Mumbai: With GAIL (India) Ltd’s core business of natural gas pipelines under threat due to low utilisation, domestic gas shortage and expansion hurdles, the company is shifting focus to boosting last-mile connectivity to provide linkage for city gas distribution and compressed natural gas distribution outlets.

In the current financial year, the company does not plan to incur any capital expenditure on setting up new inter-city or trunk pipelines as three of its major projects are already stuck because of various issues.

The company now intends to focus on establishing connectivity between its trunk pipelines and 40-60 cities in the near-to-medium term, B.C. Tripathi, GAIL’s chairman and managing director, told investors and analysts recently.

“The emphasis this year will be on last-mile connectivity,” he said, adding that the company’s plans to set up pipelines connecting Kochi-Mangalore and Kochi-Bengaluru as well as Haldia-Jagdishpur and Surat-Paradip are facing hurdles, including a muted response from customers and right-of-way issues.

“Until these issues are resolved, we will not start work on the pipelines… until we see the right-of-way issues are resolved and until we see there is support from the state government (concerned),” Tripathi said.

At the same time, the company sees a lot of latent demand in industrial and commercial customers in cities, apart from domestic users, who currently rely on fuels like diesel, fuel oil and kerosene which are neither economical nor environment-friendly.

“We see a huge potential in gas retailing, especially in the city gas distribution in cities with population of over 500,000,” Tripathi said. “The next target is to take our pipelines in the catchment area which is cities with population of 400,000-500,000.”

The focus initially will be on northern and western regions which have a strong network of the company’s pipelines and is connected to the LNG terminals on the west coast.

Tripathi did not provide a figure for the capital expenditure planned for the current financial year. In 2013-14 (Apr-Mar), GAIL incurred capital expenditure of around 57 bln rupees.

The company has been facing a sustained decline in capacity utilisation of its natural gas transmission pipelines. In 2013-14, utilisation declined to just around 50% as domestic gas production declined sharply due to a fall in output from Reliance Industries Ltd’s KG-D6 block compared with 70% earlier.

GAIL’s natural gas transmission volume in 2013-14 was 96.22 mscmd, down from 104.90 mscmd in the previous year.

Imported liquefied natural gas costs 3-4 times the domestic natural gas, which was priced at $4.2 per mBtu till Mar 31, and hence did not find many takers.

“Gas retailing side is an important area. The highly priced LNG may not be acceptable to the power sector,” Tripathi said. “There will be more emphasis now on city gas because we believe that this price of gas will be more absorbable by the commercial and industrial establishments. It will help us sell more of our imported LNG and increase capacity utilisation of our pipelines.”

The company also has pipelines running along the highways and plans to use these to set up retailing outlets along the arterial roads as part of the CNG highways.

The government had floated a plan to set up National Gas Highways but there has not been much progress. “This will also significantly add to our volumes going forward,” Tripathi said.

The company currently has a 10,900-km pipeline  network while there are plans to expand it to 14,500 km. However, this capacity-addition plan will now be on the slow track as the focus shifts to connect cities and towns with its existing pipelines.

After establishing the connectivity, the company will then bid for city gas distribution networks through its several subsidiaries and joint ventures, including Indraprastha Gas Ltd, GAIL Gas Ltd and Mahanagar Gas Ltd as and when the Petroleum and Natural Gas Regulatory Board floats tenders.

The company’s subsidiaries and joint ventures already cater to over 2 mln vehicles and 10 mln households, including those in two of India’s largest cities, Delhi and Mumbai.

At 1250 IST, GAIL shares were up 0.5% at 373.45 rupees on the National Stock Exchange.

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