Rising Gas Prices Challenge City Gas Distribution Sustainability

City gas distribution companies in India are facing rising procurement costs following reduced allocation of natural gas under the administered price mechanism. With the APM gas allocation cut by 20% for CNG needs, companies are forced to procure costlier gas from other sources, potentially increasing prices.

City gas distribution companies are poised to see an increase in procurement costs, according to a report by rating agency Crisil. The price rise, predicted to be Rs 2-3 per kilogram, is linked to a reduced allocation of input natural gas under the administered price mechanism (APM).

These companies, which previously benefited from preferential gas pricing for domestic CNG and PNG segments, are facing a significant 20% reduction in APM gas allocation, as announced by GAIL (India) Ltd. The cutback will result in a drop from approximately 70% to 50% of their APM gas needs, effective October 16, 2024.

Consequently, CGD players must resort to more expensive sources such as domestic HPHT gas fields or imported LNG. This shift in sourcing is expected to elevate procurement costs, thereby impacting CNG prices. Nonetheless, CNG's competitive edge as a transportation fuel remains substantial, despite the price adjustments.

(With inputs from agencies.)