From where does India get its CNG fuel?

In today's modern era, there is a growing need for renewable energy resources compared to conventional fossil fuels. This alteration has occurred gradually as a result of human activities. We have established industries and transportation networks that heavily rely on petroleum and its derivatives. Unfortunately, we have also engaged in numerous futile conflicts in our pursuit of gaining supremacy over these limited natural resources.

The scenario is gradually improving with the emergence of new technologies, advanced engineering, and scientific research. Renewable energy initiatives such as hydro-electrical projects, wind energy generating farms, and solar energy fields are being implemented to replace the existing fossil fuel power plants, including thermal power plants, oil refineries, compressed natural gas, as well as liquid petroleum gas distribution networks.

Energy Sector Supply Agencies and Undertakings

In India, the Central Ministry of New and Renewable Energy, in collaboration with the Ministry of Petroleum and Natural Gas, has been strategizing and implementing alterations in the energy production and distribution system. This is being achieved through the introduction of new policies and the revision of existing ones, in line with the Sustainable Development Goals outlined by the UN General Assembly.

The Petroleum and Natural Gas Regulatory Board (PNGRB) regulates the production and distribution of petroleum products, including Compressed Natural Gas (CNG), in India. The commercial operations are conducted via Public Sector Undertakings (PSUs) in conjunction with private industry under the Public-Private Partnership (PPP) model. Companies such as GAIL (India) Ltd, GAIL, Brahmaputra Crackers Polymer Limited, Indraprastha Gas Limited (also known as Mahanagar Gas Limited), Bharat Petroleum, Indian Oil, and other City Gas Distribution Entities are involved in the supply and commercial chain throughout India. Private businesses like Adani Gas and Torrent Gas are increasingly establishing a notable presence in the sector as the present administration, led by Narendra Modi, actively encourages further private sector involvement.

The Petroleum and Natural Gas Regulatory Board (PNGRB) Act of 2006 empowers PNGRB to issue authorization to organizations for the development of a City Gas Distribution (CGD) network, which includes a PNG network, in a specific Geographical Area (GA) of the country.

The CGD sector consists of four major segments: Compressed Natural Gas (CNG), which is mostly used as fuel for automobiles, and Piped Natural Gas (PNG), which is used in home, commercial, and industrial sectors.

The distribution system of CGD is comprised of four primary components. The Barauni-Guwahati Pipeline Project (BGPL) and the Jagdishpur-Haldia/Bokaro-Dhamra Pipeline Project (JHBDPL) are the starting points of the Central and Eastern CNG distribution line. These pipelines supply natural gas to Sikkim, Assam, West Bengal, Bihar, Jharkhand, Madhya Pradesh, and parts of Uttar Pradesh.

The next gas grid is the Northeast region (NER) gas grid, which encompasses the North-Eastern states known as the 7 sisters: Meghalaya, Assam, Tripura, Manipur, Nagaland, and Arunachal Pradesh.

The Kochi-Koottanad-Bangalore-Mangalore (Phase-II) Pipeline Project (KKBMPL) transports natural gas from Kerala to Karnataka in order to fulfill the energy requirements of the South Western Region. On the other hand, the Ennore-Thiruvallur-Bangalore-Nagapattinum "Madurai-Tuticorin" Natural gas pipeline (ETBNMTPL) serves as the distribution line for the Eastern Ghats, running from Karnataka to Madurai.

Pre and Post-GST Time Comparison 

The central government wants state governments to restrict the rates of value-added tax (VAT) on compressed natural gas and liquefied natural gas (CNG/LNG) to a maximum of 5%. It has also been monitoring the reduction of road charges for vehicles fueled by compressed natural gas (CNG) or liquefied natural gas (LNG) by states, in order to align them with the charges applied to electric vehicles (EVs).

The Ministry of Petroleum and Natural Gas (MoPNG) came up with a draft policy for city gas distribution (CGD), which the government anticipates will serve as a standard for all states to develop their own CGD policies.

Previously, several states levied varying rates of Value Added Tax (VAT) on the costs of Compressed Natural Gas (CNG). For instance, Delhi totally eliminated the Value Added Tax (VAT) on Compressed Natural Gas (CNG), whereas in Maharashtra, Uttar Pradesh, and Gujarat, the VAT rates were as high as 13.5%, 12.5%, and 15% correspondingly before the implementation of the GST bill.

Experts suggest that implementing a standard rate of taxes for Compressed Natural Gas (CNG) would have fulfilled the persistent need to include gas within the scope of the Goods and Services Tax (GST). "Standardizing the rates of VAT and bringing them to a consistent level will facilitate the implementation of this long-awaited reform," stated Deepak Mahurkar, a partner at PwC.

According to a previous policy, the government was required to establish a committee led by the chief secretaries of each state. This committee would convene every three months to evaluate the progress of the CGD network in the states. The committee collaborated with other municipal and civic organizations to optimize the procedures for obtaining different approvals and establishing uniform charges. The Centre proposed that state-level committees ought to give preference and actively promote the use of CNG and LNG as the preferred fuel for public transit.

The primary obstacle encountered in the broadening of the CGD network is the acquisition of licenses and work permits from numerous administrative agencies, such as the land-owning agency, the municipal corporation, the district magistrate, and the fire department.

Currently, the CGD network covers 232 regions spread over 407 districts in 27 states. Currently, gas accounts for 6.2% of the country's energy mix, and the goal is to increase it to 15% by 2030. In September 2019, the country had a total of 1,815 Compressed Natural Gas (CNG) stations and 54.2 lakh household connections.

Presently, Delhi, Gujarat, and Maharashtra have a concentration of approximately 76% of the CNG stations and 80-90% of the PNG connections.

During discussions on the ninth and tenth rounds of bidding for CGD networks in 2019, it was anticipated that the number of CNG stations and residential piped natural gas (PNG) connections would increase by 8,181 and 4.2 crores respectively over the following 8-10 years.

CGD network operators are currently capitalizing on the long-lasting decrease in global LNG costs and the anticipated reduction in local gas costs. Kotak Institutional Equities reports that CGD companies obtain approximately 15% of their domestic gas supply from the Panna-Mukta-Tapti (PMT) resources.

Declassified reports indicate that following the expiration of PMT's production sharing contract in December 2019, the price of gas from the field dropped to $3.6 per million British thermal units (mbtu), compared to its previous contracted price of $5.7/mbtu. This has led banking sector players like Kotak to anticipate a decrease of approximately $1/mbtu in the coming adjustment of domestic gas prices for the first half of FY21. Adani Gas and Torrent Gas, which are private-sector enterprises, have a substantial involvement in the industry.

Russia-Ukraine War Context:

The current conflict between Russia and Ukraine has had a significant impact on prices, as it has disrupted the balance between supply and demand both within the countries involved and globally, leading to imbalances. The coal shortage has been seen since April 2022. In March, rumors circulated about China and the Kingdom of Saudi Arabia collaborating on an oil refinery. This led to a significant increase in world prices, which had an immediate impact on India. The current functioning of the CNG distribution system, in collaboration with the Ministry of Petroleum and Natural Gas and the Ministry of New and Renewable Energy, concerning the utilization of natural gas, remains to be observed.

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