Many plans in this pipeline

The discovery of gas in the KG Basin has not only changed the nation’s energy vision, but its strategy to transport gas, the old new kid on the block, says Daya Kingston.

The piping industry is poised to be one of the hottest sectors in the country, as it hopes to capitalise on the government’s agenda, both national and international. A part of the agenda is not one, but two National Gas Grids, the second one announced late last year as the Andhra Pradesh gas discovery doubles the nation’s gas availability. The piping industry has already been showing a healthy growth trend over the past years. Even during the 2008-09 economic slowdown, this sector faced only a limited impact.

However, analysts fear the government has not shown any demonstrable seriousness at attracting investment or the five major pipeline projects needed to connect the country’s various regional gas pipeline systems.

Outlook for the industry

The outlook for the piping industry is quite positive for the next three to five years. Gas supplies in the country have also increased significantly with the commencement of production from fields allotted under the New Exploration Licensing Policy (NELP) and import of Liquefied natural gas (LNG). Statistics prove that the gas demand in the country was marginally higher than the supply. According to industry experts, demand for natural gas in the country driven by the fertiliser and power sectors is likely to surge, and may account for the overall energy consumption in the country by 2025-30.

The major factors that will push demand are the Government’s focus on infrastructure development for laying pipelines for oil and natural gas transport (the main being the National Gas Grid project). This apart, demand is also rising due to factors like higher E&P activities as a result of the increase in crude oil prices, replacement demand from North America and European countries, water and sewage transport and irrigation facilities.

The New Exploration and Licensing Policy (NELP) has also given a boost to the piping industry as private players have been allowed to participate in exploration and production of natural gas as naturally piping is essential for the industry. The recent findings of natural gas in the Krishna-Godavari basin will ensure the doubling of indigenous production, with natural gas emerging as an important source of energy.

The Indian piping industry is buoyant with manufacturers producing a wide range of steel, cement and plastic pipes for various critical and non-critical applications. In fact, the Indian pipe industry is among the top three manufacturing hubs after Japan and Europe.

The growth will mainly be driven by steel pipes, especially Submerged arc welded (SAW) pipes. India has become the global pipe manufacturing hub primarily due to its lower cost, high quality and geographical advantages.

The market for steel pipes is estimated at Rs 50,000 crore per annum and is expected to have a growth rate of around 20 per cent. Seamless steel pipes and tubes made from alloy steel and carbon steel are in demand in both oil and no-oil sectors. SAW pipes are in great demand as they provide a smooth flow and reduce transmission losses of products like oil and gas. These are also the most economical way for the refinery industry to transport oil and gas. Jindal SAW Pipes, Man Industries (India) and Welspun Industries are leading manufacturers of large diameter SAW line pipes and coating systems.

There is a robust and strong appetite for new pipeline projects in the country with the combined investment requirements of the industry estimated at Rs 549 billion over the next five years for key projects. While gas pipelines account for over 85 per cent of the investment at over Rs 464 billion, in the long term, investment in product pipeline is expected to replicate the scenario being witnessed in the gas pipeline segment.

India’s Gas Grid Project

Large parts (25 cities) of Tamil Nadu will be linked by gas pipeline networks granted by the centre as a city gas distribution (CGD) network, and four pipeline projects for south India are on the anvil (Kakinada-Chennai, Chennai-Tuticorin, Chennai-Bangalore-Mangalore and Kochi-Bangalore-Mangalore). “The gas market is driven by a pipeline network,” AK Balyan, CEO and MD, Petronet LNG, told the media.

The Gas Authority of India (GAIL), the largest gas transmission and marketing company in India, began its pilot projects to introduce piped natural gas for households and compressed natural gas for the transport sector in the early 1990s. This was initiated in Delhi and Mumbai through joint-ventures. Currently, GAIL operates about 7,200 km of pipelines and will add 1,000 km by the end of this calendar year and a total of 5,000 km by 2013. The company has planned for investments of $6-7 billion (Rs 28,000-33,000 crore) in the next five years.

Punj Lloyd, Jaihind Projects, Essar, Reliance and others are eagerly pitching for pipelines across the country and in the region.

Not a pipe dream

Traditionally, domestic gas has been delivered to Indian homes through gas cylinders. However, piped gas through a Gas Grid will bring down the cost of transportation as this mode is cheaper and faster than traditional modes of transport like road and rail. Pipes are also highly durable and have a long life of approximately 25-30 years for steel pipes, 25 years for PVC pipes and 70-75 years for cement pipes. As India grows as an economic power, the Gas Grid is an integral part of developing the nation’s infrastructure.

The Gas Grid requires an investment of Rs 210 billion and a city gas pipe is currently available in only 10 cities. It is expected to grow to 40 cities in the next five years and will call for an investment of Rs 250-300 billion.

Challenges

The piping industry is highly raw material intensive with RM cost accounting for more than 70 per cent of total cost for steel and PVC pipes. In fact, even the smallest rise in the price of steel can make a big impact on the bottom-line of the company. The other factors that are affecting the industry are imports, RM availability issues and rising cost. The larger players in the organised sector have found a way out by producing better quality specialised products catering to customer needs for critical applications and passing the price hike to their customers. Freight cost is another key cost component that impacts the industry as a result of higher imports and exports. The industry is highly fragmented and the ensuing competition leads to price wars.

New companies trying to enter the fray will have to face certain specific entry barriers. Since oil and gas are transported under high pressure and can be quite hazardous, vendors are accepted only after stringent quality assessment and audit procedures. This is a long-drawn process that could take two to three years and most approvals are plant specific.

The challenges in initiating a gas grid of such a magnitude include factors like ensuring the safety of gas supply pipelines crisscrossing cities. One cannot afford to accidentally rupture a gas pipeline, something which could happen say while repairing a waterline.

State-of-the-Art piping technology

The piping industry progresses forward by infusing technology into products thereby enhancing their quality and attributes. The hybrid JCO press from Mannesmann, is very versatile in terms of pipe size range (16-60 inch outer diameter with maximum possible wall thickness of 65 mm). This performs at a high speed making it perfect for large cross-country pipeline projects.

Advanced composites are another technological advance and known to be stronger, more resistant to corrosion and lighter than steel. Jindal offers Jindal Multi Layer Composite (MLC) Pipes which have advantages like fire resistance, chemical resistance, freedom from rust, low thermal conductivity and so on.

There is still significant room for growth in the pipe industry since India still has a low penetration rate of the piping network.