Mahanagar Gas may have to increase CNG prices, says MD Ashu Shinghal

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Mahanagar Gas Ltd (MGL) is evaluating an increase in the price of compressed natural gas (CNG) after the government hiked the APM gas price, managing director Ashu Shinghal told Moneycontrol.

“We are currently evaluating the situation. We may have to hike (CNG) prices. We, as of now, are calculating the increase in our input costs,” Shinghal said.

On April 1, the government hiked the price of natural gas derived from old legacy fields, known as the Administered Price Mechanism (APM), by 4 percent, or by $0.25 per million metric British thermal units (mmBtu).

This gas, primarily produced by state-owned Oil and Natural Gas Corporation (ONGC) and Oil India Ltd, is crucial for supplying piped cooking gas to households and manufacturing CNG for vehicles.

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 APM gas price has been raised to $6.75 per mmBtu from $6.50.

Shinghal said the APM gas price hike was in line with the Kirit Parikh committee recommendations — a government panel that suggested a domestic gas prices formula.

Shinghal, however, refrained from commenting on the timeline of the CNG price hike.

Based on the recommendations of the Parikh committee, the Union cabinet in 2023 approved a pricing formula linking domestic natural gas prices to 10 percent of the monthly average import price of crude oil, with a floor of $4 per mmBtu and a ceiling of $6.5 per mmBtu.

The latest hike comes after a gap of two years.

Lower APM allocation

In recent months, the government had to cut the allocation of APM gas to city gas distribution (CGD) companies due to depleting domestic production.

The government on October 16 reduced APM gas allocation for the CNG segment from around 68 percent to 50.75 percent and further to 37 percent on November 16.

CGD companies had to rely on costlier sourcing options including High Pressure High Temperature (HPHT) and spot gas, which hit their margins.

However, in January, APM gas allocation for the CNG segment was raised to 51.48 percent.

CGD companies’ bottom line was hit by higher input costs, as the gas players had to rely on costlier sourcing options including HPHT and spot gas, which affected their margins.