City Gas Distribution - Issue #132

The most eye-catching news last week came from city gas distribution (CGD).

May 06, 2025

The Big Picture

The most eye-catching news last week came from city gas distribution (CGD).

Over the past three years, the Indian government has been slowly reducing the flow of cheap domestic gas to city gas distributors. This is history repeating itself. The government had lured private firms into the CGD business by similarly redirecting cheap domestic gas away from fertiliser factories and gas-based power plants. Ignoring the political risk encapsulated in such a decision, a clutch of firms had rushed into the CGD business, believing the government’s promises about predictable supply and low gas prices (a vital commitment because imported gas is costlier than the fuels it seeks to replace).

In 2022, the government froze domestic gas allocations to the sector for the first time, prompting players to meet growth through costlier imported gas. Two years later, domestic gas supplies were reduced by 20% adding more pressure to the sector.

Little here is a surprise. As former Petroleum Secretary Vivek Rae had written back in 2020: “As cheap domestic gas sources dry up… bidders will be faced with serious problems of cost recovery, thereby affecting viability and sustainability of the CGD system. This will open up Pandora’s box of legal disputes, contract re-negotiations, non-performing assets, and supply disruptions.”

That moment has arrived. As Economic Times reported last week, since October last year, CGD firms have found themselves falling back on Spot LNG. Given it’s costlier, they have taken a hit on their margins — and are buying less gas than before. With that, as the newspaper reported, lines of cars, buses and autos outside CNG stations are lengthening. Along the way, not only is the promise of using gas to move vehicles away from petrol and diesel dying out, questions on whether India should push gas to 15% of its energy mix are resurfacing.

That question acquires additional urgency because India is in talks with the Trump administration to buy yet costlier shale gas. As the CGD experience shows, it’s far from clear if that gas will find takers in India.

“Once hailed as the cheaper and cleaner alternative to petrol and diesel with price differences ranging between Rs 30 and Rs 60 per unit, CNG has steadily lost its sheen,” wrote ET. “In several cities, CNG is now nearly as expensive as petrol. In others, it has outright surpassed it.”

News of the Week

India now plans to add 100 GW of coal-fuelled power in the next seven years. The previous target, as a clutch of publications reported, had been 80 GW. The additional capacity plan will entail an extra investment of ₹1 trillion, since every 1 MW of power costs ₹5 crore on average.

This takes us back to a point we flagged last month. If the cost/MW of a thermal power project is Rs 5 crore, why is Haryana spending Rs 8,470 crore for a 800 MW unit?

While on energy, also see this report on green hydrogen funding in India. “India’s ambitious National Green Hydrogen Mission (NGHM), with an outlay of Rs 19,744 crore, about $2.4 billion, aims to position the country as a global leader in green hydrogen production and export,” wrote ET. “However, according to experts the mission’s current funding, which is 5–20 times lower than what the US, EU, and Gulf nations have pledged, might fall short.”

Another sign of India’s decreasing climate resilience came last week from rural India.

For a while now, firms selling in the hinterland have been complaining about low sales — which suggests straitened finances in most rural households. Last week came news that the number of rural families defaulting on microfinance loans has doubled in the past 12 months. “The gross non-performing asset (NPA) ratio for the sector jumped to 16% at the end of FY25 from 8.8% in the year before,” reported Economic Times.

For a while, the industry hid rural distress by falling back on ever-greening (giving new loans to potential defaulters and using those to retire old loans) and coercive recollections. This created a paradox where an industry living off rural India posted record numbers even as rural India itself struggled. Those gambits now seem to have run their course. The Reserve Bank of India again needs to engage with the question on what to do with microfinance.

Talking of dwindling climate resilience, a forest officer in Madhya Pradesh has configured a way to fight deforestation using AI. “Capable of detecting changes in areas as small as 10×10 meters, the system instantly alerts DFOs when activities like crop cultivation, construction, or land use alterations occur in forested regions,” reported Indian Express. “These alerts trigger immediate instructions to beat guards for on-ground verification, ensuring swift action to curb illegal activities.”

One reads this report and thinks again about embedded biases within technology and bureaucracy. “According to the 2023 report by the Forest Survey of India, Madhya Pradesh has the largest forest and tree cover at 85,724 sq km but also reported the highest loss of forest land at about 612.41 sq km,” the newspaper wrote. What percentage of this 612 sq km of forests was lost to cultivation or locals’ land use change — and what percentage was lost to linear, dams and industrial projects?
A selective determination (or capacity) to protect forests, this.

In other big news. The Subansiri Dam is set to be commissioned this month after a long and tortured journey — a clutch of critical issues, however, remain unaddressed. It will be, however, at 2,000 MW, India’s biggest hydelpower project.

From India to the world. Early last week, Spain and Portugal on Monday were hit by a complete power outage, leaving trains stranded in tunnels, office workers stuck in lifts and mobile phone services cut, in the biggest blackout in Europe for two decades.
Here is what happened. At 12.33pm local time on Monday, the frequency on Spain’s electricity grid suddenly dropped, from the 50 hertz level at which the grid’s operator tries to maintain it, to 49 hertz. “A move bigger than 0.1 hertz forces many power stations to automatically switch off for safety reasons,” reported FT. “Any loss of power in Spain has an immediate knock-on effect in Portugal, which relies heavily on its neighbour for electricity supplies.”

What triggered the fall is not yet clear. One possibility is a sudden drop in solar generation in southwest Spain, home to a lot of solar plants. Grid controllers usually manage these fluctuations by getting other power generators to increase or decrease their output. In this case, however, by noon, the voltage was going up and down by about 15 volts every 1.5 seconds. One wonders what happened. For now, though, the question of grid resilience is back in focus. Also back in focus is this question of adding inertia to grids so that fluctuations get damped out. “Britain has deployed 200-tonne “flywheels”, which mimic the turbines in traditional power plants, to avoid problems with grid instability,” reported FT.

In other global news, the White House is still dealing with Trump's tariff shock. Last week, Stephen Miran, chair of the Council of Economic Advisers, tried to reassure representatives from top hedge funds and other major investors, but the meeting didn’t go too well. “Some participants found Friday’s meeting counter-productive, with two people describing Miran’s comments around tariffs and markets as “incoherent” or incomplete, and one of them saying Miran was “out of his depth”,” reported FT. “[Miran] got questions and that’s when it fell apart,” one person familiar with the meeting told FT. “When you’re with an audience that knows a lot, the talking points are taken apart pretty quickly.”

In related news, China’s copper stockpiles are falling. “Huge US demand, as buyers rush to get their hands on copper ahead of the potential imposition of levies by the Trump administration, (is) sucking imports of the metal into the country from the rest of the world and setting it up in direct competition with China for supplies,” reported FT.

With that, as Nicholas Snowdon, Mercuria’s head of metals and mining research, told the Financial Times, Chinese stocks of copper have rapidly declined over the past few weeks, and “at the current pace of draws, those Chinese inventories could deplete [to zero] by the middle of June”.

In other words, Trump’s tariffs are biting China as well.

Elsewhere, however, there is rising hope that Trump’s tariffs on Chinese solar panels will accelerate solar capacity addition in the Global South.