Gails Profitability Has Consistently Been On An Upward Trend
Shri Manoj Jain
Chairman and Managing Director, GAIL (India) Limited.
Which are the new gas markets that GAIL is looking to expand into aggressively?
AIL is currently supplying natural gas across India to fertiliser, power, city gas distribution companies, refineries, industries, etc. and is looking to further improve gas usage in these sectors. There is also huge potential in the city gas distribution (CGD), industrial and refinery segments where GAIL is focusing on to supply gas. Geographically, GAIL is now well-placed to open gas markets for development in different areas in Bihar, West Bengal, Assam, North East, Odisha and hitherto untapped areas in Andhra Pradesh, Madhya Pradesh, Maharashtra and Chhattisgarh through its new pipelines being laid in these states. These new areas will open up markets of up to 30 to 40 MMSCMD of gas in the coming 2-3 years.
The future demand growth of gas in India will primarily be derived from CGD and industries. With growing awareness of urban pollution and ban on polluting fuels like pet coke and furnace oil, we can see gradual adoption of gas in CGD for transportation as well as fuel in industries. Currently, GAIL is operating in 61 geographical areas in India to play a key role in CGD sector development through joint ventures and subsidiaries. We have planned investments of around Rs 19,000 crore in the next five years to build CNG stations and provide PNG connections across the geographies GAIL companies are present in. GAIL is now supplying domestic gas to CGD entities which are not connected to the physical pipeline network by connecting them through CNG cascades and adopting swapping mechanism.
This step has resulted in enhanced gas consumption in many areas which do not have gas pipeline connectivity. There is a huge potential of LNG in new segments such as LNG as fuel for trucks and heavy-duty vehicles. GAIL is under discussion for development of LNG stations by CGD companies having authorised geographical areas along the important national highways, primarily the Golden Quadrilateral Highway to jointly set up over 150 LNG stations. GAIL is actively participating in domestic gas bidding rounds to source natural gas at competitive prices. The company is also optimising its LNG portfolio by placing diversely price-indexed LNG volumes in Indian as well as international markets.
Which strategy in your view has led to recording highest-ever profit of Rs 6,621 crore in FY20?
GAIL’s profitability has been consistently on an upward trend since the last five years with growth coming from all major business segments of the company. In the financial year 2019-20, growth in profitability was through GAIL’s core segment of natural gas transmission since the company shipped higher volumes of gas through the cross-country pipeline network. Growth also came from the LPG transmission segment as GAIL ships LPG of other OMCs along the Jamnagar-Loni and Vizag-Secundrabad LPG pipelines. Apart from this, GAIL also adopted the lower corporate income tax rate of 25.17 per cent during the year, which was a general incentive offered to the industry by the Indian government.
What steps are you taking to increase market share across verticals at GAIL?
In gas transmission, GAIL is ramping up construction activities of gas pipelines across Jagdishpur-Haldia-Bokaro- Dhamra pipeline; Kochi-Koottanad-Bangalore-Mangalore pipeline in its second phase; Vijaipur-Auraiya pipeline; Barauni-Guwahati pipeline; and the north eastern gas grid through a joint venture company, Indradhanush Gas Grid Limited, with IOCL, ONGC, OIL and NRL to enhance natural gas-carrying capacities and align with the government’s priority to build a national gas grid. The future demand of gas in India will primarily be derived from CGD and industries. As mentioned earlier, with growing awareness of urban pollution and ban on polluting fuels like pet coke and furnace oil, we can see gradual adoption of gas in industries.
Up to 100 new tap-offs for CGD companies across the country which will add up 30 to 40 MMSCMD of new demand in the country will aid in improvement of GAIL’s market share. In the power sector, GAIL is taking up with the government to push for enhanced gas usage through the peaking power policy, considering cost of externalities in merit order dispatch and blending of gas-based power with renewable energy. In petrochemicals, GAIL is planning to set up a 500 KTA Propane dehydrogenation and Polypropylene (PDH-PP) plant at Usar, Maharashtra at an investment of around Rs 8,800 crore. This would be the first plant in India using Propane dehydrogenation technology for production of Propylene.
Also, GAIL has doubled the Polythene PE production capacity from 410 kilo tonnes per annum (KTA) to 810 KTA at its Pata complex a few years ago. GAIL’s subsidiary, Brahmaputra Cracker and Polymer Limited (BCPL), has a capacity of 280 KTA, taking the total polymer marketing portfolio of GAIL to 1,090 KTA. Further, GAIL has a joint venture with ONGC and GSPC i.e. ONGC Petro-Additions Limited (OPAL) which has a 1,400 KTA capacity plant at Dahej. GAIL has successfully maintained its market share in the domestic Polyethylene market and remained the second-largest player in the Indian petrochemical market of Polyethylene.
How did your company tackle the ‘black swan’ event, i.e. the pandemic? Are your operations back to the pre-pandemic levels?
GAIL is committed to provide uninterrupted supply of natural gas even in times of crisis. Despite the pandemic situation, GAIL has maintained uninterrupted and safe operations of pipeline systems and has ensured uninterrupted gas supply to all its key customers including the fertiliser and power sectors. During the initial lockdown period, the petrochemical complex at Pata was under temporary shutdown for 15 days in April 2020 due to reduction of demand as well as transport restrictions, which is now fully operational. Due to reduction in gas demand, throughput across gas pipelines was also reduced for a brief span of time.
Presently, construction work on all ongoing pipeline projects of GAIL has been resumed. Project activities are also back on track in all CGD projects (GAIL and GAIL Gas). Corrective measures have already been taken to catch up the delayed project schedule. GAIL is making concerted efforts and is gradually moving towards full normalcy to resume operations across all gas and LPG pipelines and sites wherever hampered due to pandemic-related restrictions. Natural gas marketing as well as transmission volumes have now come up presently to the pre-pandemic levels of sale of 96 MMSCMD and transmission of 108 MMSCMD.
What is the outlook for the global energy sector? How are the prospects for the Indian energy sector different than the global energy sector?
Energy demand collapse brought on by the pandemic has impacted energy market projections everywhere. According to International Energy Agency (IEA), the global energy demand declined by around 3.8 per cent during January to March 2020 as restrictions were imposed in Europe, North America and elsewhere. As per IEA estimation, the pandemic may result in contraction of energy demand in 2020 by 6 per cent, which will be the largest in the last 70 years in percentage terms and the largest ever in absolute terms. According to IEA, the natural gas sector may not witness severe decline compared to other fossil fuels but consumption is estimated to fall by only 2 per cent by end of 2020 because of reduced demand in power and industry applications. The LNG supply glut is likely to be longer and deeper.
India is the third-largest energy consumer after the US and China and India’s energy growth has been significantly higher than the world average. In the period 2008-18, world energy consumption grew at an annual growth rate of 1.6 per cent while India’s growth rate was considerably higher at 5.2 per cent. India’s energy mix is different from the world average as coal’s share in energy mix for India is around 55 per cent while the world average is 27 per cent. Further, while the share of natural gas around the world is on an average 24 per cent, the same for India is only 6 per cent. The Indian government has set a target to enhance the share of natural gas mix from the current 6 per cent to 15 per cent to move towards a gas-based economy.
What are the new trends emerging in the Indian energy sector?
India has emerged as the second-biggest growth driver of primary energy consumption globally in 2019, behind China. The recent trend in the Indian energy industry has been that of excessively low commodity prices including liquefied natural gas (LNG). LNG imports increased by around 18 per cent compared to last year on account of decrease in commodity prices and this trend is expected to continue for India. In the year gone by, the natural gas sector has seen many reforms across the value chain.
Recently, the country’s first nationwide online delivery-based gas trading platform, Indian Gas Exchange (IGX), was launched, leading the nation’s move towards free market pricing of natural gas. Meanwhile, the Petroleum and Natural Gas Regulatory Board (PNGRB) is working on rationalisation of tariff to make natural gas affordable in every part of the country. More recently, the Cabinet Committee on Economic Affairs (CCEA) approved the formulation of a standard procedure for market price discovery of gas across various contractual regimes through an e-bidding platform. India is increasingly adopting renewables and natural gas as mainstay energy sources which would enable India’s transition towards a cleaner energy mix.
What are your capex plans for FY21 and beyond?
For FY 20-21 GAIL is expecting to incur capex of above Rs 6,000 crore with around 80 per cent of this earmarked for expansion of the natural gas pipeline network in the country. In the year 2021-22, GAIL is again expecting to incur capex of around Rs 6,500 crore, mostly for natural gas pipelines.