Blending of compressed biogas (CBG) with compressed natural gas (CNG) and piped natural gas (PNG) would not impact their prices, said Ashu Shinghal, Managing Director, Mahanagar Gas Limited (MGL).
In an interview with Moneycontrol, Shinghal said that initially the quantum of biogas blended would be too low to impact CNG and PNG prices. In the interim Budget presented on February 1, Finance Minister Nirmala Sitharaman had said that blending of CBG in CNG and PNG would be made compulsory.
The Finance Minister, without disclosing the amount, had added that the government would provide financial assistance for the procurement of machinery to help in biomass collection.
In November 2023, the government announced the blending of CBG in a phased manner to promote the consumption of biogas. The government said the CBG blending obligation (CBO) would be voluntary till financial year 2024-25 (FY25), and mandatory from FY25-26. The CBO would be kept at 1, 3, and 4 percent of the total CNG / PNG consumption for FY25-26, FY26-27, and FY27-28, respectively.
Shinghal added that currently MGL is also not planning to cut CNG / PNG prices on account of lower availability of APM (administered pricing mechanism) gas.
Edited excerpts from the interview below:
How do you see the interim budget for the gas industry?
I think it is a positive budget. One major announcement is the blending of CBG in CNG and PNG. For this, availability (of biomass) has to be ensured, more CBG plants need to be put up, and capex will be required. For MGL, it is good that we are planning a CBG plant along with the BMC (Brihanmumbai Municipal Corporation), which will be commissioned in 1.5 years and go a long way towards meeting budget requirements.
What is the CBG plant you are setting up?
We have signed an MoU (memorandum of understanding) with the BMC and are putting up a CBG plant that can handle 1,000 tonnes of municipal waste per day. Currently, we are finalising the concession and land leasing agreements. We hope to commission the plant towards the middle or second-half of the next calendar year.
How would CBG blending impact CNG / PNG prices?
Right now, the impact will be very low because it depends on the quantity of CBG which will be pushed into the network. First, the plant should be put up, then the quality of the CBG has to be ensured, and then it will be blended. Further, domestic gas production is coming down, which is increasing the burden on CGD (city gas distribution) companies. So maybe some of the shortfall can be compensated with local CBG. But it is not going to have a major impact (on prices) because the quantity is very small. So till we have critical mass and actual CBG producers, the impact will be rather negligible.
Additionally, the price of CBG is expected to be almost on par with APM gas, or slightly costlier. The government has a synchronisation scheme wherein the CBG is pushed into the APM gas, and then that gas is allocated to the CGD companies. So, there won't be much of a price impact.
What challenges do you foresee in setting up CBG plants?
I have not done an overall analysis but talking about Mumbai, but we have sufficient feedstock for running this plant which we are planning to set up, and there is potential to put up one more of similar or higher capacity.
As of now, Mumbai produces around 7,500 tonnes of waste per day. Of this, around 4,000 tonnes is wet waste, which is required for CBG production. So, there is ample feedstock to put up another plant of similar capacity in future. But first, we are targeting to complete this plant, get the land allotment and concession agreement. Once that starts, we will take up the next opportunity with BMC.
Can consumers expect a cut in CNG or PNG prices in the near future?
No. For one, the availability of APM gas is slightly low. So we will take a call depending on the prices of petrol and diesel, and the comfortable delta which we need to maintain. Additionally, margin, procurement cost, and availability of APM — all these will be taken into consideration before we take such a decision. Right now, there is no plan to change the prices.
In Q3, on a yearly basis, MGL reported high profits, while on a quarterly basis, they slipped. Why?
Profits have improved year-on-year (YoY) primarily because last year we purchased a lot of spot gas for as much as $31 per MMBtu (metric million British thermal unit). Now, the supply is met through APM gas as priority sectors are allotted APM and HPHT gas. So, the weighted cost of procurement has come down substantially. That is the main reason for the Q3 YoY profits.
Compared to Q2, Q3 profits slipped as in the last one and a half months , the quantity of APM gas available has come down, and therefore we had to mix more HPHT gas. Consequently, the margins have slightly reduced.
What are your performance expectations from Q4 and the upcoming financial year?
Some of the shortfall in the APM gas supply has been plugged. So we think that Q4 will be similar to Q3. We don’t exactly know what will happen next financial year. It mainly depends on the E&P (exploration & production) companies. But one good thing is that HPHT gas is available in sufficient quantities to compensate for the reduction in APM gas. We don't think there will be a major difference between this financial year and the next one.
What are your volume expectations from the next financial year?
Because of the recently launched schemes, I believe volumes will pick up in the next financial year. We have seen some volume growth in Q4, and next financial year, we will definitely see some more. We think 6-7 percent volume growth should be achievable next financial year.
Vehicle conversion schemes and incentives for the purchase of new CNG vehicles should help generate more volumes. Plus, there will be more CNG infrastructure, which will make people more confident about purchasing CNG vehicles; CNG commercial vehicles are expected to increase on the highways too.
You recently completed your first acquisition, Unison Enviro. Do you have more expansion plans in the future?
Yes, we recently completed the acquisition. The company is formally a subsidiary of Mahanagar Gas Limited, and we think that it is a positive for the company as we got three GAs (geopraphical areas) at one go. We will review the company’s performance and see how we can add value.
Regarding expansion plans, we are thinking of adding another 50 CNG stations this year, and similar targets will be set for the next financial year. This year, we are also adding another three lakh PNG connections.
We are scouting for opportunities, but acquisitions take time. As and when we have something, we will announce it. Right now, there is nothing as such, but we are in discussion with multiple parties.
What is the impact of the Middle East crisis on LNG prices and the natural gas market in general?
Whatever apprehensions were there have not actually come to pass, which is good. Prices are stable for spot LNG, and crude (oil) is also more or less stable. Hope things will continue in the next financial year in the same fashion.
What is your outlook on gas prices?
Stable, most likely, because they have been stable the last six-seven months in spite of all the problems. I think the worst is behind us.
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