1. Sandeep Prasad 20104005
Exe-MBA10’
Overview of CGD Business
in India
School of Petroleum Management, PDPU

2. 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
GI 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
2

3. 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.
3

4. 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
4

5. 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 At the end of Percentage
2009 (bcm) 2010 (bcm) 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
5

6. FY10, received a boost with the commencement of production at
Reliance Industries’ KG D6 field.
Domestic Production
Proven reserves of natural gas in India were 1437 bcm as of 1 April
2010, slightly up from 1074bcm as of April 2009. The vast majority
(829 bcm) represents onshore gas (609 bcm is offshore) according to
the Ministry of Petroleum and Natural Gas
Figure 1 Domestic net gas production by region
50000
45000
40000
35000
30000
BCM
25000
20000
15000
10000
5000
0
2005-06 2006-07 2007-08 2008-09 2009-10
Gujarat Assam/ Nagaland Arunachal Pradesh Tripura
Tamil Nadu Andhra Pradesh Rajasthan West Bengal(CBM)
Source: Basics of Statistics on Indian Petroleum and Natural Gas 2009-10
6

7. 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- 2005- 2006- 2007- 2008- 2009-
05 06 07 08 09 10
Abu 0.09 0.08 0.13 0.16
Dhabi
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
7

8. 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
8

9. Table 3 Existing and upcoming LNG terminals
Terminal Partners Capacity
Dahej Petronet LNG,GDF 10 mtpa
Suez,ADB & Private
share holder
Hazira Shell , Total 3.5 mtpa
Dhabol NTPC, GAIL, Indian 5.5 mtpa
Bank, MSEB
Mundra GSPC , Adani Group 6.5 mtpa
Kochi Petronet LNG 2.5 mtpa
Ennroe TIDCO, Oil India 5 mtpa
Source: Natural Gas in India 2010 working paper-IEA
9

10. 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.
10

11. Major CGD Players in India & Customer Segment
Table 4 Major Indian Player in CGD Sector Statewise
State Company City
Maharashtra MGL Mumbai, Thane, Mira-Bhayendar,
Navi-Mumbai
Delhi IGL Delhi
Madhya Avantika Gas Ltd Indore, Ujjain and Gwalior
Pradesh
Andhra Bhagyanagar Gas Vijayawada & Hyderabad
Pradesh Ltd
Uttar Central UP Gas Ltd Kanpur & Bareilly
Pradesh
Adani Energy Ltd Faridabad, Noida & Lucknow
Green Gas Ltd Agra & Lucknow
Gujarat Charotar Gas Anand
GAIL-HPCL JV Vadodara, Ahmedabad
GGCL Surat, Bharuch, Valsad
Adani Energy Ltd Ahmedabad, Vadodara
GSPC Gas Gandhinagar, Morbi
SGL Gandhinagar, Mehsana ,
Sabarkantha
Tripura Tripura Natural Agartala
Gas Company Ltd
Source: City gas India Round table 2010-Vikalpa
11

12. 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.
12

13. 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
13

14. 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
14

15. 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).
15

16. 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.
16

17. 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
17

18. 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 Length(Km) Avg. Present
Capacity including Spurline flow
(mmscmd) (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
18

19. 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
End
Production Processing Transmission Storage Distribution
consumer
19

20. 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
20

21. 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
21

22. 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.
22

23. 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
23

24. 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.
24

25. 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.
25

26. 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.
26

27. 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.
27

28. 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.
28

29. 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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30. 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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31. 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
5. Business standard article Shell, Total to expand Hazira LNG capacity http://business-
standard.com/india/news/shell-total-to-expand-hazira-lng-capacity/454062/
accessed on 30th Nov 2011
6. Platts RSS Feed
http://www.platts.com/RSSFeedDetailedNews/RSSFeed/NaturalGas/8544829
accessed on 30th Nov 2011
7. IEA working paper Natural Gas India
http://www.iea.org/textbase/nppdf/free/2010/natural_gas_india_2010.pdf accessed
on 30th Nov 2011
8. http://www.vikalpa.com/pdf/articles/2010/Vik354-06-Colloquium.pdf accessed on
5th Dec 2011
9. PNGRB regulation http://www.pngrb.gov.in/exclusivity.pdf accessed on 6th Dec 2011
10. Ministry of Petroleum and Natural Gas Gazette notification
http://petroleum.nic.in/policy%20of%20pipelines.pdf accessed on 6th Dec 2011
11. http://duncansfertiliser.blogspot.com/2011/05/india-is-expanding-its-gas-
pipeline.html accessed on 6th Dec 2011
12. Gail Website http://gailonline.com/final_site/naturalgas_transmission.html accessed
on 7th Dec 2011
13. The Economics time news article dated 23rd June 2011
http://articles.economictimes.indiatimes.com/2011-06-
23/news/29694751_1_mmscmd-kg-basin-pipeline-network accessed on 7th Dec 2011
14. Petronet LNG corporate presentation
http://www.petronetlng.com/PDF/Petronet_Corporate_Presentation_June_2011.pdf
accessed on 7th Dec 2011
15. Analyst Presentation, GAIL (India) Limited website
http://gailonline.com/final_site/pdf/Investor_Presentation_Mumbai_June_2011.pdf
accessed on 9th Dec 2011
16. City Gas Distribution in India Key Trends and Outlook by CRISIL Infrastructure Advisory
http://www.crisil.com/pdf/infra-advisory/4-city-gas-distribution.pdf accessed on 9th
Dec 2011
17. http://www.pngrb.gov.in/draft/acfinal.pdf accessed on 9th Dec 2011
18. Control System Solutions for CGD
http://pptfree.com/Indiaoilgas/CGD/Control_System_Solutions_For_Cgd.pdf
accessed on 16th Dec 2011
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