India’s Gas Pipeline Network Set to Increase by 10,805 km, What it Means for City Gas Distributors

India’s natural gas pipeline network is expected to increase by 10,805 km, adding to the current operational network of 24,945 km, the Ministry of Petroleum and Natural Gas announced on January 7.

This expansion is a significant step toward completing the national gas grid, ensuring uniform availability of natural gas across all regions in the country. However, expanding this network faces significant challenges.

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Infrastructure Challenges in Gas Pipeline Development

The Petroleum and Natural Gas Regulatory Body (PNGRB) is working with state governments to streamline the laying of gas pipelines and reduce associated costs reported Moneycontrol in March 2024. The report highlighted that building gas infrastructure should not be viewed as a revenue-generating opportunity for state governments but rather as a means of creating essential facilities for the public.

The costs of laying pipelines vary significantly across states, ranging from Rs 60,000 per metre in some regions to as low as Rs 2,000 per metre in others.

Emphasising the need for standardising costs such as road cutting and pipeline-laying charges, Gajendra Singh, a member of the Petroleum and Natural Gas Regulatory Board (PNGRB) told Moneycontrol that the board’s goal is to minimise charges, as the pipeline infrastructure serves a public purpose.

City gas distribution (CGD) companies often face difficulties in laying pipelines due to delays in obtaining the necessary permissions and the higher costs of installation in areas with lower consumer density.

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Rising Gas Procurement Costs for CGD Companies

In addition to the infrastructure challenges, CGD companies are facing increased procurement costs. The gas procurement cost for CGD companies is expected to rise by Rs 2 - 3 per kilogram following a reduction in the allocation of input natural gas under the administered price mechanism (APM), reported Business Standard.

CGD operators typically receive priority gas allocation at reduced prices under APM from legacy gas fields, particularly for domestic compressed natural gas (CNG) and piped natural gas (PNG). However, GAIL (India) Ltd., the nodal agency for domestic gas allocation, recently reduced the APM gas allocation for the CNG segment by 20 per cent of its requirements, effective from October 16, 2024.

With the rising procurement costs and infrastructure challenges, CGD companies may struggle to maintain affordable pricing for consumers and efficiently expand their services.