Paying heed to the demand of the city gas distribution (CGD) entities’, the government has approved higher allocation of domestic natural gas for CNG used as transport sector and PNG used by households for cooking as international prices for liquefied natural gas (LNG) have soared. With CGD firms likely passing on the benefit to consumers, CNG’s competitiveness against petrol & diesel will rise and spur volumes, experts said.
However, the move may inflate the cost of gas-based power and urea, and have fiscal implications.
“The government has taken steps to augment the supply of domestic gas for the CNG9T)/PNG(D) segment of the CGD sector. For Q2FY23, an allocation of 20.74 mmscmd has been made which would cater to 94% of total requirement of 22.1 mmscmd (102.5% of 21.56 mmscmd consumption in Q1) of CGD entities as increased from 85% in Q1. The entities may procure the additional requirement of natural gas from open market,” the government said in a notification.
In May, the government had mandated GAIL to procure and mix LNG in the CGD pool and supply the same at uniform base price to all CGD entities. This pooled price for August came to $10.5 per mmBtu. In comparison, the gas from regulated fields of ONGC is priced at $6.1 per mmBtu.
“The increased allocation of APM gas to the CGD sector is expected to reduce the input cost for the CGD entities. The entities are, in turn, expected to pass on the benefit to the consumers,” the government said.
The government’s move follows a significant increase in domestic CNG and PNG prices in the last one year as operators used costlier imported LNG. CNG prices in Delhi went up from Rs 43.40 per kg in July 2021 to Rs 75.61 per kg now. PNG prices also rose by 70% in the period from Rs 29.66 per standard cubic meter to Rs 50.59 per scm.
The ministry also said that the available compressed bio gas (CBG) procured by GAIL as part of synchronisation scheme shall form part of the supply pool.
Commenting on the government’s latest move, Edelweiss said, “We reckon the APM (domestic gas) mix shall likely rise to 94% of overall CNG/PNG-domestic (D) consumption from around 85% now. This should fuel CGDs’ (IGL/MGL) margins due to low procurement cost. Besides, CGDs shall pass on price benefits arising from higher APM mix, which would lift CNG’s competitiveness against petrol/diesel, spurring more volumes.”
“We believe CGDs shall pass on any price benefits arising out of higher APM mix (low input cost) to end-users, augmenting volumes further on increased competitiveness. However, volumes over and above 102.5% of previous quarter consumption would require LNG procurement at high spot prices, now at $ 40/mmbtu,” it said.
Sanjay Sah, partner, Deloitte, “There were lot of consumers who were repenting their decision to go for CNG conversion given the sharp increase in prices. Further, the thought process to disincentivise entities which are not progressing well on their plans would help in driving the gas infrastructure. Additional central push on improving ground level hurdles such a ROU acquisition needs to be undertaken.”
The government in 2014 accorded the highest priority of domestic gas supply to CGD sector of PNG to promote the usage of environment-friendly fuel among the public at large. It has set a target of increasing the share of natural gas in the primary energy mix from 6.3% to 15% by 2030.
Production of natural gas for the month of June, 2022 was 2,813 MMSCM, an increase of 1.3% over the corresponding month of the previous year. During the month total imports of LNG were 2,451 MMSCM, a decrease of 9.5 % over the corresponding month of the previous year.
Natural gas available for sale during June was 4,727 MMSCM, while consumption during the month was 4,633 MMSCM. Fertiliser sector consumed the highest at 34% followed by CGD at 23%, power 13%, refinery 8% and petrochemicals 2%.