New Delhi
The gas procurement costs for city gas distribution (CGD) companies are projected to increase by Rs 2-3 per kilogram due to a recent reduction in the allocation of input natural gas under the administered price mechanism (APM). This reduction was announced by GAIL (India) Ltd, which oversees domestic gas allocation, and is effective from October. Rating agency said on Wednesday.
Currently, CGD companies receive priority access to APM gas at lower prices for compressed natural gas (CNG) and piped natural gas (PNG) intended for domestic use. However, the allocation for the CNG segment has been cut by 20%, reducing the available APM gas to approximately 50% of the CNG requirement, down from 70%.
Analysis indicates that CGD companies will have to source gas from more expensive options, such as high-pressure, high-temperature (HPHT) gas fields or imported liquefied natural gas (LNG). The current APM gas price stands at USD 6.5 per metric million British thermal unit (MMBtu), while HPHT and LNG prices are significantly higher, at USD 9.5 and USD 11-12 per MMBtu, respectively. Consequently, the cost of input gas for the CNG segment could rise by Rs 3.5-4.5 per kg, although the overall impact on CGD procurement costs is expected to be lower, at Rs 2-3 per kg, due to the CNG segment constituting about 60% of total CGD sales.
