CNG Prices Likely to Rise as Government Cuts Domestic Gas Supply to City Gas Firms

The price of compressed natural gas (CNG) may increase across India after the government reduced the supply of cheaper domestic gas to city gas distributors by about 20%.

The government allocates price-controlled domestic gas, known as APM gas, to city gas distributors for resale to CNG drivers and households. While this cut will not impact household gas supplies, it could lead to higher CNG prices, according to city gas officials.

Indraprastha Gas Ltd (IGL), the largest city gas distributor in the country, reported receiving 21% less APM gas since October 16. This reduction is expected to negatively affect the company’s profitability.

For IGL and other city gas operators, the proportion of cheaper domestic gas in their CNG sales has decreased significantly, falling to about 50% from 68% just two days ago, and down from 88% last October.

The government made this allocation cut after allowing ONGC to use extra gas output from its older gas fields for petrochemical production, which reduced the amount of domestic gas available for city gas distributors.

City gas companies were informed about the allocation cut on October 14, but the short notice has made it challenging for them to adjust. One executive noted that while there is no shortage of gas in the market, it is more expensive. A gradual cut in allocation would have given companies more time to secure alternative sources.

If city gas distributors cannot quickly find other gas supplies, it may temporarily affect CNG availability at pumps in some areas. Distributors would need to buy gas at market rates, which could raise their costs by ₹4-6 per unit, as international benchmark spot rates are around $13.5 per mmbtu, more than double the $6.5 price for domestic APM gas.

Some companies are discussing when and how much to increase prices, taking into account that raising prices during the festive season could upset consumers. Some may choose to absorb part of the cost increases, impacting their profits.

Additionally, some city gas distributors that already charge high CNG prices may find it difficult to increase prices further. If CNG prices get too close to petrol prices, it could halt conversions from petrol vehicles, according to industry executives.