OMCs Rethink Expansion in Natural Gas Retailing

SEATTLE (Oil Monster): Country's oil marketing companies which are betting big on retailing natural gas are going back to the drawing board as India's gas regulator PNGRB has barred them from setting up compressed natural gas dispensing units in their fuel retail outlets.

Currently, the oil marketing companies--Indian Oil Corporation Ltd (IOCL), Bharat Petroleum Corporation Ltd (BPCL) and Hindustan Petroleum Corporation Ltd (HPCL) have let out space in their fuel retailing stations for compressed natural gas supplies to city gas distribution companies including Mahanagar Gas Ltd and Indraprastha Gas Ltd.

"Now we will have to strategize if there are other retail outlets that we can convert into CNG retailing units. Natural gas retailing is a crucial segment for oil companies and we will have to redraw our strategies," said the CEO of an oil company which is also into city gas distribution business.

Officials from IOCL, country's largest oil marketing company said the company is closely monitoring the developments and is keen on increasing its presence in the city gas distribution segment.

Along with its joint ventures, Indian Oil has presence in 40 geographical areas (GA) out of 228 authorized by PNGRB. Indian Oil targets to achieve its presence in 50 GAs by 2025 and 60 GAs by 2030.

From 755 CNG stations at the end of FY 19-20 , IOC plans to add about 300 CNG stations during current FY.

"Either OMCs can set up new outlets or convert an existing petrol pump into a CNG outlet. Or better still target natural gas sales in the industrial and commercial segment before targeting to retail users," said a senior official from an oil marketing company. He spoke on the condition of anonymity.

BPCL did not reply to an email sent on 1 December. HPCL said it is already dispensing CNG through 550 retail outlets as on date and plans to add CNG dispensing facilities at additional 150 Outlets this year.

PNGRB’s final gazette notification on ‘Access Code for City or Local Natural Gas Distribution Networks Regulations, 2020’ released last week suggests that CNG stations anchored on petrol pumps will not be open to third party hiring.

The biggest beneficiaries of this should be Mahanagar Gas Ltd (the firm that retails CNG in Mumbai) and Indraprastha Gas Ltd (Delhi) for whom CNG constitutes about 73 per cent of total volumes (OMC stations comprise 72 per cent and 57 per cent of their total CNG outlets, respectively).

"This regulation will prohibit the OMCs from setting up their own dispending units in their existing network, that has been let out for CNG supplies on behalf of authorized CGD entities; it may also reduce the bargaining power of OMCs to negotiate trade discounts, which anyway have been passed on to end-consumers historically," said Kotak Securities in a note dated 27 November.

Analysts said this could also reduce the bargaining power of the OMCs which had recently sought a steep 90-100% hike in CNG commissions from the CGD companies.

OMCs however, said that the rate of commission is being re-worked.

Courtesy: www.livemint.com