Gas for LPG set to be diverted to city gas distribution companies

The latest order instructs ONGC and GAIL to divert 0.637 MMSCMD of gas, currently utilised for LPG production, towards CGD. Currently, 2.55 MMSCMD of gas is used for LPG production

The Petroleum and Natural Gas Ministry has asked GAIL and ONGC to divert 1.27 million metric standard cubic meters per day (MMSCMD) of natural gas to city gas distribution (CGD) firms. Natural gas from new wells will be allocated proportionally on the basis of volume, according to an official order issued on December 31.

 

The latest order directs the firms to divert 0.637 MMSCMD of gas, currently utilized for LPG production, towards CGD. Currently, 2.55 MMSCMD of gas is used for LPG production.

 

The move comes as a remedial measure after the Centre had cut the administered price mechanism (APM) allocation to CGD players by 20 per cent in two successive months till November last year. This had led to city gas retailers hiking CNG prices by Rs 2-3 per kg as they had to replace the supply with more expensive non-APM gas or imported liquefied natural gas (LNG).

 

 

CGDs receive gas from older fields. On the other hand, gas from new wells follow a formula linked to Indian crude oil prices. Currently, there is a ceiling price of $6.5 per metric million british thermal unit (MMBtu) for APM gas, which may be increased yearly by about $0.5 per MMBtu till 2027. Meanwhile, the gas produced from new wells costs an additional $2.

 

About 83.3 per cent of India's natural gas is produced by ONGC and OIL, while the remaining 16.7 percent was by private companies and joint venture entities.

 

Suffering natural decline, the share of APM gas has been declining consistently, and the Centre has been reducing the allocation of APM gas to CGD companies due to a decline in overall gas volumes. In a report to the government, the Kirit Parikh committee last year said India should have a completely free and market-determined pricing for natural gas extracted from legacy fields and remove all caps by January 1, 2027. 

 

However, the demise of APM gas could be even earlier. Global brokerage firm Jefferies had earlier predicted that domestic gas allocations could be completely phased out by mid-2025.

 

Shares of ONGC climbed 5.11 per cent to Rs 258.65, while shares of ONGC advanced 3.6 per cent to Rs 480.4.