Sandeep Prasad 20104005 Exe-MBA10’

School of Petroleum Management, PDPU

Overview of CGD Business in India

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LIST OF ACRONYMS AND ABBREVIATIONS

BCM Billion cubic meter

CGD City Gas Distribution

CNG Compressed Natural Gas

DCF Discounted Cash Flow

GGCL Gujarat Gas Company Limited

GHG Green House Gas

G I Galvanized Iron

IGL Indraprastha Gas Limited

LNG Liquefied Natural Gas

MGL Mahanagar Gas Limited

MOTE Million Tonnes of Oil Equivalent

PNG Piped Natural Gas

PNGRB Petroleum and Natural Gas Regulatory Board

PSC Production Sharing Contract

SGL Sabarmati Gas Ltd

TCM Trillion Cubic Meters

WACC Weighted Average Cost of Capital

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Executive Summary

The share of natural gas in the country’s primary energy mix has increased to nearly 10.6% still India’s 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 doesn’t 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 03

1. India Natural Gas Facts 05

2. Overview of CGD Business in India 10

3. City Gas Distribution Infrastructure 13

4. Natural Gas Transportation Networks - India 17

5. Supply Chain in City Gas Distribution 19

6. Project Management aspect of CGD Network 21

7. Market Development for CGD Business 22

8. Customer service issues in CGD Business 24

9. Major Commercial Issues 25

10. QHSE in City Gas Distribution 26

11. CGD Regulation-India 27

References 31

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Chapter 1

India’s Natural Gas facts

Growing economy and growing population have resulted in increased consumption of primary energy sources, such as coal, oil, and natural gas in India. The primary energy consumption of India for 2010 is 524.2 mtoe, growth of 9.2% over 2009. The share of natural gas in the country’s primary energy mix increased from 9.36% in 2009 to 10.62% in 2010. However, this share is quite low compared to the global average (24%).

Table 1 Natural Gas facts-India

At the end of 2009 (bcm)

At the end of 2010 (bcm)

Percentage Change

Proved Reserve 1074 1437 3.4

Onshore 287 829

Offshore 787 609

Production 39.2 50.2 29.7

Consumption 51 61.9 21.5

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 country’s primary energy mix. India’s 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 ever-increasing demand for energy. India’s 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

Source: Basics of Statistics on Indian Petroleum and Natural Gas 2009-10

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2005-06 2006-07 2007-08 2008-09 2009-10

Gujarat Assam/ Nagaland Arunachal Pradesh Tripura

Tamil Nadu Andhra Pradesh Rajasthan West Bengal(CBM)

BC

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LNG in India As India currently doesn’t 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)

2004-05

2005-06

2006-07

2007-08

2008-09

2009-10

Abu Dhabi

0.09 0.08 0.13 0.16

Australia 0.09 0.16 1.11

Indonesia 0.08

Malaysia 0.09 0.09 0.08 0.25

Oman 0.27 0.27 0.41 0.35

Qatar 3.49 6.98 8.24 9.43 8.34 7.95

Algeria 0.09 0.55 0.53 0.16

Nigeria 0.09 0.77 0.38 0.32

T&T 0.24 0.23 0.68

Egypt 0.62 0.09 0.24 0.33

E.Guinea 0.42 0.25

Norway 0.08

Russia 0.68

Others 0.17

Total 3.49 6.98 9.59 11.52 11.16 12.31

Source: Natural Gas in India 2010 working paper-IEA

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LNG Import Infrastructure

Imports of LNG are expected to continue to play a crucial role in partially bridging the country’s natural gas demand-supply gap. As per estimation of E & Y, “LNG supplies to increase to around 140 mmscmd, and to account for approximately 26% of the total natural gas demand by FY20”. This significant increase in supplies will be from the proposed brownfield expansion of two existing terminals, Dahej and Hazira; as well as from greenfield projects; the commissioning of new terminals in Kochi, Ennore and Mundra; and the commencement of operations at the Dabhol terminal.

Figure2 Existing and upcoming LNG terminals

Source: Exploring Opportunities-E&Y

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Table 3 Existing and upcoming LNG terminals

Source: Natural Gas in India 2010 working paper-IEA

Terminal Partners Capacity

Dahej Petronet LNG,GDF Suez,ADB & Private share holder

10 mtpa

Hazira Shell , Total 3.5 mtpa

Dhabol NTPC, GAIL, Indian Bank, MSEB

5.5 mtpa

Mundra GSPC , Adani Group 6.5 mtpa

Kochi Petronet LNG 2.5 mtpa

Ennroe TIDCO, Oil India 5 mtpa

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Chapter 2

Overview of CGD Business in India

The CGD business in India dates back to 1857 when Calcutta Gas Company and Bombay Gas Company commenced operations in Kolkata and Mumbai respectively, with coal gas as the primary input. Subsequently however, the industry remained by and large dormant, until Oil and Natural Gas Corporation Limited (ONGC) and Assam Gas Company Limited entered the business in the mid- to late-1980s. The real impetus to the sector came from the establishment of Gujarat Gas Company Limited (GGCL), when GOI allocated gas for development of City gas . In early 90’s Supreme Court on a PIL directed that the City Gas should be implemented in Delhi, Mumbai and Baroda by GAIL. In pursuant to this direction, the CNG was introduced in all these three towns in 1993. In Mumbai a JV of GAIL, BG and Government of Maharastra was formed to pursue city Gas Business. A company was registered in 1995 as Mahanagar Gas Ltd. In Delhi GAIL formed a JV with BPCL created company in 1998 by the name of Indraprastha Gas Ltd. The commercial success of these companies in the ensuing period along with improving gas supplies has drawn a number of new entrants to the CGD business in the recent past. Even while the industry has been gathering momentum, GOI has set up a regulator, the Petroleum and Natural Gas Regulatory Board (PNGRB), which has, among other mandates in the hydrocarbon sector, the mandate of regulating the CGD business.

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Major CGD Players in India & Customer Segment Table 4 Major Indian Player in CGD Sector Statewise

Source: City gas India Round table 2010-Vikalpa

State Company City

Maharashtra MGL Mumbai, Thane, Mira-Bhayendar, Navi-Mumbai

Delhi IGL Delhi

Madhya Pradesh

Avantika Gas Ltd Indore, Ujjain and Gwalior

Andhra Pradesh

Bhagyanagar Gas Ltd

Vijayawada & Hyderabad

Uttar Pradesh

Central UP Gas Ltd Adani Energy Ltd Green Gas Ltd

Kanpur & Bareilly Faridabad, Noida & Lucknow Agra & Lucknow

Gujarat Charotar Gas GAIL-HPCL JV GGCL Adani Energy Ltd GSPC Gas SGL

Anand Vadodara, Ahmedabad Surat, Bharuch, Valsad Ahmedabad, Vadodara Gandhinagar, Morbi Gandhinagar, Mehsana , Sabarkantha

Tripura Tripura Natural Gas Company Ltd

Agartala

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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.

Regulatory Aspects-Laying Pipeline Policy of development of Natural Gas Pipelines and City or Local Natural Gas Distribution network came in effect from 20th December 2006. Objective of regulatory reforms permit and encourage market forces to enhance competition and produce a more competitive and efficient industry structure i.e. promote investment from public as well as private sector in natural gas pipelines and city or local natural gas distribution networks, to facilitate open access for all players to

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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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Chapter 4

Natural Gas Transportation Networks - India For the growth of the City gas Distribution across country, Indian must have developed cross country pipelines. Development of gas transportation network is 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 transportation network. Historically, the transport infrastructure has been developed to link production centers or LNG import terminals located mainly in the northwest coast to the primary consumption centers located in the North West. GAIL was having monopoly before the entries of other player in the transportation business. GOI decided to encourage the construction of more transmission pipelines in the country and ended GAIL’s monopoly in December 2006, enabling RIL to step in. GAIL has a network of about 8,000 km with transmission capacity of about 120 mmscmd, representing nearly 73% of India’s transmission business. The very first major long-distance gas transportation pipeline, the Hazira-Vijaipur-Jagdishpur (HVJ) line, was built by GAIL. In 2008, RIL completed the 1400 km long EWPL connecting Kakinada in Andhra Pradesh to Baruch in Gujarat. EWPL connects with GAIL's HVJ line and Dahej-Vijaipur pipeline network at Ankot in Gujarat, Dahej-Uran and Dabhol-Panvel pipeline network at Mashkal in Maharashtra. GSPL, which is a pure transmission company, operates a grid of 1900 km. It intends to expand its grid reaching regions in the North but also in the East. The company is expanding its pipeline network in Gujarat to 2,400 km in FY12. The three pipeline contracts it won in consortium with Indian Oil, BPCL and HPCL is set to make it a leading inter-state gas transporter from intra-state at present. These three pipelines with

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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 India’s Existing Gas Transportation infrastructure

Player Design Capacity

(mmscmd)

Length(Km) including Spurline

Avg. Present flow

(mmscmd)

GAIL 155 8000 120

GSPL 40 2000 40

AGCL/OIL 08 500 06

RGTIL EWPL 80 1400 50

Total 283 11,900 166

Source: GAIL

Figure 3 Existing and Proposed NG pipeline-India

Source: PetronetLNG

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Chapter 5

Supply Chain in CGD The supply chain in CGD begins with exploration at the commercialization phase the extracted gas often requires processing to separate the methane from liquids and gases that may be present, and to remove any impurities, such as water and hydrogen sulphide. High pressure transmission pipelines are used to transport natural gas from source over long distances to markets or natural gas is cooled to -1660 c to transfer through LNG ship. A network of distribution pipelines are then used to deliver gas from points along the transmission pipelines to industrial customers and from gate stations for the reticulation of gas in cities & towns. Figure 4 Supply chain in CGD

Production Processing Transmission Storage DistributionEnd

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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Chapter 7

Market Development for CGD Business As CGD comes at the end of the natural gas value chain, its development is contingent on the development of the rest of the value chain. It is up to the Government and industry players to ensure adequate supply of natural gas in the CGD market. This can happen only if the country has a fully integrated gas infrastructure with uniform natural gas pricing and affordable end user prices with favorable and clear regulatory policies. CGD’s gas consumption is on rise but the constrained by supply shortage of natural gas in the country and gas allocation to priority sector will dampen the growth of the sector. To bridge the demand supply gap would require discovering new field or finding supply source along with building new import terminal and capacity addition in the existing one for LNG import. The second factor for the development of the sector is capital, industry being a capital intensive industry which have very long gestation period. Investment and supply source will determine the health India’s gas industry. 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. The phasing out of the subsidy on domestic LPG could lend further impetus to residential natural gas consumption. The CGD segment is expected to emerge as one of the fastest-growing segments of the Indian natural gas industry, as the development of CGD networks across the country is likely to gather momentum with the commissioning of cross-country and regional gas pipelines. The segment is witnessing overwhelming interest from various players. Both existing and new players propose to establish new CGD projects in many more cities in India.

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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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Chapter 8

Customer Service issues in CGD Business Customer Service in CGD business is as important as in any other business. When concept is new, customer service become more important because of the switching cost for the customer. The companies must take care of customer from pre-purchase to the post purchase service. Inspite of the customer service importance following are the issues are faced by CGD customers: Supply of Gas

Reliability of the gas supply is a major issue for all the type of Consumers. The disruption in the supply affects the industrial consumer in big way as compare to the rest of the segment.

Time lag- between registration and gas delivery

There is a long delay since registration is done and gas reaches at home.

Billing Problems There is no efficient billing system for domestic customers. Though rules have already been passed by PNGRB for billing.

Long Queue at CNG station The number of CNG vehicle are increasing day by day but neither the dispensing unit nor the number of retail outlet are increasing with the same pace as the vehicles are which leads to the long queue at the existing retail outlet.

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

Maintenance Problem There have also been several issues with maintenance and quality of service and equipments used.

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Chapter 9

Major Commercial Issues Customer loyalty and satisfaction are keys to CGD business if the customer is not happy with the product or services; companies will miss the top line and bottom line target issues will not only impact balance sheet but brand value of the company will be at risk as well. Inspite of efforts from the CGD companies as well as support from regulatory bodies there are uphill task for the CGD companies to exceed the customer expectation. Some of the commercial issues in the CGD business are as follows:

Gas Supply Continuous gas supplies are very important for the consumer & maintain the uninterrupted gas supply is the major challenge for the CGD companies. Sometime CGD companies face technical problem in transportation of gas to consumer due to fault in the pipelines or issues can be at the production field which may lead to disruption in the supply. Beyond specified time limit of supply cut off CGD companies has to pay heavy fines.

Pricing Fluctuation in the supply of gas due to decline in the production volume at major field like KG-D6 or other fields lead CGD company to buy the LNG cargo at spot price to maintain the supply escalate the expense of the company.

Regulatory Clearance CGD companies have to take clearance from various government bodies as there is no single window for clearance to start the operation whether for laying trunk or spur line or setting up the last mile connectivity which takes lot of time and leads to time and cost overrun for CGD project.

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Chapter 10

QHSE in City Gas Distribution

After the last mile connectivity, it’s 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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Chapter 11

CGD Regulation-India CGD and gas transmission sectors come under the purview of PNGRB, which also regulates refining, processing, storage, transportation, distribution, marketing and sale of petroleum products. PNGRB is established by an act of parliament. 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 enacted various regulations to encourage investments through prospects of promising returns as well as promotion of competition to improve service delivery. PNGRB aims to ensure fair trade; register standards and authorize entities for specified activities, lay down technical and safety standards, monitor tariffs and prevent restrictive trade practices. Function of PNGRB: Register entities for

— Marketing petroleum, petroleum product and natural gas; — Establishing & operating LNG terminals; — Establishing storage facilities;

Authorize entities to — lay, build, operate or expand a common carrier or contract

carrier;

— lay, build, operate or expand CGD network;

Declare pipeline as common carrier or contract carrier

Monitor prices and take corrective measures to prevent restrictive trade practice by the entities;

PNGRB will regulate only the city gas pipeline network tariff. The

end gas price to the consumers is not covered in the regulation.

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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;

Overview of PNGRB Gazette Notifications Regulations Regulation for Access Code Regulations for Access Code for Natural Gas Transmission Pipelines and City or Local Natural Gas Distribution Networks was passed in 2007 Objective of access code regulation 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.

Prevent abuse of monopoly power 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.

Provide basis for resolution of disputes.

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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/india-seeks-long-term-lng-purchase-deals-with-brunei-indonesia-australia-and-malaysia-as-it-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

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6. Platts RSS Feed http://www.platts.com/RSSFeedDetailedNews/RSSFeed/NaturalGas/8544829 accessed on 30th Nov 2011

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http://articles.economictimes.indiatimes.com/2011-06-23/news/29694751_1_mmscmd-kg-basin-pipeline-network accessed on 7th Dec 2011

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