CNG and piped cooking gas costs in areas like Delhi and Mumbai may be raised by 10-11 percent next month, according to ICICI Securities, as the government-mandated gas price is expected to jump by approximately 76 percent.
Every six months, the government sets the price of natural gas generated by companies like the state-owned Oil and Natural Gas Corp (ONGC) from fields provided to them on a nomination basis, based on rates used in gas-surplus countries. On October 1st, the next review is due.
The price, known as the APM or administered rate, will rise from USD 1.79 to USD 3.15 per million British thermal unit (mmBtu) from October 1, 2021 to March 31, 2022, according to the brokerage.
The price of gas from deepwater fields like Reliance Industries Ltd’s KG-D6 and BP Plc’s KG-D6 would rise to USD 7.4 per mmBtu next month.
Natural gas is the basic ingredient that is compressed into compressed natural gas (CNG) for use as a fuel in automobiles or as a cooking fuel in homes.
“The expected surge in APM gas prices would present a challenge to city gas distribution (CGD) players as it would mean a rise in their gas cost for CNG and residential piped natural gas,” it said. “APM gas price rise would mean hefty price hikes would have to be made by IGL (that retails CNG in national capital and adjoining cities) and MGL (which retail CNG in Mumbai) in the next one year.”
The city gas distributors (CGD) “would have to make price hikes of 10-11 per cent in October,” ICICI Securities said in a report.
The APM gas price is expected to rise to USD 5.93 per mmBtu in April 2022 to September 2022, and to USD 7.65 in October 2022 to March 2023, based on international market trends.
This would result in a 22-23 percent increase in CNG and piped natural gas prices in April 2022, and an 11-12 percent increase in October 2022, according to the report.
“Rise in APM gas price from USD 1.79 per mmBtu in H1FY22 to USD 7.65 per mmBtu in H2FY23E would mean MGL and IGL would have to make price hikes of 49-53 per cent during October 2021 to October 2022,” it said. “CGD players may be able to make the required hefty price hikes given sharply higher prices of competing fuels, petrol and diesel. However, some hit to prevailing lofty margins of MGL and IGL cannot be ruled out.”
The increase in gas prices will help ONGC and Oil India Ltd, as well as private enterprises like Reliance Industries Ltd, increase their profit margins.
