Shares of City Gas Distribution (CGD) companies including Indraprastha Gas, Mahanagar Gas and Gujarat Gas rallied up to 6% on Friday, recovering from day’s low levels after the oil ministry has slashed allocation of natural gas used for LPG production and diverted it to city gas retailers to meet a part of their requirement for CNG and piped cooking gas supplies.
Share prices of Indraprastha Gas rose by as much as 6.19% on Friday to a high of Rs 453.35 on the BSE, while that of Mahanagar Gas gained 2.5%. Shares of Gujarat Gas also rose by nearly 2%. Shares of Indraprastha Gas closed at Rs 441.20 apiece, up 3.35% from its previous close and that of Mahanagar Gas closed at Rs 1,316, up 1.53% from previous close. Shares of Gujarat Gas closed at Rs 514.15, up 1.2% from previous close.
As reported by PTI, the oil ministry has ordered a cut in gas supplied to state-owned GAIL and Oil and Natural Gas Corporation (ONGC) for production of LPG and diverting those volumes to city gas entities.
Out of a total 2.55 million standard cubic meters per day of gas usage for LPG production, 1.27 mmscmd (0.637 mmscmd each for GAIL and ONGC) has been ordered to be diverted for consumption in the CNG/piped cooking gas segment in January-March quarter, according to the report.
The report further stated that GAIL and ONGC will have to use either higher-priced gas produced from new fields or rely on imported liquefied natural gas (LNG) to replace the lost volumes. The ministry also ordered pro-rata allocation of gas from new wells and earmarked ONGC’s Ramnad field for the city gas sector, which will make available about 1.7-2 mmscmd of gas to city gas retailers, according to the order.
The government in October and November last year had cut supplies of domestic gas to city gas retailers by as much as 40% in view of limited output leading city gas retailers to hike CNG prices by Rs 2-3 per kg. The hike in CNG prices made it less attractive than alternate fuels like petrol and diesel.
“To resolve this, the Ministry of Petroleum and Natural Gas in a December 31 order rejigged some allocations of gas produced from below ground and undersea,” the report said.
After reducing the allocation of Administrative Price Mechanism (APM) gas for the CNG segment for two consecutive months, the share of domestic gas allocation for CNG sales has declined from over 85% in the beginning of FY24 to over 72% now, being the biggest single cut in such allocations. The industry believes that there could be further deallocation of APM gas to the CGD entities given its lower availability.
Further reductions in low-cost domestic gas allocation for the CGD sector is also likely to impact their margins in the short term, because passing the complete price hike could impact the vehicle conversion volumes, according to India Ratings.