From where does India get its CNG fuel?

Today in the 21st century, we are standing in a situation where renewable energy resources are in increasing demand over traditional fossil fuels. This transformation has taken place over the years credit goes to our human race as we set up industries, transport systems depending on petrochemical products, and waging countless unnecessary wars in between ourselves for gaining control over these finite natural resources.

The situation is slowly and surely changing for the better with the advent of new technologies, higher grade engineering, and scientific research. Hydro-Electrical Projects, Wind Energy generating farms, Solar power fields are being introduced for replacing the current generation fossil fuel power plants like coal power plants, Oil refineries, Compressed Natural Gas and Liquid Petroleum Gas distribution systems.

Energy Sector Supply Agencies and Undertakings

In India also the Central Ministry of New and Renewable Energy along with the Ministry of Petroleum and Natural Gas has been planning and executing these changes in the production and distribution system with the help of introducing new policies and updating older ones in accordance with the following the UN General Assembly Sustainable Development Goals.

The Petroleum and Natural Gas Regulatory Board (PNGRB) controls the supply and distribution of petroleum products including Compressed Natural Gas in India. The business is done through PSU’s or Public Sector Undertakings along with the private sector in the PPP model or Public, Private, Partnership. Companies like 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 forms part of the Distribution and business chain all over India. Private entities such as Adani Gas, and Torrent Gas are also gaining a significant presence in the sector after the current Narendra Modi led government is seeking more participation from the Private Sector.

Under the Petroleum and Natural Gas Regulatory Board (PNGRB) Act 2006, PNGRB grants the authorization to the entities for developing a City Gas Distribution (CGD) network (including PNG network) in a specified Geographical Area (GA) of the country.

CGD sector has four distinct segments “Compressed Natural Gas (CNG) predominantly used as auto-fuel, and Piped Natural Gas (PNG) used in domestic, commercial and Industrial segments”.

CGD’s Distribution System is divided into 4 main parts. It starts from the Jagdishpur “ Haldia/Bokaro “ also known as Dhamra Pipeline Project (JHBDPL) & Barauni- Guwahati Pipeline project (BGPL) and is part of the Central and Eastern CNG distribution line supplying to Assam, Sikkim, West Bengal, Jharkhand, Bihar, Madhya Pradesh, and parts of Uttar Pradesh.

The Northeast region (NER) gas grid comes next which covers the North-Eastern states referred to as the 7 sisters comprising Assam, Meghalaya, Manipur, Nagaland, Tripura, and Arunachal Pradesh.

The Kochi-Koottanad- Bangalore-Mangalore (Phase-II) Pipeline Project (KKBMPL) runs from Kerala to Karnataka supplying the demands of the South Western Region while the Ennore-Thiruvallur-Bangalore-Nagapattinum “ Madurai “ TuticorinNatural gas pipeline (ETBNMTPL) forms the distribution line of the Eastern Ghats running from now Karnataka to Madurai.

Pre and Post GST Time Comparison 

The Centre wants the states to limit the value-added tax (VAT) rates on compressed natural gas and liquefied natural gas (CNG/LNG) to under 5%. It has also been on the lookout for lowering of road taxes for vehicles running on CNG/LNG by states to make these on par with the rates charged on electric vehicles (EVs).

These proposals are part of the draft policy for city gas distribution (CGD) prepared by the Ministry of Petroleum and Natural Gas (MoPNG) which, the government expects will become a benchmark for every state to follow and come up with their own CGD policies.

Earlier different states used to charge different Value Added Tax (VAT) on CNG prices. For example, while Delhi completely exempted VAT on CNG, the same in Uttar Pradesh, Maharashtra and Gujarat were as high as 12.5%, 13.5% and 15%, respectively before the introduction of the GST bill.

According to experts, having a uniform tax rate for CNG would have addressed the long-standing demand of including gas under the ambit of the GST. “Rationalising the VAT rates and bringing them to a uniform level will help take up this much-delayed reform,” Deepak Mahurkar, partner, PwC, was formerly seen quoted.

A former draft policy stated that the government was expected to form a committee under the chairmanship of their respective chief secretaries which will meet at least once in three months to assess the development of the CGD network in the states. The committee was coordinated with various local and civic bodies to streamline the process of procuring various clearances and standardising levies and charges. The Centre suggested that state-level committees should also put a policy thrust to promote CNG and LNG as the preferred fuel in public transportation.

The main challenge the expansion of the CGD network faces is obtaining licences and work permits from a plethora of civic agencies including the land-owning agency, the municipal corporation, the district magistrate and the fire department.

At present, the coverage of the CGD network spans 232 geographical areas spread over 407 districts in 27 states. The present share of gas in the energy basket of the country is 6.2%, and the target is to take it to 15% by 2030. As of September 2019, there were 1,815 CNG stations and 54.2 lakh domestic connections across the country.

Currently, about 76% of the CNG stations and 80-90% of the PNG connections are concentrated in Delhi, Gujarat and Maharashtra.

In 2019, during talks of the ninth and 10th rounds of bidding for CGD networks, the number of CNG stations and domestic piped natural gas (PNG) connections were expected to increase by 8,181 and 4.2 crores in the next 8-10 years.

CGD network operators are now seeing to benefit from a sustained weakness in a global spot of LNG prices and an expected decline in domestic gas prices. According to Kotak Institutional Equities, CGD companies source around 15% of their domestic gas requirement from the Panna-Mukta-Tapti (PMT) fields.

Reports declassified that after the expiry of PMT’s production sharing contract in December 2019, gas from the field was seen to the levels of $3.6 per million British thermal units (mbtu), against its earlier contracted price of $5.7/mbtu making banking sector players like Kotak expect the domestic gas price to decline by around $1/mbtu in the upcoming revision for the first half of FY21.  Private Sector entities such as Adani Gas and Torrent Gas have a significant presence in the sector.

Russia Ukraine War Context:

The Russia Ukraine war has also affected the prices as supply and demand all over the country and world is an imbalance. The coal crisis is also being noticed since the start of April 2022. With rumours of China starting an oil refinery in partnership with the Kingdom of Saudi Arabia in march the prices soared up globally making an immediate impact on India. It is to be seen how the CNG distribution system act now along with the ministry of Petroleum and Natural Gas as well as the Ministry of New and Renewable Energy for the consumption of natural gas.

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