Piping ahead

The proliferation of piped natural gas connections is unlikely to affect the LPG market.

Contrary to general expectation, the wide proliferation of piped natural gas (PNG) over the next few years is unlikely to make a huge dent in the market for liquefied petroleum gas (LPG), which is used in over 90 million Indian homes as a cooking fuel.

PNG is set to spread out from a small presence in a handful of towns to about 300 towns. According to the government, about 20 million homes are expected to benefit from PNG, which would substitute LPG. The growth of the LPG sector will, however, be on a bounce in the next few years on the back of increased supply in rural areas, where current penetration levels are negligible.

According to the government, "The PNG connection to 20 million households is expected to replace 160 million LPG cylinders, which could be utilised for further penetration of domestic LPG in rural households."

LPG suppliers are, in fact, looking forward to a high-growth period, projecting a healthy 5 per cent year-on-year growth in the next 2-3 years, as opposed to negative growth in the previous years. 

THE LPG STORY
	2003-04	2004-05	2005-06	2006-07	2007-08 (projected)
Demand	9.3 MMT*	10.2 MMT	10.3 MMT	10.3 MMT	11.1 MMT
Production	7.6 MMT	7.8 MMT	7.7 MMT	8.0 MMT	9.0 MMT
Imports	1.7 MMT	2.3 MMT	2.7 MMT	2.3 MMT	2.0 MMT
* million metric tonne
Source: Bharat Petroleum Corporation Limited

With refining capacity in the country increasing, the projected production of LPG by 2011-12 is expected to be about 13.2 million metric tonnes (MMT), against the current year (2006-07) production of 8.0 MMT. Production in 2007-08 is seen at 9.0 MMT, according to data provided by Bharat Petroleum Corporation, a government- owned refining and marketing company which enjoys a 25 per cent share in the country's LPG market.

LPG is perhaps the only petroleum product that is imported into the country. If we take the last four years' figures, imports have been on the rise. They were up from 1.7 MMT in 2003-04 to 2.3 MMT in 2004-05 and went up further to 2.7 MMT in 2005-06. This trend of rising imports will now take a u-turn, with imports already declining to 2.3 MMT in the current fiscal and further to 2 MMT by 2007-08.

Although LPG imports by 2011-12 would become minimum, it is unlikely that imports will become nil, as has been widely reported. "Market conditions are unpredictable and vary from year to year," BPCL officials say.

The current distribution ratio between rural and urban centres would be 1:3. However, a majority of the 720 new distributors that have been lined up for licensing by the government this year would be based in rural areas, say BPCL officials. Not surprising, since sparse population density in rural areas would make it unviable to lay out PNG pipelines.

There would be some localities in urban India too which would be forced to continue the use of LPG, since "architecture of existing buildings might not be conducive to the structure of the supply channel," explains Rohit Ahuja of ASK Raymond James, a consultancy firm.

---

SNIPPETS

Value for money
Piped natural gas (PNG) is up to 30 per cent cheaper than LPG for households and for commercial users.

"For end-users, PNG would cost between Rs 15-17 per kg, while LPG costs Rs 30-35 per kg for domestic users and up to Rs 40 per kg for commercial users," says Rohit Ahuja of ASK Raymond James.

Producers should have a profit margin of 15-20 per cent, depending on the cost of production of PNG, as against the massive under-recoveries suffered in the supply of LNG. LPG, however, has a cost advantage of close to Rs 3,000 for initial connectivity. While registration and connection fee for PNG is Rs 5,000, that for LPG is close to Rs 2,100.

Auto LPG
With citizens and policy makers pushing for pollution-free cities, the demand for eco-friendly energy fuel like LPG and compressed natural gas (CNG) is likely to increase.

"The cost per litre of LPG is about 30 per cent less than petrol, and it gives off far less pollutants than petrol or diesel," says Rohit Ahuja of ASK Raymond James.

While compressed natural gas is poised to sweep the state-run public transport system, LPG is being used as an eco-friendly fuel by private car owners.

According to automobile analysts from ASK Raymond James, "The cost of installation of LPG systems in cars is around Rs 10,000 more than CNG, but the operational dynamics of LPG is better. For a vehicle with a mileage of 10 kilometres per litre, the per kilometre cost would be Rs 2.20 for LPG, as opposed to Rs 2.80 for CNG and Rs 5.00 for petrol."

The LPG model of Wagon R from the Maruti stable has done well since its launch a few months ago.

Sales figures have averaged 4,500- 5,000 units per month, as compared to the petrol variant which had average sale of 1,000-2,000 units per month during the corresponding period, according to ASK Raymond James.

The availability of LPG, however, is a constraint that the sector would need to improve on. LPG, as auto fuel, is available only in metros and big cities. The presence of LPG does not go beyond 10 towns in India.

In this respect, CNG has already beaten LPG hands down. In Mumbai and its suburbs, roughly 1,24,000 autorickshaws and 52,000 taxis run on CNG, reducing vehicular emissions by more than 7,20,000 kilograms per day.