city gas distribution proposal reliance industries limited ^

Appendix - A

City Gas Distribution Proposal

Reliance Industries Limited ^

7th April, 2006

Table of Contents

1. Introduction

2. Reliance Industries Limited Profile

3. RIL's Gas Business Plan

3.1. Source of Gas

3.2. Transmission Pipeline

3.3. City gas Distribution

3.4. City Gas Demand

3.5. City gas Distribution infrastructure requirements

3.6. Project Schedule

3.7. Investment Proposed

3.8. Gas prices

3.9. Human Resources

3.10. Value Added Offerings

4. Conclusion

Annexures '

1. Reliance Oil & gas Blocks

2. Role of Emerging Technologies

3. Typical City Gas Distribution Project

4. Spur lines from Transmission line

5. Typical Project Execution Plan for City Gas Distribution

City Gas Distribution Proposal from Reliance Industries Limited Page 1 of 15

Introduction 1.1 Natural gas is emerging as preferred fuel of 21st Century due to its inherent economic

value. It can be used as fuel and feedstock. It is clean and environment friendly and is

comparatively cheaper and less volatile than its alternate liquid fuel

1.2 In developed economies like US and Canada, more than 75% of gas is used for domestic

and industrial sector

1.3 However, due to limited availability of domestic gas and distribution infrastructure in

India, consumption is mostly limited to core sectors like power and fertilizer to the extent

of 75%

1.4 With the passing of the Petroleum and Natural gas Regulatory Board Bill 2006 through

Parliament, legislative stability and impetus has been provided for the investment of fund

in the development and growth of the gas industry especially infrastructure in the country

1.5 Reliance has world's largest gas find reported in 2002 in KG-D6 block of the coast of

Andhra Pradesh and is laying country's largest capacity pipeline to transmit this gas from

East to West of the country

1.6 While some large industrial and core sector customers receive natural gas directly from

high capacity interstate and intrastate pipelines, for supplying gas to other end-users,

distribution network is to be provided. Local Distribution Company (LDC) provides

distribution network for the delivery of natural gas to consumers within a specific

geographic area.

1.7 RIL is keen on participating in this local gas distribution venture to enable proper

utilization of clean and green fuel and is willing to undertake the entire range of activities

along the Gas Supply Chain.

1.8 Besides supplying gas through local gas distribution network to domestic, commercial,

industrial and automotive sector with measures to achieve high-energy efficiency,

Reliance has already initiated in-house projects that can provide value added services like

setting up distributed power generation units and its distribution to meet localized needs,

use emerging technologies like CHP, VAC & Fuel Cells to increase the efficiency of use

of gas and provide relief to farmers by promoting vapor absorption based cold storages


2 Reliance Industries Limited Profile 2.1 Reliance Industries Limited is an Integrated Energy Company engaged in Exploration

and Production of oil/gas, Refining, Transmission, Distribution and Retailing of

petroleum products in the country and its export. Reliance also has petroleum assets in

Yemen and Oman and looking for more similar prospect globally towards its contribution

to achieve energy security for the country.

2.2 Though Reliance is the youngest player in the Petroleum Industry in the country, it has

already achieved excellence in the sector by positioning itself

2.2.1 Owner and operator of world's largest grass-root Refinery

2.2.2 Expansion of Refinery by same size as existing

2.2.3 Largest Refining capacity in the country after IOC

2.2.4 Set up world class State-of-Art Technology retail outlets

2.2.5 Holding largest acreage under NELP for exploration and production of oil/gas in

the country after ONGC

2.2.6 First Indian Company to discover oil/gas in deepwater under NELP

2.2.7 Made discovery of World largest gas find reported in 2002

2.2.8 Development of India's first deepwater gas resource

2.2.9 Setting East-West pipeline - country's largest capacity/size gas pipeline

2.2.10 MoP&NG working group projected Reliance to be the largest domestic producer

of gas by 2010-11

2.2.11 Only Indian private sector company - member of 'Fortune 500 club'

2.2.12 Turn-over of Rs 73164 cr during 2004-05 with Gross profit of Rs 14261 cr and

Cash profit of 12087 cr and net profit of Rs 7572 cr

2.2.13 Total assets of Rs 80586 cr with networth of Rs 40403 cr and market

capitalization of Rs 76079 cr

2 3 Reliance Corporate Philosophy is to develop world-class/competitive projects with State-

of-Art Technology and highest standards for HSE to straddle entire value chain.

3 RIL's Gas Business Plan

31 Source of Gas:

3.1.1 Reliance has been awarded number of Blocks by the Government of India as

shown in Annexure-1. Block KG-DWN-98/3 ("KG-D6") located offshore the


State of Andhra Pradesh is awarded under the New Exploration Licensing Policy

("NELP") for exploration, development and for production of oil/gas. Reliance

also has marketing / transportation rights for the oil/gas produced from these

blocks.

3.1.2 Reliance made the world's largest reported gas discovery in year 2002, in its

deep-water block in KG Basin popularly known as KG/ D6.

3.1.3 Reliance has already submitted the Development Plan with an initial potential of

@ 40 MMSCMD of gas from Dhirubhai 1, Dhirubhai 2 and Dhirubhai 3 having

upside potential of upto 80 MMSCMD. The government has since approved the

development plan. This is the largest potential from any single block.

3.1.4 The production is scheduled to commence from mid 2008. Our continued efforts

in exploration make us feel very confident of discovering more reserves in the

future.

3.1.5 Apart from gas sources mentioned above, Reliance has substantial gas finds at

NEC-25 of the coast of Orissa

3.1.6 Reliance also has CBM blocks at Sohagpur in Madhya Pradesh and Barmer in

Rajasthan which are highly prospective blocks

3.2 Transmission Pipeline:

3.2.1 Reliance, for purpose of utilization of KG-D6 gas resource in the States of

Andhra Pradesh, Karnataka, Maharashtra and Gujarat, is laying country's largest

capacity gas transmission system passing through the States of Andhra Pradesh,

Karnataka, Maharashtra and Gujarat known as Kakinada-Hyderabad-Uran-

Ahmedabad gas pipeline or East-West pipeline. Government has also accorded

approval to Reliance's East-West pipeline. This transmission system is scheduled

to be commissioned by mid-2008, synchronized with commissioning of

upstream.

3.2.2 The East-West pipeline creates the corridor of energy along its route and many

cities along the pipeline can be taken for natural gas distribution in these cities to

domestic, commercial, industrial and transport sector

3.2.3 To ensure reliability and security of gas supply and to enhance market reach of

nation's resource, Reliance plans to lay cross-country pipelines as per

requirement connecting its various gas fields


3.2.4 Therefore Reliance is well placed to undertake City Gas Distribution projects

along the East-West pipeline route as a synchronized activity with

commissioning of upstream and transmission system

5 City Gas Distribution

3.3.1 Supply of gas in India is primarily to core sectors like Fertilizer and Power. This

pattern of consumption has primarily developed as the availability of natural gas

from domestic sources is limited and has been allocated to core sectors. Lack of

infrastructure and legislative support to develop infrastructure has also restricted

natural gas usage for City Gas Distribution in India.

3.3.2 However, it has been recognized that City Gas projects have play a significant

role in developing the socio-economic life of the citizens and the viability of City

Distribution projects largely depends upon share of consumption by industrial

and transport consumers

3.3.3 While large consumers in Power, Fertilizer, Petrochemical sectors receive gas

directly from Transmission pipeline, City Gas Distribution project is supplied gas

at City Gate Station through the trunk pipelines from where it is supplied through

Local Distribution network operating at lower pressure to residential,

commercial, industrial and transport sector consumers within the specific

geographic area

3.3.4 Typically, City Gas Distribution of Natural Gas would cover supply of gas to

following category of consumers

3.3.4.1 Domestic consumers - Natural Gas would be available for the consumers

to meet to the demand for cooking as well as for hot water.

3.3.4.2 Commercial consumers - While Hotels, Restaurants, Sweet shops,

Hospitals, Offices etc. would primarily require gas for the Cooking and

Hot Water requirement, there are large number of applications within

such segments that can use gas. Some of these applications are

enumerated in the subsequently as in 2.4.5

3.3.4.3 Industrial consumers - are classified in two primary categories, the Large

Scale Industries (LSI) & Medium & Small Scale Industries.


3.3.4.3.1 The Large Scale Industrial units with bulk demand would be

supplied gas from basic grid i.e Steel Grid at relatively higher

pressures as compared to the other industrial segment.

3.3.4.3.2 The Medium & Small industrial units demand would be met from

distribution network which would a mix of Steel & Poly-Ethylene

pipes depending on the need of the consumer in terms of pressure as

well as volume of Gas required.

3.3.4.4 The Transport Sector - We expect to meet the demand for natural gas for

both the Private & Public transport operating within the targeted cluster

towns by setting up a network of Compressed Natural Gas (CNG

Stations).

3.3.4.4.1 Transport sector is considered to be the major contributor of

pollution constituting about 70% with industry about 25% and rest

others 5%. Therefore CNG - The Green Fuel is considered to be the

vehicle fuel for the future for following reasons:

- Significant environment friendliness

- Very low particulate emissions

- High octane number as compared with Petrol

- Extremely safe due to instant dissipation

- Less inflammable than diesel or petrol, making it more

difficult to auto-ignite, thus safer

- Low maintenance due to absence of carbon deposits

- Cheaper than alternate liquid fuel

3.3.4.4.2 Improved air quality in Delhi following use of CNG is shown in the

graph on following page


1000

Jan-02 Feb-02 Mar-02 Apr-02 May-02 Jun-02 Jul-02 Aug-02 Sep-02

( First and second day of the month)

3.3.5 However, RIL has plans to offer value added services to the consumers by

offering them bundled energy solutions that will include emerging technologies

such as Gas Engines, Vapor Absorption Chillers, Waste Heat Recovery Systems

as also introducing Fuel Cells, Micro-Turbines etc.

3.3.6 To demonstrate our commitment to such an effort, RIL, even before its own Gas

has hit the shore has successfully demonstrated its forward bath by introducing a

CCHP solution at a Petrol Pump at Hazira, Surat, where the current incumbent

M/s Gujarat Gas Company has been operating for the last 16 years and have not

had such an approach till date. A detailed write-up of such an effort is enclosed in

Annexure - 2

3.3.7 The details of a typical City Gas Distribution Grid is given in Annexure - 3

34 Citv Gas Demand

3.4.1 In our pursuit to undertake City Gas Distribution, We have identified certain

major cities to supply natural gas and value added services. It would be extended

to adjacent/adjoining areas found viable for gas supply

3.4.2 These towns include the following:

3.4.2.1 Andhra Pradesh

3.4.2.1.1 Vishakhapatnam '"" '

3.4.2.1.2 Kakinada


3.4.2.1.3 Vijaiwada

3.4.2.1.4 Nalgonda

3.4.2.1.5 Hyderabad

3.4.2.2 Maharashtra - • '

3.4.2.2.1 Sholapur

3.4.2.2.2 Pune

3.4.2.2.3 Thane •» r-

3.4.3 Allocation of gas would be as per the demand estimate based on our preliminary

studies which is pegged at 8 MMSCMD.

State

Andhra

Pradesh

Maharashtra

Cities

Vishakhapatnam

Kakinada

Vijaiwada

Nalgonda

Hyderabad

Sholapur

Pune

Thane

Total

Demand for Gas (MMSCMD)

1.0

0.4

0.8

0.3

1-2

0.4

1.0

3.0

8.0

3.4.4 However, please note that this demand does not include demand from core

sector. As explained above the demand of this sector will be catered to by way of

a basic network outside the scope of the City Gas Distribution network. This will

ensure that the City Gas Network is independent and is not subjected to the

" ' • ' ' • variations in pressure and flow on account of the variations in the consumptions

pattern of such consumers


3.4.5 It also excludes the demand potential that will accrue out of fresh investments

that will be made in the State by way of various Industries putting up new units

on account of un-hindered availability of Gas.

3.4.6 It also excludes the demand for natural gas that will accrue when applications

involving the Emerging Technologies mentioned above are developed to target

more and more segments that are currently covered.

3.4.7 Map showing spur lines connecting Trunk Pipeline to eight identified cities

Vishakhapatnam(145 km), Kakinada(40 km), Vijaiwada(39 km), Nalgonda(26

km), Hyderabad(15 km), Sholapur(60 km), Pune(20 km) and Thane(32 km) is

attached as Annexure-4

3.4.8 The distribution of demand for each consumer segment is indicated below.

3.4.9 As is clear from the above graph, typically, the industrial volume serves as the

anchor customer to make a successful city gas distribution project. The Domestic

Volumes being marginal, and the growth rate being rather very small, the

profitability project will be highly dependent on the rate of sale of gas for

industrial volumes.

3.4.10 However, RIL's focus on use of Emerging Technologies as tool to foster demand

for natural gas in the domestic sector will enable RIL to demonstrate and tap the

markets successfully by offering total energy solutions, i.e.

3.4.10.1 In a typical extreme climate changes, a CCHP solution will enable a

cluster of Consumers to consolidate demand and generate power while


utilize the waste heat for space heating during the winter months and for

space cooling during the summer months.

Similarly, the commercial consumers who the current incumbents

believe that there is a limited potential and are a severe drain on the

energy resources, are surely a great potential to harness the potential of

energy generated through use of emerging technologies.

This will enable the State Government to focus primarily on providing

effectively the State's Energy Resources to the needy without increase in

investment.

3.5 City Gas Distribution Infrastructure requirements:

3.5.1 To achieve this spread of distributing 8 MMSCMD of gas it is proposed:

3.5.1.1 It is also proposed to set up 8 (Eight) City gate Stations, Basic grid of

MS pipes & distribution network of PE pipes, adequate CNG Stations

and related equipment to ensure total compliance to the objectives of the

project.

3.5.1.2 This will provide employment opportunities for semi-skilled and un

skilled local workforce for the period of the project.

3.5.1.3 Additionally, there would be a requirement for skilled operators and

other related technical personnel who would be required to continuously

maintain and operate the network.

3.5.1.4 The above mentioned infrastructure would also catalyze the local

economy by way increased spend by the various vendors that would

supply consumables to the project as well setting up of related ancillary

units

3.5.1.5 The local distribution network would be implemented by Reliance and

would abide by the provisions of Petroleum and Natural gas Regulatory

Board Bill-2006 when enacted including its use on common carrier basis

3.4.10.2

3.4.10.3


6 Project Schedule

3.6.1 The Transmission pipeline from Kakinada to Ahmedabad for supply of gas

would be laid in synchronization with production from KG-D6 Block which is

scheduled from mid 2008.

3.6.2 Once City Gas Distribution projects mentioned above are allocated to Reliance,

Spur lines would be laid by 2008-09

3.6.3 The development of the Downstream projects would be carried out in

synchronization with upstream and midstream projects.

3.6.4 RIL &/or the JV to be formed between Reliance and respective State

Government nodal agency, would evaluate viability of City Gas Distribution

projects and determine the mechanism/business model for advancing identified

projects which are viable.

3.6.5 RIL &/or the JV would facilitate to commission such identified Project by 2008-

09, so that these projects are synchronized with upstream and transmission

system.

3.6.6 The City Gas projects have longer gestation period. However, supply of gas

could be introduced in the city by 2008-09 from Basic grid to industrial

consumers and Mother CNG stations. Distribution network may take 3-5 years to

cover the area including domestic/commercial consumers.

3.6.7 Of the residential, commercial and automotive consumers, Reliance intends to

cover

• 30% in first year

• 40% in the second year

• 20% in the third year

• 10% in the fourth year of its operations

3.6.8 The detailed project plan is enclosed in Annexure - 5

7 Investment Proposed:

3.7.1 RIL envisages following primary investments in the setting of the proposed City

Gas Distribution project.


3.7.1.1 The Spur lines connecting East-West pipeline to 8 cities proposed for

City Gas Distribution is estimated at Rs 900 crores

3.7.1.2 While each City Gate Station may cost around Rs 100 crores, the project

cost for each of the city is to be determined through feasibility studies.

However, total cost for these 8 cities likely to be in the range of Rs 5000

crores

3 8 Gas Price

Each of the above mentioned projects is considered to be a profit centre on a

stand-alone basis and the techno-commercial feasibility of the project would be

one of the drivers to determine the price.

However, City Gas Distribution projects are price sensitive and therefore supply

cost will be minimized through financial and technical efficiency so as to

compete with subsidized alternative like LPG.

Price of gas would however be competitive to re-gasified LNG or alternate

source of gas supply and shall also be competitive to fuel which it would replace

39 Human Resources:

3.9.1 A key part of any successful strategy starts with using highly qualified and

dedicated team of personnel.

3.9.2 RIL offers the best-in-class personnel who are experienced in designing,

establishing, implementing & operating large scale projects of high magnitudes.

3.9.3 The team would bring in the following key strengths:

3.9.3.1 Market Expertise both in domain knowledge & competencies

3.9.3.2 Technical Expertise

3.9.3.3 Best-In-Class Project Management Expertise

- 3.9.3.4 Proven Ability for Innovative Approaches & Creative Solutions

3.9.3.5 Proven Resource Acquisition & Cost Effectiveness Results

3.9.4 The team will contribute to the unique program design, management and

technical experiences to the transition project team, resulting in a unique blend of

strategies and techniques that can meet and exceed the goal

3.8.1

3.8.2


j io Value Added Offerings:

3.10.1 Reliance has on its anvil, a number of projects that is aimed at offering the

customer friendly energy solutions.

3.10.2 Given its vast product profile and competencies that it can leverage on, Reliance

will offer the consumers bundled solutions that will include Combined Cooling,

Heating & Power solutions, Distributed Energy through Gas Gensets/ Fuels

Cells, Integrated Energy Solutions including Solar & Gas.

3.10.3 Various product offerings have already been enumerated in the above paragraphs

especially with references made in paragraphs 2.4.5, 2.4.6 & 2.5.12 and its

subsets.

3.10.4 Reliance believes that there are immense opportunities use these technologies

foster effective utilization while focusing on Energy Usage Optimization &

Conservation

3.10.5 Typical examples include:

3.10.5.1 Indirect heating of liquids & gases in which the sensible heat of exhaust

gases is transferred to the liquid or gas being heated

3.10.5.2 Direct heating in which the exhaust gases are mixed or injected in a

furnace, oven, dryer or boiler where the sensible heat of the exhaust

gases is transferred to heat material in an oven or raise steam in a heat

recovery boiler

3.10.6 Additionally, to promote judicious utilization of gas, Reliance, in its commitment

to preserving the natural resources, for the future generations, will offer technical

expertise and solutions to enable the consumer to use gas effectively, efficiently

and economically.

3.10.7 RIL believes that reduced fuel expenditures - the direct beneficiary of efficient

use of Gas- can be thought of as a new source of capital. The investment that

makes the efficiency possible will yield annual savings each year over the

economic life of the improved system

3.10.8 Process heating efficiency can be an effective way to capture new value, as also

leads to better monitoring & control of fuel use, resulting in decreased fuel

expenditure and reduced cost of environmental compliance as well as more

productive use of assets.


3.10.9 RIL would additionally focus on identifying synergies and encourage

improvements by technology/ knowledge transfer, opportunities common to

industry segments, applications and where possible on equipment type.

3.10.10 It is also in the process of developing a program for the employees and in the

long run the consumers (in relevant industry) to be exposed to various forms

education/ training etc as follows:

3.10.10.1 Energy Management® Reliance (EMR): A training program for the

concerned workforce to empower them with the knowledge and means to

"DO" energy management programs at their client organizations. This

program will particularly focus on enhancing energy efficiency services

in the small & medium scale industries as also large commercial formats

such as the shopping malls etc.

3.10.10.2 "Technology Injection @ Reliance" to accelerate the adoption of new or

un-recognised energy improving technologies.

3.10.10.3 "Web-inars" @ Reliance to increase the exposure of energy-efficient and

advanced practices and technologies for the various segments of

consumers. -

4 Conclusion

4.1 Reliance Industries Limited is the sole operator who is able to commit resources along

the entire gas supply chain including:

4.1.1 Its own supply source (KG-D6)

4.1.2 Transmission system (East-West pipeline)

4.1.3 Its willingness to invest in laying Spur lines connecting East-West pipeline to

City Gate Stations

4.1.4 Its keenness to invest in setting up a world class City Gas Distribution network in

8 (Eight) major cluster hubs which will in due course cover most towns/ cities in

the State.

4.1.5 Deploying its key manpower to ensure that the project(s) are developed to be in

synchronization with the development of the other related projects which

constitute the Gas Supply Chain i.e from Source to Consumer.

4.1.6 Additionally, this investment will create a lot of opportunities for employment


4.2 Given its vast product profile and competencies that it can leverage on, Reliance will

offer the consumers bundled solutions that will include Combined Cooling, Heating &

Power solutions, Distributed Energy through Gas Gensets/ Fuels Cells, Integrated Energy

Solutions including Solar & Gas

4.3 While RIL has in house technical, financial and managerial capabilities to undertake

world class Gas Distribution system and City Gas Distribution projects, it is also keen to

partner with respective State Government in providing world class Gas Distribution

networks by forming a JV with the State nominates Nodal agency for developing City

Gas Distribution projects in Vishakhapatnam, Kakinada, Vijaiwada, Nalgonda,

Hyderabad, Sholapur, Pune and Thane.

4.4 RIL is keen to work in close coordination with the Government of India and respective

State Government in creating gas revolution in the country.

4.5 RIL strengths would complement the Government's efforts to develop City Gas by 2008-

09 as Reliance has the source of gas and transmission system to supply gas.

4.6 RIL undertake to abide by Regulatory provision including use of network on common

carrier basis

4.7 RIL would also be keen to supply gas to bulk consumers in core sectors like power and

fertilizer by laying dedicated spur lines to these plants

City Gas Distribution """." '; .:.'.;"'"'.". Proposal from Reliance Industries Limited Page 15 of 15

;;. 1:

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Reliance Industries Limited

: COMBKEOCOOUNG.HEATMGlPOWVERPROJECTiCCilP)

The Primary function of a CCHP system is to generate power The secondary

function of the system is to recover waste energy from the first operation and put it to other

productive use. The system at Hazira consists of two gas based electric generators. The

waste energy recovered from the first engine (CCHP 1) is used to provide 9 tonnes of air-

conditioning and the waste energy from die second engine (CCHP 2) is used to provide

1200 liters of hot water.

CCHP1 generates 21KWH of electricity with an efficiency of between 25° c to

2S*o.

45.5 KWK of waste energy, recovered from the engine coolant and flue gases, is

converted to hot water at a temperature of 90 deg C using a series of Heat Exchangers. This

ho: water is used in the Vapour Absorption Machine.

CCHP2 also generates 21K'\VH of electricity with an efficiency of between 25co

and 28c'o. 45.5KWH of waste energy, recovered from the engine coolant and Cue gases, is

converted hto hot water at 60 des C using a series of Heat Exchangers and is supplied to

the Premium shower and Kitchen of the A-l Plaza at the Truck Stop.

Flow Diagram

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Annexure - 3

Typical City Gas Distribution Project

CGD project will primarily consists of

• City Gate Station (to receive from transmission system and odorize it with

Mercaptan). Mother CNG Station would also be stalled at City Gate Station to boost

supply to Daughter Stations

• Basic grid from City Gate Station in the city and which normally operates at 19 bars.

(Steel pipes)

• City would be divided into various wards having potential demand of around 5000

SCMD and District Governors would be provided on the Basic Grid to supply gas at

regulated pressure from Basic Grid to distribution network within the ward [19 bars

to 4 bars].

• Distribution network of PE pipes from District Governors to consumption centers - 4

bars. Distribution network would be of 4" or 2 54" depending upon population density

• Service lines from distribution network to meet the requirement of the individual

consumer(s) - 4 bars (PE). Service lines will be 1 54" for commercial supply and 1"

for residential supply

• Risers provided in the building to supply to residential consumers where pressure is

reduced up to 20 millibar. Risers will be 54" or VA" either of GI or MS tube

• Internal fittings/metering.

The supply of gas to larger industrial consumers is made from Basic Grid, whereas smaller

industrial consumers are supplied gas from Distribution network (PE).

: * • • • ? Annexure - 2

Role of Emerging Technologies at

Reliance Industries Limited

city gas distribution proposal reliance industries limited ^

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