Oil majors likely to get easy entry into CNG biz

The move will give CNG marketing rights to companies that have investment of at least Rs 2,000 cr in the oil & gas sector

To open the compressed natural gas (CNG) network in India, the ministry of petroleum and natural gas will soon seek Cabinet approval for CNG marketing guidelines.

According to an official, the move will give CNG marketing rights to companies that have investment of at least Rs 2,000 crore in the oil & gas sector. "Companies such as Indian Oil Corporation, GAIL, Bharat Petroleum Corporation, Hindustan Petroleum Corporation, Essar and Reliance Industries will be able to set up CNG stations across the country. Companies with lower investment but who already have CNG network rights with them, as city gas distribution entities, can also market CNG, according to the guidelines," the official said.

Currently, the CNG market has Indraprastha Gas, Mahanagar Gas, Gujarat Gas, Adani Gas and GAIL Gas, as well as local players such as Haryana City Gas Distribution.

The regulations pertaining to CNG follow a notification by the government, delinking the rights for vending CNG used in automobiles from city gas distribution. Pooling of prices had led to a sharp increase in CNG prices across metros.

The guidelines will make CNG stations akin to other retail fuel outlets. So far, city gas distribution operators enjoyed CNG marketing rights, within earmarked cities. Now, they will get exclusive rights for only five years. "If new entrants can strike a deal with local city gas distribution companies, they can even market it within the exclusivity period of five years," said the official quoted earlier.

Analysts feel the development will be positive for consumers and major players in the long run. "However, sourcing of gas can be a key challenge. Due to lack of domestic gas, they will have to depend on LNG (liquefied natural gas) at the rate of at least $18 per million British thermal units. This means CNG will be available at Rs 65-68 a kg, making it less preferred compared to diesel. Moreover, it will be difficult for companies to get higher volumes at this rate and consumers won't prefer conversion of automobiles to CNG at such high rates," said Dhaval Joshi, research analyst, Emkay Global Financial Services.

The petroleum ministry plans to bring 200 cities under the CNG network by 2015. According to estimates by GAIL India, an investment of about Rs 37,000 crore will be needed to cover 298 cities under the CNG network.

Recently, CNG prices had seen a steep rise of Rs 4.5 a kg in Delhi. Ministry officials say prices will increase by Rs 8 a kg from April 1, owing to domestic natural gas prices rising to $7-8 per million British thermal units.

An increase of every dollar in the price of domestic gas will result in a rise of Rs 2.93 a kg of CNG in cities entirely dependent on domestic gas.