NEW DELHI: The city gas distributors (CGDs) could raise CNG prices following a 20% reduction in their gas allocation under the administered price mechanism (APM), opines industry expert.
Girish Kadam, senior vice-president & group head of corporate ratings at ICRA Limited, explained that the reduction in APM allocation will likely require city gas distributors to source more expensive HPHT gas or LNG, which will increase overall gas costs for the sector.
“In order to maintain contribution margins at existing levels compressed natural gas (CNG) prices would have to be increased by about Rs 5-5.5/kg. The expected price rise may result in slower growth in the CNG vehicle registrations, which have been the key driver of CNG sales volume for the sector,” said Kadam.
Under the APM, the government provides gas at a regulated price far lower than market rates. However, with the reduced allocation, city gas distributors will need to turn to the spot market, where prices are significantly higher. For example, spot liquefied natural gas (LNG) prices currently range between USD 11 and USD 12 per million metric british thermal unit (MMBtu), whereas APM gas is priced at nearly USD 6.5 per MMBtu.
The report of the reduction in APM allocation led to sharp declines in the stock prices of several major gas companies. Shares of Indraprastha Gas dropped by 18.66%, Mahanagar Gas fell 13.45%, Gujarat Gas declined by 6.36%, Adani Total Gas dropped by 2.54%, and Gail (India) saw a dip of 1.40%.
Mahanagar Gas, one of the leading city gas distributor companies, confirmed that its profitability will be adversely affected by the 18% reduction in gas allocation, which took effect on November 16, 2024.
Similarly, Indraprastha Gas reported a 20% cut in its APM allocation, while Adani Total Gas faces a 13% reduction, all of which are expected to negatively impact their financial results.
Indraprastha Gas reports 20% cut in APM allocation
Indraprastha Gas reported a 20% cut in APM allocation, while Adani Total Gas faces a 13% reduction. The report of cut in APM allocation led to fall in stock prices of major gas companies. Shares of IGL dropped by 18.66%, Mahanagar Gas fell 13.45%, Gujarat Gas fell by 6.36%, Adani Total Gas dropped 2.54%, and Gail (India) saw a dip of 1.40%.