Higher allocation to city gas entities to hurt some majors

The govt had decided to raise allocation from domestic fields to city gas entities early this month, from 5.7 mn standard cubic metres a day (mscmd) to 6.4 mscmd

The decision by the ministry of petroleum and natural gas to increase allocation to city gas distribution (CGD) networks might hurt industrial customers such as Reliance, Essar, GAIL and Welspun, among other companies which have allocation in the non-priority sector, said an official source.

The move had led to a cut in compressed natural gas (CNG) prices by Rs 15 a kg. The government had decided to raise allocation from domestic fields to city gas entities early this month, from 5.7 million standard cubic metres a day (mscmd) to 6.4 mscmd. Then, it decided another 1.9 mscmd would be added to this, taking the allocation to CGD networks to 8.3 mscmd.

"This extra allocation would be cut from non-priority sectors like steel, refinery and petrochemicals," said a senior petroleum ministry official.

According to the ministry, an average of 0.2 mscmd would be required for cities across the country. Following the decision, Indraprastha Gas Ltd (IGL) cut its CNG prices by Rs 14.90 a kg to consumers in Delhi and Rs 16.55 a kg in Noida, Greater Noida and Ghaziabad. The consumer price of CNG is Rs 35.20 a kg in Delhi and Rs 40.15 a kg in the latter places. However, the drop would be a short-term relief. With the price of domestic natural gas set to double from the current $4.2 a million British thermal units to $8-8.4 an mBtu, the price of CNG might increase by Rs 5-8 an mBtu, say ministry sources.

"These companies will have to depend on imported LNG (liquefied natural gas) now, which would cost them around $19 an mBtu. This will have a marginally negative impact on these companies," said Dhaval Joshi, research analyst, Emkay Global Financial Services.