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Last Update 04 July 2023

Why spurt in CGD investments potentially a right step for companies in India?

Will KPC recommendations lead the opportunity valve wide for CGD development in India?

The CGD sector in India has got a lease of new life with the recommendations of Kirit Parikh Committee (KPC) being enacted by GoI upon gas pricing. The Government has set up the committee to review the gas pricing formula post the surge observed at the global level.

The ceiling of $6.5/MMBtu and the floor of $4/MMBtu for domestic natural gas prices will facilitate the Government’s agenda to promote CGD which in turn shall increase the wider acceptance of natural gas in the country. Interestingly, without ceiling which is to be maintained for FY24 and FY25 and then shall be increased by $0.25/MMBtu on yoy basis, the price would have been in the range of $10-11/MMBtu for the first-half of FY24 only, which would have been nig deterrent for the CGD market growth. Additionally, benchmarking of the prices produced by state owned firms against 10% of imported crude prices – instead of HH, Alberta, NBP and Russian natural gas prices – coupled with bi-annual revisions will ensure stability in domestic gas prices boosting the growth of CGD sector, addressing the long pending weakness.

On the contrary, gas produced from new well or well intervention in the nomination fields of ONGC and OIL where APM prices are subject to floor and ceiling, would be allowed for 20% on these APM prices. This would incentivize investments in this space. The market linked pricing in India would kick-off from January 2027 for the legacy fields and from January 2026 for the difficult fields.

Given CGD entities are shielded of any price hike following KPC recommendations till 2027 is presenting of golden opportunity to expand base in the country. Currently with 11th and 11A bidding rounds under process in the country PNGRB has invited bids of 71 GAs in these rounds.

Why CGD players need a multi pronged strategy to gain necessary momentum in India?

EVs are forecasted to make faster inroads posing a stiff challenge for the uptake of CNG markets. Especially, under the 3W segment which at large is utilized for public transport would under threat. Hence, CGD market players need to develop a multi-pronged strategy to seek market consolidation and leverage the advantage rendered by KPC recommendations.

First of which would be link long-term contracts with OEMs to boost the sales of CNG based vehicles in the country. This is so purely because CNG is more readily available, credible and proven green fuel and is ahead of the curve with other alternates like EVs and Hydrogen.

Secondly, the focus should be on the PNG customers of all categories involving domestic, commercial and industrial all.

Traditionally, this has not been the focus area of most CGD entities in India. It is expected that the country will nearly 40% of its population residing in urban areas which is an embellishment of nearly 10% before a decade in 2013. The trend is likely to garner momentum further coupled with enhanced rate of urbanization. This presents and ideal gate of opportunity for CGD players to focus on PNG in urban settlements in the country.

Finally, the CGD entities should also focus upon increasing the industrial penetration which shall be aptly aided by the upcoming green laws and the migration from voluntary ESG to mandatory ESG compliance in future. Additionally, doubling the efforts to increase the domestic consumers and adding more numbers on commercial and industrial front would be ideal in order to be future-ready in the country.

Mr. Ravi Shekhar, Director & Head, of Eninrac Consulting says “CGD would be central to India’s gas economy transition. With the combination of the role of energy and the potential of natural gas to be a bridge fuel, the country’s demand for natural gas could reach 360 MMSCMD by 2050. However, the uptake from demand of traditional consumers will go on increasing but CGD sector shall be the major driver with estimated growth from 30 MMSCMD to 210 MMSCMD by 2050 which shall be fueling country’s natural gas demand. This trajectory of CGD growth shall be unique to India as the current 11th and 11A bidding rounds by PNGRB would see 98% of the population and 88 percent of territory and with aggressive minimum program (MWP) commitments from most players will spur the growth of CGD. CGD entities should also focus upon increasing the industrial penetration which shall be aptly aided by the upcoming green laws and the migration from voluntary ESG to mandatory ESG compliance in future”

How DODO (Dealer Owned & Dealer Operated) Model pushing CGD uptake in India?

In India to promote the economical and eco-friendly CNG fuel for the benefit and convenience of the passenger vehicles, commercial as well ass public transport CGD companies are intending to set up CNG stations under both new and upcoming GAs under DODO model. The salient features of this model are depicted as below. Under the general guidelines for the scheme, the entire earmarked dealer plot shall be developed exclusively for setting up of CNG station and allied commercial activities at the discretion of City Gas Distribution (CGD) activities. As more and more CNG stations open, various DODO models are being rolled in:

• DODO with investment in equipment & infrastructure
• DODO with investment in equipment (only dispenser) and infrastructure
• DODO with investment in infrastructure only without any equipment

Different margins are being offered by CGD players on ₹/kg basis for all the above applicable models. The typical equipment used are CNG compressor, storage cascade, dispenser and related tubing, piping and SCADA.

- Communications Team


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