CNG price may rise by Rs 4-6 per kg unless center cuts excise duty: Report

The government has reduced by 20 percent the supply of cheap domestically produced natural gas to city dealers — a move that could lead to a Rs 4-6 per kg hike in the price of CNG sold to cars, unless the excise duty on fuel is cut, sources said. Natural gas pumped underground and underground from areas from the Arabian Sea to the Bay of Bengal within India is a by-product that is converted into CNG for sale in vehicles and piped cooking gas for homes.

Production from the legacy fields, a number of which are controlled by the government and used to supply the city’s gas retailers, has been declining by 5 percent every year due to environmental degradation that has already begun. This has led to a reduction in the city’s gas supply. sellers, four sources familiar with the matter said.

While the supply of piped cooking gas to households is secured, the government has cut off the supply of CNG raw materials. Gas from legacy areas is used to meet 90 percent of CNG demand by May 2023 and has been declining steadily. The supply was reduced to only 50.75 percent of CNG demand as of October 16 from 67.74 percent last month, they said.

City gas vendors are forced to buy imported and expensive liquefied natural gas (LNG) to meet the shortage, which will lead to a rise in CNG prices ranging from Rs 4-6 / kg.

Gas from legacy fields is priced at USD 6.50 per million British thermal unit (mmBtu) compared to imported LNG which costs USD 11-12 per mmBtu.

So far, the vendors have not increased CNG prices as they are working with the Petroleum and Natural Gas Ministry to find a solution, sources said.

One of the options is for the government to reduce the tax on CNG. Currently, the central government levies a 14 percent excise duty on CNG, which translates to Rs 14-15 per kg. If this is reduced, retailers will not have to pass on the increased costs to consumers, they said.

The rise in CNG prices is also a political issue as Maharashtra goes to polls next month and elections are due in Delhi soon. Delhi and Mumbai are among the largest CNG markets in the country.

Sources said gas supply to city-based gas vendors had to be cut after the government decided to restore fuel to the ONGC-developed petrochemical plant OPaL in Dahej, Gujarat.

The facility was initially allocated 4.12 million standard cubic meters per day of natural gas produced in the country. However, the allocation due to various reasons was reduced to 1.95 mmscmd and during the Covid period it was reduced.

The lack of promised domestic gas is the main reason behind OPal’s losses, sources said, adding that the government has approved a package to revive the unit. The package includes promoter Oil and Natural Gas Corporation (ONGC) putting in an additional Rs 10,501 crore as equity and a unit to make domestically produced natural gas available.

The Union Cabinet approved allocation of 3.44 mmsmd of domestic gas — mostly from ONGC’s new sources. This has resulted in less gas being available from city gas vendors.

Girish Kadam, Senior Vice President and Group Head – Corporate Ratings, Icra Ltd, said, “The share of APM gas has been reduced by the CGD sector to 20 percent of the current domestic gas consumption. It should be replaced by the more expensive HPHT gas. or (imported) LNG, which will suppress all gas costs in the sector.” To maintain the contribution margin at existing levels, CNG prices will have to be increased by around Rs 5-5.5 per kg.

Indraprastha Gas Ltd, which sells CNG in the national capital, and Mumbai-based Mahanagar Gas Ltd in regulatory filings said the supply of domestically produced gas, which was available at a limited rate of half the imported price, has been cut.

“The company is getting domestic gas allocation to meet the CNG sales volume requirement at the rates set by the government (currently USD 6.5 per million British thermal unit). Based on the communication received by the company from GAIL (India) Ltd (nodal). allocation agency of domestic gas), this is to inform that there has been a significant reduction of domestic gas in the company’s allocation from October 16, 2024,” IGL said in the filing.

The revised domestic gas allocation to IGL is 21 percent lower than earlier, “which will have a negative impact on the company’s profitability”, it said, adding that it is in discussions with key stakeholders to mitigate the impact.

Separately, MGL said that according to the Policy Directive dated August 10, 2022, issued by the Ministry of Petroleum and Natural Gas, domestically produced natural gas for the Administrative Price Mechanisms (APM) will be allocated to the city gas distribution (CGD) companies for priority categories, especially domestic piped natural gas and CNG (transportation).

The policy states that supply of domestic gas to CGD enterprises will be done only in the amount available and allocated to GAIL (India) limited to these segments.

“…The company is looking at gas sourcing options through domestically produced high pressure gas (HPHT), new well/well intervention (NWG) gas from ONGC and long-term benchmark-linked contracts, to continue supplying gas to its customers on a stable basis of the price,” added MGL.

Adani Total Gas Ltd — the city’s other major gas supplier — in its filing said APM’s share of domestic fuel prices in the company has been reduced by about 16 percent, effective October 16, 2024, compared to the previous share.

“Although the company will take all necessary measures to increase profits, it can be noted that since the decision is pending, it will have a negative impact on the company’s profits,” he said.