 "Gas distributors IGL, MGL likely to raise CNG prices following 20% APM cut")
India’s leading city gas distributors Mahanagar Gas Ltd (MGL) and Indraprastha Gas Ltd (IGL), may raise prices after the government reduced their gas allocation under the Administered Price Mechanism (APM) by 20 per cent. According to a report by CNBC-TV18, this reduction in gas allocation could lead to an increase in compressed natural gas (CNG) prices by up to Rs 6 per litre. On Thursday, the price of CNG in Delhi was Rs 75.09 per kg. CNG prices in India on average fall between Rs 75 to Rs. 89.5 per litre
What is APM gas?
APM gas refers to natural gas that is sold at a government-regulated price, significantly lower than market rates. It is allocated to various sectors, including city gas distributors, to ensure affordability for essential services like compressed natural gas (CNG) and piped natural gas (PNG). A reduction in APM gas allocation forces companies to buy more expensive gas on the open market, potentially driving up prices for consumers.
The reduced APM allocation means that city gas distributors will have to source more of their gas from the spot market, where prices are significantly higher. Spot liquefied natural gas (LNG) is currently priced between $11 to $12 per Million Metric British Thermal Unit (MMBtu), compared to APM gas, which costs around $6.5 per MMBtu. The companies are now faced with the decision of whether to pass on the entire cost increase to consumers or absorb part of it.
Impact of APM reduction
The gas allocation from APM has now dropped to 49-50 per cent from its previous level of 69-70 per cent, with the reduction attributed to a natural decline in domestic gas production and a higher allocation to ONGC Petro Additions Ltd (OPaL), the report said. This development has placed significant pressure on city gas distributors, who rely heavily on cheaper APM gas to keep CNG prices affordable.
In response to the cut, shares of MGL and IGL plunged by up to 14 per cent in intraday trading on the BSE on Friday.
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Despite the recent drop, MGL and IGL have performed well throughout 2024. MGL shares surged 61 per cent up to September 2024, while IGL saw a 33 per cent increase during the same period. In contrast, the BSE Sensex only rose by 15 per cent.