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GAIL: The downstream bet

Sep 3, 2007

In this article, we’ll look at the city gas distribution segment of GAIL. While it presently forms only 2% of the consolidated topline and 5% of the consolidated bottomline, the company has ambitious plans for the segment going forward. What? The city gas segment of GAIL comprises of 2 products- Piped Natural Gas (PNG) and Compressed Natural Gas (CNG).

The PNG distribution system consists of an underground pipeline distribution system inside the city to supply natural gas to different customers for various uses. In the domestic and commercial sectors, it is used for cooking, water heating, air conditioning and space heating. In the industrial sector it is used for power generation, dryers, furnaces and boilers.

CNG is natural gas compressed (due to its low density) to a pressure of 200-250 Kg/cm². As a result, large amount of gas can be stored on vehicles. This compressed form of natural gas is used as a fuel for transport.

Where? GAIL supplies CNG to more than 3,00,000 automobiles and PNG to over 3,30,000 households. Presently, GAIL’s city gas operations are in the cities of New Delhi, Mumbai, Vadodara, Vijaywada, Hyderabad, Kanpur, Agra, Lucknow.

How? The city gas distribution segment is run through a number of joint ventures.

Name GAIL's Stake City PNG CNG Auto LPG
Indraprastha Gas Ltd 23% Delhi 71,000 domestic 1,28,000 vehicles NA
      306 commercial 146 stations  
Mahanagar Gas Ltd 50% Mumbai, Thane
2,75,000 domestic 1,80,000 vehicles NA
      750 commercial 123 stations  
      40 industrial    
Bhagyanagar Gas Ltd 23% Hyderabad,Tirupati NA 5 stations 4 stations
Tripura Natual Gas Ltd 29% Agartala NA 1 station NA
Central U.P. Gas Ltd 23% Kanpur Under construction 4 stations  
Green Gas Ltd 23% Lucknow, Agra NA 5 Stations NA
Maharashtra Natural Gas Ltd 23% Pune Under construction Under construction  
Aavantika Gas Ltd 23% Indore, Gwalior
Under construction NA NA

Why? PNG has several advantages as a fuel. The supply is uninterrupted. PNG pipelines offer continuous supply making cylinders redundant. The PNG distribution network is fed by cross-country pipelines like the Hazira-Vijaipur-Jagdishpur pipeline, which inturn is linked to the natural gas production sources.

Without the hassles of booking LPG cylinder and waiting for its delivery, PNG is far more convenient. Moreover, the issues of leakages, underweight cylinders, connecting and disconnecting regulators, and providing for space are done away with.

PNG is safe as it has a narrow inflammability range. In case of a leak, PNG rapidly disperses into air with adequate ventilation, as it is lighter than air. CNG emits fewer pollutants and is free from adulteration and theft. CNG-powered vehicles have lesser maintenance cost.

Future plans: In India, the company plans to expand its city gas operations to other cities like Pune, Kota, Indore, Gwalior, Ujjain and cities in Kerala and Karnataka through Joint Ventures under its Project Blue Sky. The company also has ambitions to develop City Gas markets worldwide in collaboration with global oil and gas majors. It has made forays into Egypt through equity stakes in Fayum Gas, Shell CNG and Natgas; and has acquired a stake in China Gas Holding to pursue CNG opportunities in mainland China. Thus, from all of the above arguments, it is clear that the city gas distribution venture of is likely to form a significant part of the company’s revenues and would play an important role in driving the growth and profitability of the company.

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Mar 22, 2019 11:19 AM