CNG To Get Costly? Domestic Natural Gas Prices Hiked By 4%; GAIL, IGL, MGL, Adani Stocks In Focus

CNG, PNG Prices: In a major development, the Indian government has raised the prices of domestically produced natural gas on oil fields by 4%. Under the Administered Pricing Mechanism (APM), natural gas price has increased to $6.75 per million British thermal units, with effect from April 1, 2025. This is likely to fuel natural gas companies to hike the prices of CNG and PNG going ahead.

Natural Gas Prices:

The latest hike of 4% makes domestic natural gas expensive to $6.75 compared to its existing price.

Also, notably, the latest hike in natural gas prices comes for the first time in two years.

Earlier, APM gas price stood at $6.50 per MMBtu.

APM gas is produced by India's largest oil and gas PSU giants ONGC and Oil India.

A new guidelines was introduced for domestic gas pricing in 2023. As per the norms, the price of such natural gas shall be 10% of the monthly average of Indian Crude Basket and shall be notified on a monthly basis. For the gas produced by ONGC & OIL from their nomination blocks, the Administered Price Mechanism (APM) price shall be subject to a floor and a ceiling. Gas produced from new wells or well interventions in the nomination fields of ONGC & OIL, would be allowed a premium of 20% over the APM price.

The new rule is focused on ensuring stable pricing regime for domestic gas consumers while at the same time providing adequate protection to producers from adverse market fluctuation with incentives for enhancing production.

The price revision in APM gas prices are likely to impact the prices of Piped Natural Gas (PNG) for households and Compressed Natural Gas (CNG) for transport. That is because, APM is among the components that are used for producing gases like LPG, CNG ,and PNG that are useful for motors and household.

What Is CNG?

Compressed Natural Gas (CNG) is an environment-friendly alternative automotive fuel. The cleaner fuel plays an important role in reducing vehicular greenhouse gas emissions and environmental pollution significantly. As its name suggests, CNG is natural gas compressed under pressure so that more of it occupies a lesser volume in your fuel tank, as per the BPCL website.

What Is PNG?

Piped Natural Gas (PNG) is natural gas - mainly Methane and supplied through mild steel (MS) and polyethene (PE) pipes to cater to the natural gas demand of customers in various segments like Domestic / Commercial & Non - Commercial / Industrial, such as per Indian Oil.

With the hike in APM for April 2025, the prices of CNG and PNG are expected to surge. Currently, major natural gas stocks are Mahanagar Gas, Indraprastha Gas, GAIL, ONGC, Oil India, Gujarat Gas, Petronet LNG, Adani Total Gas and Cheniere Energy.

After the price hike, oil and gas stocks were broadly in green, defying deep bearish pressure on the broader market. Nifty Oil & Gas stock ended at 10,558.15, up by 8.5 points or 0.08%. Stocks like IOCL, BPCL, Castrol India, GAIL, Petronet, and ONGC were up by nearly 1% to 3%. However, stocks like Mahanagar Gas, Oil India, Gujarat Gas, Indraprastha Gas, and Adani Total Gas were in red.

Also, the hike comes during the US WTI and Brent Crude hovered around $71.2 per barrel and $74.5 per barrel on Tuesday. As per Trading Economics, Trump vowed to impose 25%-50% secondary tariffs on buyers of Russian oil if he feels Moscow is hindering his efforts to end the war in Ukraine, putting key buyers such as India and China under pressure. He also threatened Iran with secondary tariffs and bombing until it signs a deal that renounces nuclear weapons.

PSU Oil & Gas Stocks To Buy/ Sell:

Kotak Institutional Equities recently said, "Amid weak global demand and rising non-OPEC supplies, the ability of OPEC+ to control oil prices was under threat in 2024. Now, after the change in administration in the US, the control of OPEC+ on oil prices seems to be at its lowest level. We cut our oil price assumption to US$70/bbl for FY2026-27 and LT (US$80/bbl earlier). Lower oil prices are negative for upstream. Although we cut earnings, we maintain our BUY rating on ONGC and SELL on Oil India. With retail prices frozen, the lower oil prices are optically positive for OMCs. However, some of this positive impact will be offset by rising US oil supplies, declining Russian crude and a weak INR. There remains a strong case to cut/free-up retail prices. Maintain SELL on BPCL, HPCL and IOC."

Furthermore, latest report of CareEdge Ratings, revealed that in the natural gas sector, the contribution from CGD accounted for 20% in FY24 and is projected to increase to 25% by 2030. CareEdge Ratings anticipates that gas consumption volumes for the sector will grow at a Cumulative Average Growth Rate (CAGR) of 10% during FY25-30. According to the rating agency, volumes are expected to expand at a sustainable compound annual growth rate (CAGR) of ~10% over FY25-30, supported by capital expenditure (capex) of Rs 30,000 crore during FY25-FY27.

India's energy mix has remained fundamentally unchanged over the past decade, with coal continuing to dominate energy consumption in the country and gas maintaining a modest share of around 6%. The Government of India aims to transform the nation into a gas-based economy and achieve a 15% share of natural gas in the primary energy mix by 2030, an increase from its current level of 6.5% (as of 2024). In this context, the City Gas Distribution industry plays a crucial role in enhancing the contribution of natural gas to India's energy mix by ensuring efficient last-mile connectivity to consumers, as per CARE.