Government Reduces Gas Supplies to City Gas Entities, Impacting CNG Prices

The government has reduced the supply of cheaper domestic gas to city gas companies by up to 20%. These companies, which provide CNG for vehicles, will now rely more on expensive imported gas. This change could lead to higher CNG prices, but with upcoming elections in Maharashtra, any price increase might be delayed.

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Indraprastha Gas Ltd (IGL) and Mahanagar Gas Ltd (MGL) have reported cuts in their domestic gas supplies. This gas was previously available at a capped rate, about half the cost of imported gas. IGL noted that their domestic gas allocation has been reduced by 21% from October 16, 2024. This reduction is expected to negatively affect the company's profitability.

Impact on City Gas Distribution Companies

According to MGL, the Ministry of Petroleum and Natural Gas issued guidelines on August 10, 2022. These guidelines allocate domestically produced Administrative Price Mechanisms (APM) natural gas to city gas distribution companies for priority segments like domestic piped natural gas and CNG transport. However, the supply will only match the quantity available and allocated to GAIL India Limited.

MGL stated that their allocation for CNG transport has been cut by 20% compared to previous average quarterly allocations. This significant reduction is anticipated to impact their profitability adversely. To address this shortfall, MGL is exploring alternatives like sourcing high-pressure high-temperature (HPHT) gas and new well/well intervention gas from ONGC.

Exploring Alternatives Amidst Challenges

Girish Kadam from ICRA Limited commented on this development. He mentioned that the APM gas allocation for the city gas distribution sector has been reduced by 20% of its current domestic consumption. To compensate for this reduction, companies will need to use more expensive HPHT gas or imported LNG, increasing overall costs.

To maintain profit margins, CNG prices might need to rise by Rs 5-5.5 per kg. Such an increase could slow down the growth of CNG vehicle registrations, which have been crucial for driving sales volumes in this sector. Companies are actively seeking ways to ensure continued supply while keeping prices stable for consumers.

The changes in domestic gas allocation highlight challenges faced by city gas distribution companies. They must balance maintaining profitability with providing affordable energy solutions. As they explore alternative sources and strategies, these companies aim to minimise disruptions for their customers while adapting to evolving market conditions.