By Manish Gupta
The government’s new gas pricing formula may result in city gas distributors (CGDs) lowering the prices of compressed natural gas (CNG), used by vehicles, and piped natural gas (PNG), used by homes, by up to 11% early next week.
On Thursday, the Cabinet approved a new gas pricing regime that links it to crude but binds it within a range of $4 to $6.5 per mmBtu for the next two years, in effect preventing any volatile movement of gas prices during the general elections next year.
The revised price will be announced on Saturday.
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As per the earlier pricing regime, gas prices would have risen further to $10-11/mmBtu for the first half of fiscal 2024 from $8.57/mmBtu for the six months ended March 2023,
he said.
This would have forced the CGDs to increase prices to maintain profitability.
Prashant Vasisht, vice president and co-head, Corporate Ratings, ICRA, said that the decision to base the price at 10% of the monthly average of Indian crude basket is pragmatic and judicious as globally liquified natural gas sales are mostly priced basis crude.
Further, it removes the linkage to trading hubs in gas surplus regions where prices remained low even as crude prices were elevated leading to prolonged periods of low and unremunerative domestic gas pricing hurting the profitability of upstream producers, he said.
“The gas price decline should lead to a Rs 9.5/kg decline in CNG rates and `6/scm decline in PNG rates if fully passed on to the consumers,” said Vasisht. He, however, believes that the entire benefit may not be passed to the consumers.
“It is difficult to say if the CGDs will pass the full benefit to the consumers. Many had not passed on the full price rise, taking a hit on margins and so pass through may be lower,” he said.
Sources inform that Indraprastha Gas (IGL), distributor of both CNG and PNG, is working out the new price they will charge to their customers and are likely to announce the new rates on Monday.
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Joanne Gonsalves, associate director, Crisil Ratings, said, “With APM prices now benchmarked to crude oil, it would ensure sustained competitiveness of CNG and residential PNG with alternative fuels such as petrol, diesel, and liquefied natural gas (LNG).
“The CNG discount over petrol and diesel, and residential PNG over LNG will increase to 25-40% under the new regime from 20-35% currently.
This can accelerate and sustain adoption of city gas and support distributors that have planned capex of about Rs 90,000 crore over the next 4-5 fiscals.”
Automobile manufacturers believe that the decision to insulate the Indian consumers from the spikes in global prices will promote the use of CNG vehicles in India.