Gas gridlocked as cost deters industrial users

By: | Published: June 3, 2015 1:13 AM

With natural gas looking prohibitively costly, potential industrial consumers have turned wary and are shying away from setting up facilities...

Dabhol power plantWith natural gas looking prohibitively costly, potential industrial consumers have turned wary and are shying away from setting up facilities for switching to the cleaner fuel. (Reuters)

With natural gas looking prohibitively costly, potential industrial consumers have turned wary and are shying away from setting up facilities for switching to the cleaner fuel. In what has put a question mark on the Modi government’s plan to expand the city gas distribution (CGD) network from over 40 now to another 200-odd geographical areas, the fifth round of auction for laying the infrastructure to transport the fuel has come a cropper. While the the previous two rounds of bidding got cancelled due to a stand-off between the regulator and the bidders, the initial rounds too met with moderate success only.

According to sources, the Petroleum and Natural Gas Regulatory Board (PNGRB) hasn’t received any bid for laying the CGD network in eight out of the 20 districts where auction is to take place in the current round. In the case of another two districts, the auction resulted in single-bid scenarios. The 20 districts are spread across six states —  Andhra Pradesh, Maharashtra, Uttar Pradesh. Gujarat, Karnataka and Uttarakhand. The regulator has now extended the bidding to June 22 for the areas in all 20 districts.

Currently, domestic natural gas from most sources is priced at $5.18 per million British thermal units (mmBtu), while spot (imported) LNG prices hover around $9 per mmBtu, and the LNG sourced under long-term contracts costs about $13.

The primary reason behind companies being unwilling to invest in the CGD network is the doubt about ‘commercial viability’, said an official at PNGRB.

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Alternative fuels such as diesel, fuel oil or even naphtha are easily available and are cheaper. Small and medium enterprises need to invest to be able to use gas as fuel but are unwilling to do so, the official said.

As for firms putting up CGD networks, a good number of industrial consumers are a must to make their business viable. In the case of the capital’s Indraprastha Gas Limited (IGL), roughly a fifth of the gas is sold to industrial consumers and half that to households, with the major chunk going to the CNG sector. As far as other areas are concerned, industrial consumers are even more important for the CGD network to be sustainable.

India has not been successful in expanding city gas network primarily because of scarcity of indigenous gas and difficulty in laying pipelines in crowded localities. Currently, nearly 44 cities/towns in India are have CGD networks. In order to facilitate expansion of cleaner fuel, the government has allocated 100% domestic gas supply for city gas usage.

“There is a need to educate and build larger attractive consumption market among local consumers in each geographical area, in addition to regulatory push. The challenge is access to sufficient gas, and to have it reach the relevant geographic area. Focused support and push from central and relevant local government bodies will go a long way in pushing the CGD agenda,” said Gaurav Moda, head (oil and gas practice) at KPMG in India.

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