Company History

GAIL India Ltd (NSE:GAIL) was incorporated in August 1984 as a Central Public Sector Undertaking (PSU) under the Ministry of Petroleum & Natural Gas (MoP&NG). The company was initially given the responsibility of construction, operation & maintenance of the Hazira - Vijaypur -Jagdishpur (HVJ) pipeline Project. It was one of the largest cross-country natural gas pipeline projects in the world. Originally this 1800 Km long pipeline was built at a cost of Rs 1700 Crores and it laid the foundation for development of market for natural Gas in India.1

The HVJ pipeline contract valued at Rs 722.49 crore was signed on May 10, 1986 with the consortium led by M/s Spie Capag of France and M/s NKK and Tokyo Engineering of Japan as other members to construct the HVJ Pipeline on composite basis including design, supply, handling, transportations, erection and commissioning etc. of compressor stations, terminals, cathodic protection systems and tele-communication and tele-supervisory systems.

The pipe laying work for the Hazira – Vijaipur section was completed by middle of June, 1987 and energized by end of July 1987. The pipeline was commissioned within nine months of mobilization and 15 months from the signing of the contract.

In November 1988, GAIL received approval for investment of Rs. 300 crore for setting up a LPG extraction plant at Vijaipur. The unit, based on HVJ gas was to have a capacity of over 400,000 TPA to be implemented in two phases of 200,000 TPA capacity each.

By 1990-91 commissioning of the Phase I of the LPG plant at Vijaipur was completed, eight months ahead of schedule. Following this, Phase-II at Vijaipur was completed in November/December 1991 and commissioned in February 1992.

A Joint Venture Agreement with British Gas was signed on December 6, 1994 for the Bombay City Gas Distribution Project. A company in the name and style of Mahanagar Gas Limited was incorporated and the company obtained a Certificate to commence business to implement Bombay City Gas Distribution project.

The Government permitted GAIL to market Propane in the country during the year1993-94. During the year 1995-96, two propane recovery plants at Vijaipur were commissioned to optimize various components of natural gas.

During the year 1997-98, the Government of India acknowledged GAIL’s ‘Excellent’ track record and potential to become a global giant, by granting the Navratna status, thereby entrusting greater autonomy to the Company.

Industry overview

Energy Sector

As per recent global reviews, energy consumption in the world grew by around 3% in the year 2018 as compared to 2017. This has been one of the highest yearly growth since year 1990. This growth was largely driven by additional energy consumption in China, US and India which together accounted for around two-thirds of the growth. Energy consumption growth also echoed across all the primary fuels – renewable energy, gas, oil and even coal. Most of the primary fuels grew more intensely compared to their historical averages. On the other side, carbon emissions from energy use also increased sharply by around 650 million tonnes, a YoY growth rate of 2%, highest in last seven years. Most of the regions contributing to high growth in energy consumption also contributed to high growth in carbon emission while few regions like Europe showed reduction in carbon emissions compared to last year indicating their move towards cleaner fuel mix.2

Gas contributed to around 43% in overall energy growth in the world followed by Renewables. 2018 was a windfall year for natural gas, with both global consumption and production increasing by over 5%, one of the highest growth for both gas consumption as well as supply in last 30 years. USA became the major contributor for growth in gas, accounting for almost 40% of global demand growth and over 45% of the increase in production while gas consumption in China grew by 18% compared to last year. China’s gas demand was largely an outcome of their continued environmental policies encouraging coal-to-gas switching in both industries and buildings in order to reduce pollution in cities while continuing industrial growth.

LNG Industry

LNG trade grew over 9% in 2018 with increased supply from US and growing consumption in European and Asian markets. Further, LNG imports by China grew by approx. 40% in the year 2018. The growth in India’s gas consumption was brought almost entirely by LNG as domestic gas output remained stagnant, According to Shell LNG Outlook 2019, the number of LNG importing countries continues to increase, reaching 42 in 2018, with Panama and Bangladesh turning to LNG imports to meet their energy requirement. Also according to the same report, the average length of new LNG supply contracts doubled from around six years in 2017 to about 13 years in 2018. According to GIIGNL Annual Report 2019, total volume of over 30 Mtpa was contracted under mid-term/long-term (above 4 years of contract) LNG as compared to around 20 Mtpa in 2017. These developments indicate improved long-term health for the global LNG market.

According to Shell LNG Outlook 2019, gas will cater to over 40% of additional energy demand i.e. the largest share of energy growth by 2035. Within gas, LNG is expected to be the fastest-growing supply source, with an expected compound annual growth rate of 4% till 2035. It is expected that growth in LNG demand will continue around the world, led by Asia and Europe.

India Energy Consumption

With a yearly growth rate of 8% in 2018 over 2017, the highest in last 11 years, India’s energy consumption growth doubled in 2018 as compared to 2017. Growth in Renewables stood highest at 27% followed by coal and gas at 8.7% and 8.1% respectively. Coal has made a strong comeback with highest ever absolute increase of over 36 MTOE .

India’s increased consumption was accompanied by increased carbon emission as well. Carbon intensity of energy i.e. Kg CO emitted per Kg of oil equivalent energy use in 2 major energy consuming regions. In 2014, both China and India had the similar carbon intensity of energy but with continued interventions by Govt. of China like addition of renewable capacities, coal to gas switching, electrification of transport etc. China has been quite successful in reducing carbon emissions. Although, Govt. of India is also pushing use of renewables and electrification of transport to reduce carbon emissions and urban pollution, but additional all-round efforts are also needed to encourage switching from polluting fuels like coal, petcoke, fuel oil to cleaner fuel alternatives to form a cleaner primary energy mix.

As per Company’s analysis, Gas sector in India has significant demand potential. For instance, gas consumption in industries and refineries can touch 65MMSCMD and 80MMSCMD respectively. Power, the anchor consumer segment, which only consumed 33 MMSCMD in 2018, has a demand potential of over 100 MMSCMD without any additional investments as around 25 GW of power generation capacity already exists. Indian power sector alone has the potential to save around 120 million tonnes of CO 2 emission per year (i.e. 5% of India’s total CO emission) if opted to switch from coal to gas. Further, with addition of Renewable Energy capacities, gas based power can play a 2 major role for balancing the intermittencies in the grid.

Business Overview

Natural gas Marketing

The  company holds around 59% market share in India’s gas marketing business. Natural gas trading continues to be one of the primary focus areas of the company. During FY 2018-19, Natural Gas sales by GAIL totaled 96.93 MMSCMD, with sales within India being 86.39 MMSCMD.

Out of 86.39 MMSCMD gas sold in India, domestic gas contributed around 61% and balance 39% was serviced by GAIL through imported long-term, mid-term and spot LNG volumes. Major consumers of natural gas include power plants, gas-based fertilizer plants, City Gas Distribution (CGD networks), LPG extraction plants, Petrochemicals and other industrial sectors.

Sector-wise details are as below:

Fertilizer Sector: The company markets gas for around 75% of the fertilizers produced in the country. The company has firmed up Gas Supply Agreements with upcoming fertilizer plants for about 12 MMSCMD volume. The gas supply to one of the new brown field fertilizer plant started during FY 2018-19.

Power Sector: The company markets gas for 69% of the Natural Gas based power produced in the country. Consequent to the expiry of the PSDF Scheme of Ministry of Power for the gas based power sector in March 2017, GAIL continues to explore opportunities for supply of natural gas to gas based power generation units at affordable prices and is currently supplying around 4.5 MMSCMD of RLNG in addition to domestic gas to power plants.

City Gas Distribution: The company has been authorized to supply domestic gas to all CGD networks for the purpose of CNG (transport) and PNG (Domestic). GAIL is currently supplying approx. 13.2 MMSCMD of domestic gas to the CGD sector and is catering to 29 CGD entities, covering 78 Geographical Areas (GAs). In addition the company is also supplying approx. 1.5 MMSCMD of RLNG to CGD entities.

Transmission

Natural Gas Transmission

The company owns and operates a network of around 12,200 km of natural gas high pressure trunk pipeline. The average gas transmission volume during the year 2018-19 was 107.43 MMSCMD, compared to 105.23 MMSCMD in the previous financial year.

LPG Transmission

The company owns and operates 2,038 km of exclusive pipelines for LPG transmission for third-party usage across two major networks. Jamnagar-Loni Pipeline (JLPL) and the Vizag-Secunderabad Pipeline (VSPL) together achieved a throughput of 3.97 MMTPA during the year against 3.72 MMTPA in the previous financial year.

Petrochemicals

The company has already doubled the polymer production capacity from 410 Kilo Tons per annum (KTA) to 810 KTA at Pata. The company’s Petrochemical subsidiary (70% equity holding by GAIL), Brahmaputra Cracker & Polymer Limited (BCPL) has a capacity of 280 KTA. The marketing right of the BCPL plant is with the company taking the total marketing portfolio to 1,090 KTA. Further, the company has a joint venture with ONGC and GSPC i.e. ONGC Petro- Additions Limited (OPAL) with a 1,400KTA capacity plant at Dahej. Overall production from the Pata Petrochemicals complex in 2018-19 was 751KTA. The company exported 110 KTA of polymers to Asian markets. The company's market share in the domestic polyethylene market has been maintained and is the second largest player in the Indian market with a portfolio of over 1,000 KTA of polyethylene. The company and BCPL together have a combined production share of 21.4% of the High Density and Liner Low Density Polyethylene market in the country. A combined volume of approx. 1000 KTA of polymers including that of BCPL was marketed by GAIL during the year.

LPG and Other Liquid Hydrocarbons (LHC)

The company has 5 LHC plants at four locations in the country having production capacity of 1.4 Million MTPA. In 2018-19, total liquid hydrocarbon production was about 1.32 Million MT, 90% of which comprised of LPG and Propane.

Exploration & Production

GAIL has participating interest in eleven E&P blocks and holds acreage of 2,425 sq. km as per its Participation Interest (P.I.) in various consortiums.

GAIL’s capital spending on key projects and capability building in E&P activities has put the Company significantly ahead in Cambay basin in terms of discoveries and commercial developments. The Company revisited the capital allocation plan for FY 2018-19 so as to undertake projects which are economically viable, have low risk and commensurate potential and as a result has successfully acquired one OALP-I block in Cambay basin with 100% Participation Interest.

Renewable Energy

The company is committed to reduce carbon emission and implement renewable projects. The company has a total installed capacity of 128.71 MW of alternative energy; out of which 117.95 MW are wind energy projects and 10.76 MWp is solar energy projects. The company is implementing 1.8 MWp captive Solar PV project at Vijaipur unit in Madhya Pradesh. The power generated from the plant will substitute power drawn from the grid which will help in cost reduction and also reducing the carbon footprints.

City Gas Distribution

The company (including group companies) is currently authorized to operate in 62 number of Geographical Areas through-out India including metro cities of Delhi, Mumbai, Hyderabad, Bengaluru, Kolkata etc. These CGD networks together cater to around 62% of total 50 lakh domestic PNG connections in the country. Out of the total 1,730 CNG stations in the country, the company’s group operates 1,114 CNG stations representing 64% share. This year registered record addition of 6.83 lakh household PNG connections and 225 CNG stations

National Gas Grid

The company is implementing the following major Natural Gas pipelines (approx. 4,900 km length) as part of the cross-country National Gas Grid:

  1. Kochi-Kootanad-Bengaluru/Mangalore Pipeline (Phase-II, 879 km): Construction of Kochi to Mangalore pipeline (434 Km section) is in full swing and is expected to be completed by September 2019.
  2. Vijaipur-Auraiya-Phulpur Pipeline: In order to de-bottleneck the upstream network of the JHBDPL project, a parallel pipeline from Vijaipur to Auraiya and upto Phulpur (672 km) is under execution in phases. Phase-1 from Auraiya to Phulpur (24” x 315 km) is completed. The company has also awarded orders to execute phase-2 of the pipeline, from Vijaipur to Auraiya and the work is in progress and it is expected to be completed by Dec-2020.
  3. Jagdishpur- Haldia & Bokaro-Dhamra Pipeline (JHBDPL) (2,655 km) and Barauni- Guwahati Pipeline (729 km) section as an integral part of JHBDPL: The pipeline shall pass through the Eastern part of U.P., Bihar, Jharkhand, Odisha, West Bengal and Assam. This pipeline shall supply gas to fertilizer plants at Gorakhpur, Barauni and Sindri. The pipeline shall have two gas sources, one at Phulpur (Allahabad, U.P.) and the other at Dhamra RLNG Terminal (Odisha). The capacity of the pipeline network is 16 MMSCMD. Physical progress is in line with the envisaged schedule.

Financial Highlights

On February 10, 2020 ; GAIL (India) Ltd has reported a ₹2,029.51 crore consolidated net profit for the third quarter of financial year 2019-2020. This is 12.94 per cent higher than the ₹1,797.04 crore net profit reported by the company in the corresponding quarter of the previous fiscal. The rise in profit is mainly due to better physical performance and better margins in gas marketing and liquid hydrocarbons.3

During the quarter under review, consolidated total income of the company fell to ₹18,094.15 crore, down 11.12 per cent from the ₹20,358.52 crore reported in the same quarter of the previous financial year.

Revenue from GAIL’s primary business of natural gas marketing rose marginally to ₹17,157.64 crore during the quarter ended December 2019. Revenue from city gas, LPG and liquid hydrocarbons, and petrochemical segments declined between 5.17 per cent and 35.61 per cent compared with the quarter ended December 2018.

References

  1. ^ https://gailonline.com/AB-Gailstory.html
  2. ^ https://www.bseindia.com/bseplus/AnnualReport/532155/5321550319.pdf
  3. ^ https://www.thehindubusinessline.com/companies/gail-reports-202951-cr-net-profit-in-third-quarter/article30782387.ece
Tags: IN:GAIL
Created by Asif F on 2020/05/18 08:33
     
This site is funded and maintained by Fintel.io