CGD cos up CNG and domestic PNG prices. Are more hikes likely?

Mahanagar Gas' CNG station

Mahanagar Gas Limited (MGL), which caters to the Mumbai Metropolitan Region and neighbouring areas,  hiked the prices of compressed natural gas (CNG) and piped natural gas (PNG) on July 8, days after other city gas distribution (CGD) companies in the country did so.

With the recent price hikes, gas prices at households and for transport have become costlier at a time when consumers are already reeling under high retail petrol and diesel prices.

Moneycontrol takes a look at what’s cooking at CGDs and the road ahead.

How have the prices been affected?

State-run Indraprastha Gas Limited (IGL), which serves Delhi and the larger National Capital Region,  in late June hiked CNG prices by Re 1 per kg in the capital and some of the neighbouring cities for the first time in 2024, while keeping the price of PNG, used in  in household kitchens, unchanged.

Similarly, earlier in the month, Gujarat Gas Limited, the largest in the sector with a pan-India presence, announced a Rs 2 per standard cubic metre (scm) increase in industrial gas price for the Morbi region in Gujarat.

Following its competitors' cue, MGL also increased prices for CNG by Rs 1.50 per kg and PNG by Rs 1 per scm in and around Mumbai starting July 9.

The rate hike by CGDs comes after a reduction in March, after the government criticised them for not passing on the benefits of gas reforms to consumers.

Why have CGD companies hiked prices?

For increasing natural gas consumption, the government allocates administered price mechanism (APM) gas, which is partly-subsidised, to CGD companies including MGL and IGL. However, with rising demand and limited domestic availability of this cheaper resource, the companies have to rely on costlier RLNG (regassified liquefied natural gas) or spot gas. CGD companies have hence increased prices in their respective geographical areas (GAs) to partially offset the increase in input costs.

MGL managing director Ashu Shinghal had told Moneycontrol in May that availability of APM gas continues to remain a challenge and he expects a further decline in its supply in the coming months.

The Mumbai-based company on July 8 said that to meet the increasing offtake volume and due to further shortfall in domestic gas allocation, MGL is sourcing additional market-priced natural gas (imported RLNG), resulting in higher cost for the company.

What has been the government stance?

The government had, as mentioned, come down on  CGD companies for enjoying higher margins at the cost of the consumer. In March, petroleum and natural gas minister Hardeep Singh Puri said end users were not benefiting from the government’s reforms while CGDs were continuing to enjoy high profits. He added that the government was willing to consider drastic steps to safeguard consumers' interests.

Around the same time, Petroleum and Natural Gas Regulatory Board (PNGRB) member Gajendra Singh told Moneycontrol that CGD companies are booking higher profit margins, something that the government was concerned about. Singh added that the regulator was advocating for reasonable returns for CGDs but its primary function was to ensure protection of consumers.

What is expected?

Considering the recent price hikes for CNG and PNG, companies are expected to keep gas prices unchanged in the near term. Any further revision in prices, either higher or lower, is expected to be based on allocation of APM gas to city gas distributors.

According to official data, consumption of natural gas in the country has been on the rise in recent months, primarily due to high demand from the power sector. Total gas consumption was 3.6 percent higher in the current financial year till May 2024, over the same two months of the previous year.

The government aims to increase the share of natural gas in the country’s total energy basket to 15 percent by 2030, from 6.7 percent now.