CNG, PNG prices may go up as government mulls cutting APM gas allocation

The APM gas is sold cheaper to city gas distribution players in the country to ensure essential services such as domestic PNG and CNG.

The allocation of cheaper Administered Price Mechanism (APM) gas to city gas distribution (CGD) companies would be further reduced, effective April 16, senior company officials aware of the matter told Moneycontrol.

The city gas distribution companies including Indraprastha Gas Limited (IGL) and Mahanagar Gas Limited (MGL) will have to review prices of Compressed Natural Gas (CNG) used by vehicles and domestic Piped Natural Gas (PNG), owing to allocation cuts in cheaper APM gas, the sources added.

The APM gas allocation for the state-run IGL would come down to 40 percent for CNG from the current 51 percent, the source told Moneycontrol on condition of anonymity, as an official notification is yet to be released.

“We are worried about the instability in policy (for APM allocation). However, we have been told that APM gas would be replaced by new-well gas,” the aforementioned source said.

The cut in APM gas allocation translates into higher input costs for CGD companies, which could result in another CNG price hike by the companies. “The allocation cut is a surprise as it was to fall over a period as CGD volume growth takes place. The CGDs will further take some price hikes to cover this,” said Harshraj Aggarwal, Executive Vice President at Yes Securities.

Meanwhile, Ashu Shinghal, Managing Director of Mahanagar Gas told Moneycontrol that the company is currently gauging the situation and would review prices eventually.

“We will wait for the final announcement. We will take a call on prices later. We might have to adjust (CNG) prices accordingly,” said Shinghal.

Recent price hikes

The two biggest CGD players increased CNG prices for consumers last week, as the government hiked the price of natural gas derived from old legacy fields. The APM gas prices was increased by 4 percent, or by $0.25 per million metric British thermal units (mmBtu).

IGL, on April 7, increased CNG price by Re 1 per kg and by Rs 3 per kg in Noida and Ghaziabad. Meanwhile, MGL, on April 9, hiked CNG price by Rs 1.5/kg and PNG price by Rs 1/SCM.

APM gas is sold cheaper to city gas distribution players in the country to ensure essential services such as domestic PNG and CNG. The APM gas price has now been raised to $6.75 per mmBtu from $6.50 per mmBtu.

History: APM allocation cuts

In recent months, the government had to cut the allocation of APM gas to CGD companies due to depleting domestic production. In October, the government  reduced APM gas allocation to the CNG segment from 68 percent to 50.75 percent and further to 37 percent in November.

CGD companies had to rely on costlier sourcing options, including High Pressure High Temperature (HPHT) and spot gas, which ate into their margins. In January, APM gas allocation for the CNG segment was raised to 51.48 percent.