BackAfter petrol, diesel and LPG, piped natural gas may get dearer
Rates for gas from deep-water fields such as KG-D6 of Reliance Industries Ltd and BP Plc would would rise to $7.4 per mBtu
PremiumMUMBAI : The revision in natural gas prices from $1.79 per million British thermal unit (mBtu) to $3.15 per mBtu may lead to city gas distribution companies hiking prices by 10% and passing on the burden to customers, according to analysts.
The government, according to the administered price mechanism or APM, fixes the price of natural gas produced by domestic exploration and production firms like Oil and Natural Gas Corporation (ONGC) every six months. The possible price hike in October would be for a period of six months, till 31 March.
Rates for gas from deep-water fields such as KG-D6 of Reliance Industries Ltd and BP Plc would would rise to $7.4 per mBtu. Deepwater fields attract a higher gas price due to difficulty of extracting the same.
"Given the significant jump in petrol/diesel prices, there is significant head room to raise retail CNG prices. Price of CNG is around 47% of Petrol price and 69% of diesel price (without adjusting for mileage) as compared to a six-year average of 58% and 69% for petrol and diesel effectively," said Antique stock broking in a report dated 7 September.
City gas distribution refers to transportation or distribution of natural gas to consumers in domestic, commercial or industrial and transport sectors through a network of pipelines.
According to analysts at ICICI Securities Ltd, the expected surge in APM gas prices would present a challenge to CGD players as it would mean rise in their gas cost for CNG and residential PNG.
"APM gas price rise would mean hefty price hikes would have to be made by IGL, MGL and GGL," said ICICI Securities in its report dated September 8, adding that in the next one-year (October 2021- October 2022) CGD companies may need to take a 49-53% CNG price hike to pass on the increased gas prices.
The prices of liquefied petroleum gas (LPG) cooking gas was hiked by ₹25 per cylinder on 1 September---the third straight increase in its rates in less than two months. Subsidised as well as non-subsidised LPG now costs ₹884.50 per 14.2-kg cylinder in Delhi.
For city gas distribution (CGD) companies, every $1 per mmBtu increase would require ₹5.2 per kg increase in CNG price.
Going by the trend in international markets, the APM gas price is likely to rise to $5.93 per mmBtu in April 2022 to September 2022 and to $7.65 during October 2022 to March 2023.
This would mean another 22-23% hike in CNG and PNG prices in April 2022 and 11-12% in October 2022, it said, adding that the rise in gas price would help boost margins of ONGC and Oil India Ltd as well as private companies such as Reliance Industries Ltd (RIL).
Despite a 10% price hike, however, sales volume of city gas companies is expected to soar 25-27% this fiscal, driven by rebounding vehicular mobility and industrial activity, and a record price advantage versus competing fuels including such as petrol and diesel.
"We expect sustained recovery for the rest of the year, as both CNG and industrial PNG demand improve on a combination of higher economic activity and record price advantage against alternative fuels. This will drive overall demand by 25-27% this fiscal, even 8% above fiscal 2020 levels," said Manish Gupta, senior director, Crisil Ratings on 14 September.
Last fiscal saw city gas volume contract 13% as both demand for CNG and industrial PNG, which together contribute 90% of total city gas consumption, were hard hit by the pandemic, especially in the first quarter, before recovering.
Sales volume of CNG, accounts for about 40% of total consumption while demand for industrial PNG, accounts for about 50% of total consumption. The rest 10% consumption is from the residential PNG segment.
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