The government has slashed supplies of cheaper domestically produced natural gas to city retailers by up to 20%, which may result in Rs 4-6 per kg hike in the price of CNG sold to automobiles.
Production from legacy fields, whose price is regulated by the government and which are used to feed city gas retailers, has been falling by up to 5% annually due to natural decline. This has led to supply cuts to city gas retailers, PTI reported citing sources.
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While the input gas for piped cooking gas that households get is protected, the government has cut supply of raw material for CNG. Gas from legacy fields used to meet 90% of the demand for CNG in May 2023 and has progressively fallen. The supply was cut to just 50.75% of the CNG demand beginning October 16 from 67.74% last month, the report added.
City gas retailers are now forced to buy imported liquefied natural gas (LNG) to make up for the shortfall, which is likely to lead to a hike in CNG prices that varies from Rs 4-6/kg.
The gas from legacy fields is priced at $6.50 per million British thermal unit (mmBtu) as against imported LNG that costs $11-12 per mmBtu.
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For now, the retailers are engaged with the Ministry of Petroleum and Natural Gas to find a solution and have not raised CNG rates.
In order to mitigate price impact, the government may opt for a cut in excise duty on CNG. Currently, the central government levies a 14% excise duty on CNG, which translates into Rs 14-15 per kg.
According to the PTI report, gas supplies to city gas retailers had to be cut after the government decided to restore fuel to ONGC-promoted OPaL petrochemical plant in Dahej, Gujarat. Lack of promised domestic gas was the main reason for OPaL running into losses with the government now approving a package to revive the unit.
The Union Cabinet approved the allocation of 3.44 mmscmd of domestic gas — mostly coming from new wells of ONGC. This led to lesser gas being available for city gas retailers, the report added.
If CNG prices are hiked it can be a political issue as Maharashtra goes to the polls next month and elections are also due in the national capital soon. Delhi and Mumbai are among the biggest CNG markets in the country.
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Girish Kadam, Senior Vice President & Group Head – Corporate Ratings, Icra Ltd, said, “The APM gas allocation has been reduced for the CGD sector by 20% of the current domestic gas consumption by the sector. The reduction in APM allocation will have to be replaced by more expensive HPHT gas or (imported) LNG, which will push the overall gas costs for the sector.”
To maintain contribution margins at existing levels, CNG prices will have to be increased about Rs 5-5.5 per kg, he said.
Indraprastha Gas Ltd, which retails CNG in the national capital, and Mumbai-based Mahanagar Gas Ltd in regulatory filings stated that supplies of domestically produced gas, which was available at a capped rate half of the imported price, has been cut.
“The company gets domestic gas allocation for meeting the requirement of CNG sales volumes at the pricing fixed by the government (presently at $6.5 per million British thermal unit). Based on communication received by the company from GAIL (India) Ltd (the nodal agency for domestic gas allocation), this is to inform that there has been a major reduction in domestic gas allocation to the company effective from October 16, 2024,” IGL said in a filing.
The revised domestic gas allocation to IGL is about 21% less than previous allocation, “which will have an adverse impact on profitability of the company”, it said.
Separately, MGL said as per Policy Guideline dated August 10, 2022, issued by the Ministry of Petroleum and Natural Gas, domestically produced Administrative Price Mechanisms (APM) natural gas is to be allocated to city gas distribution (CGD) companies for priority segments, specifically domestic piped natural gas and CNG (transport).
Adani Total Gas Ltd – another significant city gas retailer – in its filing said the APM priced domestic gas allocation to the company has been reduced by about 16%, effective October 16, 2024, compared to the earlier allocation.
“While the company shall take all steps needed to optimise the profitability, it may however be noted that pending the resolution, there would be an adverse impact on the profitability of the company,” Adani Total Gas said.
