New policy in works

There are Gains for oil marketers with gas networks, but city gas distributors may find investment threshold daunting

Oil companies in the public sector—like Indian Oil Corporation (IOC), Hindustan Petroleum Corporation (HPCL) and Bharat Petroleum Corporation (BPCL)—and their private sector counterparts like Reliance Industries and Essar group – will for the first time be eligible to set up compressed natural gas (CNG) networks across the country, according to CNG marketing guidelines being worked out by the oil ministry.

Analysts say that public sector oil retailers will benefit the most as they can use their existing vast network of petrol pumps to supply CNG as well. This would, however, also depend on whether these outlets are connected by gas pipelines.

Sources say the oil ministry will move the guidelines to the Cabinet, which will open up CNG retailing to businesses with a significant stake in the oil and gas sector. The move follows a recent government notification on CNG whereby CNG retailing was delinked from the city gas distribution (CGD) business. So far only CGD entities could market CNG.

An oil ministry official said companies with a minimum investment of Rs 2,000 crore in the oil and gas sector can apply for the CNG marketing rights. “Moreover, the existing CGD players, which might not have as much (Rs 2,000 crore) funds invested in the sector, can continue selling CNG. We want only serious players with significant stakes in the sector to be a part of the CNG retailing business,” explained the official.

At present, CNG is marketed only by entities that have a CGD licence, like Indraprastha Gas, Mahanagar Gas, Gujarat Gas, Adani Gas and Gail Gas. The oil ministry plans to bring 200 cities under the CNG network by 2015.

The CNG retailing business also got a boost recently when the oil ministry increased the allocation of cheaper domestic natural gas to meet 100% requirements of CNG and PNG (piped natural gas) retailers. This will make CNG more affordable as CNG retailers will not have to rely on the more expensive imported LNG to meet their requirements. The decision will benefit consumers in cities such as Delhi, Meerut, Kanpur, Indore, Surat and Hyderabad. Delhi, for example, was so far meeting 28% of its natural gas needs from the costlier imported LNG. However, there will be no cut in rates in Mumbai, which has historically been getting all its gas requirements from domestic fields. Though all city gas entities in the country will get natural gas at uniform price, the rates of CNG and piped gas will vary from city to city, depending on transportation charges and VAT.

Imported LNG costs above $18/million metric British thermal unit. Domestic gas currently costs about $4.2/mmBtu and is expected to nearly double starting April 2014, but this is still considerably cheaper than LNG. Based on a formula recommended by the Rangarajan committee, all domestic producers–including public sector ONGC and Oil India, whose gas is currently sold at $4.2/mmBtu–will get a 12-month average of benchmark global rates and LNG import price from the next financial year onwards.

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