mahanagar Gas Ltd. (MGL), Maharashtra

Natural Gas Ltd. (MNGL), Central U.P. Gas Ltd. (CUGL), Bhagyanagar Gas Ltd. (BGL),

Sabarmati Gas Ltd. (SGL), Green Gas Ltd., Gail Gas and Aavantika Gas Ltd.


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3.2 NEED FOR THE INDEPENDENT REGULATORY BODY

Prior to PNGRB, MoPNG was responsible for authorizing the CGD entity for a particular city.

With MoPNG deciding the CGD authorizations, it was alleged that public players would get

preference over the private players. An independent regulator was expected to remain neutral

and increase the investors confidence in the CGD sector.

3.3 PNGRB EMERGENCE

PNGRB was established under the ambit of the Petroleum and Natural Gas Regulatory Board

Act, 2006. The PNGRB Act was preceded by two major billsthe Petroleum Regulatory Board

Bill, 2002 and the Petroleum and Natural Gas Regulatory Board Bill, 2005.

The Petroleum Regulatory Board Bill was introduced in Parliament on May 6, 2002 which was

then referred to the Parliamentary Standing Committee. The standing committee gave its nod

for the bill subject to the recommendations and changes. The recommendations were primarily

specific to the natural gas segment wherein provisions essential for handling specific problems

of natural gas segment was incorporated.

The amended bill was introduced in the parliament in 2003 with appropriate provisions relatedto affiliate code of conduct, pipeline access code, concept of contract carrier, marketing service

obligations of CGD entities and methodology for fixation of transportation tariffs. However,

the Bill could not be taken up for consideration and it lapsed. The bill was again reintroduced

in December 2005.

The government enacted the PNGRB Act on March 31, 2006. Subsequently, PNGRB was

constituted under the Act on October 1, 2007. (InfralineEnergy, 2011)

3.4 ROLE OF PNGRB

PNGRB was established to regulate the refining, processing, storage, transportation,

distribution, marketing and sale of petroleum, petroleum products and natural gas. The primary

objective of PNGRB is to protect the interest of consumers and entities engaged in specified

activities, to ensure uninterrupted and adequate supply of natural gas and to promote

competitive markets. However, the E&P activities are not under the purview of PNGRB.


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3.4.1 Functions of PNGRB

Protect the interest of consumers by fostering fair trade and competition amongst the

entities

-

Ensure adequate availability of natural gas

- Monitor price of PNG and CNG

- Prevent restrictive trade practices in CGD

- Secure equitable distribution of natural gas

Authorization and Registration of CGD Entities

Declaration of pipeline as common carrier or contract carrier

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

Ensure adherence to service obligations

Lay down the technical standards and specifications including safety standards

Resolve disputes amongst the entities and between entity and consumer (PNGRB Act,

2007)

3.5 IMPORTANT REGULATIONS BY PNGRB

3.5.1 PNGRB (Access Code for City or Local Natural Gas Distribution Networks)

Regulations, 2011

The regulation defines the contract between the authorized entity and the shipper and applies

to the authorized CGD entity immediately after the end of marketing exclusivity period.

The authorized entity is required to declare the entry point and exit point capacity for open

access 180 days prior to the end of the marketing exclusivity period.

The regulation necessitates that the gas accounting is required to be done on a daily basis in

energy terms.


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The charges which are to be paid by the shipper to the authorized entity includes network

tariff, compression charge, overrun charge, system imbalance charge, off-spec gas charge,

applicable taxes and any other mutually agreed charge in the access arrangement.

3.5.2 PNGRB (Authorizing Entities to Lay, Build, Operate or Expand City or Local

Natural Gas Distribution Networks) Regulations, 2008

The regulation defines the framework for CGD network development in a particular GA. It

determines the modes of initiation of proposal, public consultation and the mechanism for

initiating the CGD bidding procedure. The bidding criteria are lowness of network tariff,

lowness of compression charge for CNG, highness of inch-km of steel pipeline and highness

of domestic connections.

3.5.3 PNGRB (Exclusivity for City or Local Natural Gas Distribution Network)

Regulations, 2008

The regulation applies to the authorized entity developing the CGD network. The rationale

behind providing exclusivity are incentivizing investments, allowing time for volume build

up and gas ramp-up and making the authorized entity solely responsible for CGD

developments.

The authorized entity is given an infrastructural exclusivity of 25 years. The marketing

exclusivity wherein the network is exclusive from the purview of contract and common carrier

is of 5 years for an entity which is authorized by the bidding process. The entities authorized

under Section 17 and 18 are given a marketing exclusivity of 3 to 5 years depending upon the

operating period of such entities.

3.5.4

PNGRB (Technical Standards and Specifications including Safety Standards for

City or Local Natural Gas Distribution Networks) Regulations, 2008

The regulation specifies that the design, materials, equipments, welding, fabrication,

installation, testing, operation and maintenance of the CGD network needs to be done in

accordance with the requirements of ASME.


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The regulations specify the technical standards and specifications including the safety

standards. The regulation is instrumental in minimizing the hazards and risks in operation and

maintenance of CGD networks.

3.5.5 PNGRB (Determination of Network Tariff for City or Local Natural Gas

Distribution Networks and Compression Charge for CNG) Regulations, 2008.

3.5.6 PNGRB (Code of Practice for Quality of Service for City or Local Natural Gas

Distribution Networks) Regulations, 2010

These regulations lay down code of practice for promoting reliable service to consumers and

the public and obligations of consumers. The regulation necessitates the entities to display thecomprehensive procedure and all necessary information for obtaining the PNG connection on

available platforms such as internet and newspaper.

3.5.7 Salient features

Service Obligations

Exclusivity

Level Playing Field

Competition and Efficiency

Transparency

Conflict Management

Safety Maintenance

Quality Assurance (InfralineEnergy, 2011)

3.6 POST PNGRB

3.6.1 Challenges faced by PNGRB

Formation of PNGRB lead it to the challenges of fixing pipeline tariffs, identifying regions

needing gas pipelines and awarding contracts, ensuring transporters' service quality, allowing

third-party access to the existing pipelines and ensuring fair play in a sector naturally prone to


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monopolies. Besides, since pipeline infrastructure gives an edge to the first entrant, the

regulator has to be extra careful in ensuring access to subsequent players to pipelines.

These functions can be performed only from a position of strength and utmost vigil, as

operators might tend to take advantage of regulatory arbitrage that is common in a sector

regulated by a central agency and is operating in far-flung areas. Often, operators might be

tempted to start work with a mere no-objection certificate from a local authority without

PNGRB's mandate. Such instances are, to some extent, responsible for the delay in empowering

the Board.

The draft license rule issued by the Board for companies laying gas pipelines resolved a

longstanding issue of the status of entities like Indraprastha Gas Ltd, which started operations

with the central government's permission before the Board was set up, by exempting them from

the need for a fresh PNGRB authorization. But the Board will monitor the performance of these

entities in laying pipelines. All new entrants in city gas distribution and transportation of natural

gas will need the Board's clearance.

The real challenge is the implementation of these norms, for which the regulator would need a

system to redress disputes and solve grievances in addition to a strong field force. Despite some

teething problems, the Board's beginning appeared to be promising. (Prasad, 2010)

3.6.2 Notification of Section 16

Fresh from receiving full powers, oil regulator PNGRB invited bids for giving licenses for

retailing CNG to automobiles and piped cooking gas to households.

Nearly three years after it came into existence, the government notified a crucial section that

give the regulator explicit powers to issue city gas distribution licenses. The Section 16 of the

Petroleum and Natural Gas Regulatory Board Act of 2006 was notified with effect from July

15, 2010. The section gives PNGRB powers to authorize companies to retail CNG to

automobiles and pipe cooking gas to households.

PNGRB, however, did not feel constrained by absence of Section 16 and held two rounds of

bidding for giving city gas distribution rights before the notification of Section 16 came into

existence. In March 2009, it conducted the first round for six cities. In the second round in

August 2009, PNGRB invited bids for seven cities, including Ghaziabad.


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Indraprastha Gas Ltd, which claimed it had central government and Supreme Court

authorization for retailing CNG and piped gas in Ghaziabad, challenged in the Delhi High

Court the PNGRB's authority to issue licenses in absence of the Section 16. The HC in January

ruled that PNGRB had no powers to issue city gas authorization, leading to scrapping of second

round. After the HC ruling, the authority to issue CGD licenses fell on the central government

which authorized winners of the first round of auction conducted by PNGRB and explicitly

gave the license for Ghaziabad to IGL.

Armed with the notification of Section 16, which empowered the downstream oil regulator to

issue authorization for city gas distribution (CGD) licenses, the regulator came out with a third

round of auction. (The Economic Times, 2010)

3.7 CRITIQUE

Inadequate Marketing Exclusivity

Authorization of Pre-PNGRB CGD Entities

Notifications of Section 16

Bidding Issues

Clashes between PNGRB and Government

PNGRB Role Ambiguity


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CHAPTER 4 - CGD VALUE CHAIN

4.1INTRODUCTION

CGD represents the last mile in the gas value chain and gas is supplied at low / medium pressure

to residential, commercial consumers and small industrial consumers (PNG) and

Transportation segment as vehicle fuels (CNG).

CGD network involves movement of small volumes of gas through small diameter medium to

low pressure distribution pipelines by a local distribution company to a large number of retail

consumers. It is an integrated network of steel, poly ethylene (PE) and medium density

polyethylene (MDPE) pipelines along with CNG dispensing stations. (Chandra, 2013)

Fig 4.1 CGD Value Chain (www.aga.org)


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4.2VALUE CHAIN

4.2.1 Gathering Lines

Gathering lines collect crude oil and raw gas from producing areas.

4.2.2 Gathering Station

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

Gathering lines pressure. These stations are called gathering station. (Dubey, 2011)

4.2.3

City Gas Station

The natural gas that is received at the city gas station is mostly passed through a cleaner to

remove liquids and dust. The primary function of the city gas station is to measure the amount

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 gas station the odorization of the natural gas takes

place. Different types of odorants are used so that the smell makes the presence of escaping

unburnt gas recognizable at very low concentration. 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%. (Anonymous, 2011)

The main components of City Gate station are

a.

Gas filtration skid

b. Pressure reduction skid

c. Flow metering skid


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4.2.3.1Gas filtration skid

This 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.

4.2.3.2

Pressure Reduction Skid

The pressure reduction skid is installed to reduce the pressure of the incoming gas form the

source from the pressure of 37 bar to 27 bar. Mainly creep relief valve is being installed in this

skid which maintains the downstream pressure.

4.2.3.3Flow 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 SCADA system in the control room.

4.2.4 District Regulation System

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 locations the DRS mainly depends on

the requirements of the area i.e., the type of customers to the company.

The various components in the DRS include the following,

a. Slam shut valves for controlling the flow

b. Filtering skid

c. Pressure reduction skid

d. Odorizing Unit


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Odorizing unit is highly essential to ensure the safe distribution of the both CNG and PNG.

The odorants mainly include the mercaptans. These odorant is injected in to the natural gas to

detect leaks if any. The odorants used is Ethyl Mercaptan.

e.

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 (Dubey, 2011)

4.2.5 Piping system

Pipeline network consists of steel pipeline & polyethylene pipeline. A typical CGD network

should consists of the following:

(a)Primary Network

A medium pressure distribution system comprising of pipelines, gas mains or distribution

mains normally constructed using steel pipes and connects one and more transmission. Pipeline

to respective CGS or one or more CGS to one or more DRS.

(b)Secondary Network

A low pressure distribution system comprising of gas mains or distributions mains usually

constructed using thermoplastic piping (MDPE) and connects DRS to various service

regulators at commercial, industrial and domestic consumers.


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Fig 4.2 Main Gas Transmission Pipeline (Chandra, 2013)

(c)Tertiary Network

A service pressure distribution system comprising of service lines, service regulators and

customer/consumer meter set an assembly constructed using a combination of thermoplastic

(MDPE) piping and GI/copper tubing components. The connection between consumer meter

set assembly and gas appliance (provided by consumer) may be made by GI pipes or copper

tubing or steel reinforced rubber hose. (Anonymous, 2011)


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Fig 4.3 CGD Pressure Regimes (Chandra, 2013)

4.2.6 Piped Natural Gas (PNG)

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

through 4 bar medium pressure PE pipelines. SR further reduces the pressure from 4 bar to 100

mbar. From SR the gas is supplied through a 10 mbar low pressure PE pipeline to a G.I. riserisolation wall. From this valve the gas is carried through a G.I. (Galvanized Iron) 10 mbar

pipelines to end user. The control valve is placed at the height of 5 ft which controls the flow.

Then a regulator are installed which rings down the pressure to 21 mbar for home users. A

meter is installed which tells the amount of gas being used depending on which they are

charged. (Prasad, 2011)


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Fig 4.4 Gas Transmission and Distribution system (www.mahanagargas.com)

4.2.7 CNG Infrastructure

4.2.7.1Mother Station

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.

4.2.7.2Online Station

CNG vehicles storage cylinders need to be filled at a pressure of 200 bars. Online Stations

are equipped with a compressor of relatively small capacity, which compresses low pressure


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pipelines 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.

Fig 4.5 CNG Stations (Das, 2011)

4.2.7.3

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 filling.Once the storage pressure drops, the refueling time increases, while the quantity of CNG

dispensed to vehicle also decreases.

4.2.7.4Daughter-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 ishigher than that of daughter station. (Das, 2011)


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WAY FORWARD

This project has covered natural gas and CGD overview, CGD regulations and CGD value

chain so far. Detailed profile of major market players i.e. involvement in each bidding round

and current status. Further in regulations, the impact of regulations and Government policies

on allocation of gas, gas pricing etc. on the development of CGD business in India will be

deliberated and status of each bidding round will be covered. Risk assessment is of vital

importance to any business, which will be addressed in detail in the later part of the project.

A case study of an undergoing CGD project will be carried out to understand the project

management aspects of a CGD business. Field trips to various stations and pipelines will be

done to help understand the technical aspects of CGD value chain thoroughly. Innovations inIT applications, equipments and safety standards in last 5 years will also be explored and

discussed.


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REFERENCES

American Gas Association. (2014) How Does the Natural Gas Delivery System Work?

Available from: http://www.aga.org/Kc/aboutnaturalgas/consumerinfo/Pages/NGDeliverySys

tem.aspx [Accessed: 12thNov 2014]

Anonymous. (2011) CGDIntroduction report. (Unpublished report)

Chandra P. (2013) City Gas Distribution: Coming Out of the Woods. Dolat Capital. Jan 2013

Das A.T. (2011) Report on CGD Business in India. School of Petroleum Management,

Gandhinagar (Unpublished report)

Dubey S. (2011) City Gas Distribution. School of Petroleum Management, Gandhinagar

(Unpublished report)

Gas transmission and distribution system. (March 2010) Mahanagar Gas Limited, Mumbai.

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Gujarat Infrastructure Development Board (2009). Review of Blueprint for Infrastructure in

Gujarat (BIG 2020)Final Report. CRISIL Infrastructure Advisory.

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