• The centrality of CGD in India’s natural gas story: A perspective

    India is on track to become the world’s third-largest economy by 2030 with a projected annual average growth rate of 6-7 percent. Energy sector will be central to this trajectory. In this context, India’s gas story has been one of tremendous — and yet untapped — potential.

    On the heels of a rapid increase in 2011 and 2012, when the country used 160 million metric standard cubic meters per day (MMSCMD), gas consumption slowed quite a bit to a low of 124 MMSCMD in 2015 amid a decrease in domestic production and unaffordability of regasified liquefied natural gas (RLNG). But over the past seven years, the trend reversed and is once again on an upward trajectory, reaching about 150+ MMSCMD in 2021 thanks to better affordability in global markets and a rapid rise in city gas distribution (CGD). In 2011, CGD accounted for only 10 percent of consumption — an amount that has since doubled to 20 percent.

    In the 2021 United Nations Climate Change Conference (COP26) summit, Prime Minister Narendra Modicommitted India to an ambitious five-part “Panchamrit” pledge, a vital foundation for the global pathway to the ambitious 1.5 ̊C global warming target. For that to happen, natural gas will need to play a central role as a bridge fuel over the next few decades. With the dual objective of meeting India’s net zero aspirations and reducing dependencies on imports, the government’s target to more than double the share of natural gas in the energy mix from today’s 6 percent to 15 percent by 2030 aims to cement this role.

    With the combination of the role of energy and the potential of natural gas to be a bridge fuel, India’s demand for natural gas could reach 360 MMSCMD by 2050 (see figure). However, there will be a paradigm shift in the consumption patterns of individual sectors. Demand from traditional consumers such as power, fertilizers, and refineries is expected to contribute less to this growth story because of the proliferation of economical options such as renewable energy, green hydrogen, and green ammonia, but CGD’s estimated growth from 30 MMSCMD to 210 MMSCMD by 2050 could fuel India’s growing demand for natural gas.

    This accelerated growth trajectory of the CGD segment, particularly until 2040, is unique to India. The successful completion of the 11th bidding round by the Petroleum and Natural Gas Regulatory Board (PNGRB), resulting in coverage for about 98 percent of the population and 88 percent of the territory, and the aggressive minimum work program (MWP) commitments from most players will spur the growth of CGD.

    Within CGD, the segments set to disproportionately drive demand will be compressed natural gas (CNG) and the industrial segment, albeit at different times. Considering the growing support from original equipment manufacturers transitioning from diesel vehicles, higher levels of vehicle ownership, and favorable economics, CNG demand is on track to grow at 10 percent CAGR until 2040. In the industrial segment, the growth story of micro, small, and medium enterprises along with better access to natural gas, regulations on heavy-polluting fuels, and limited penetration of green alternatives and electrification because of the cost economics will drive momentum after 2040. In addition, tailwinds from structural factors such as a regulatory push, infrastructure investments, the ecosystem’s maturity, and customer awareness have positioned CGD as a compelling clean-energy investment option with one of the lowest capex requirements per ton of CO2 reduction among other comparable options.

    Although the long-term story is robust, navigating the shifting CGD landscape in the short and medium term is crucial. On the supply side, declining reserves of price-controlled administered price mechanism (APM) gas, record-high RLNG prices due to global networks being in flux, and reforms such as open access will pose a threat. In addition, the growing adoption of electric vehicles and other green alternatives could chip away at demand from key sectors, and the expiration of marketing exclusivity in GAs will have a detrimental effect on supplier power. CGD players will need to address these developments to be resilient and agile. Moving from today’s supply-led focus to a customer-led focus will be essential for immediate and sustained development.

    In light of the sector’s paradigm shift, the winners—either incumbents or new entrants — will need to do seven fundamental things differently to create a sustainable advantage:

    Set your sights on market expansion. Market expansion powered by targeted sales acceleration programs and developing unique propositions suitable for different segments based on affordability and reach will be a crucial element for success.

    Source smartly. With more supply-side challenges, curating an optimum sourcing portfolio will dampen the effects of the volatile gas supply market, which is particularly relevant considering the black-swan events in recent years. With limited APM reserves and a significant price differential between APM, non-APM domestic gas, and term and spot LNG gas purchases, strategic sourcing will be essential to gaining a competitive advantage.

    Adopt differentiated go-to-market models. Traditionally, this sector has been a supply-led space. Adopting a customer-centric sales and marketing setup will be vital for success—differentiated by customer segments, accelerated sales through hyperlocal marketing, contract restructuring, a feet-on-the-street channel, social media, and above-the-line, below-the-line, and digital marketing strategies.

    Activate your inorganic muscle. Identifying options for strategic acquisitions can provide terrific growth opportunities to penetrate this space. Keeping a pulse of the market in terms of available options and leveraging an agile inorganic engine will also be vital.

    Partner, partner, partner. Forward-thinking CGD players will need to move away from a traditional commodity sales mindset and toward a solution provider mindset. Leveraging strategic partnerships along the supply chain to co-develop the natural gas ecosystem and improve the end-to-end customer experience will be imperative.

    Deploy digital-first models. A powerful customer engagement platform supported by an intelligent service network, deeper data analytics, and more flexible data management is a no-regret move for all players.

    Tighten capex management practices. Given the high capex and complexity of CGD projects, project management can be complicated. Most projects end up above budget or behind schedule or both. A robust capex management approach with a strong focus on generating and assuring value can deliver significant impact.

    The gas regime has all the right ingredients to grow at an unprecedented rate, and the opportunity for leaders to shape the sectoral dynamics has never been better. The gap between the market leaders and laggards will expand as this journey moves forward.

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