New Delhi: Amid cuts in the allocation of Administered Price Mechanism (APM) gas to City Gas Distribution (CGD) companies, the government has now come out with a new plan for gas allocation to these entities. The Ministry of Petroleum and Natural Gas has tweaked the domestic gas allocation policy to allocate natural gas to Compressed Natural Gas (CNG) and Piped Natural Gas (PNG) retailers two quarters in advance to give them supply visibility. A statement issued by the ministry on Friday said, “From Q1 FY 2025-26, domestic natural gas allocations for CNG (T) and PNG (D) segments will be done on a two-quarter advance basis.”
“Allocation will also now include New Well Gas (NWG) from nomination fields of ONGC and OIL. Estimations by GAIL and ONGC will help ensure supply visibility to CGD entities in advance, enhancing planning and delivery efficiency,” said the Petroleum Ministry.
Instead of auction-based allocation, the New Well Gas (NWG) will be allocated on pro-rata basis quarterly by GAIL. “Auction-based allocation for NWG has been replaced with a quarterly pro-rata allocation to ensure timely and reliable supply. GAIL will allocate NWG to CGD entities in proportion to their requirements, in accordance with prevailing MoPNG guidelines,” said the ministry.
Despite increasing demand in the CGD sector, allocation ratios of domestic gas have broadly been maintained as 54.68 percent of the projected demand was allocated in Q3 FY 2024–25, said the ministry. In Q1 FY 2025–26, 55.68 percent allocation has been made and for Q2 of FY 2025–26, 54.74 percent allocation is projected to be made. “The broad trajectory in domestic gas allocation reflects the Government’s commitment to prioritise public-facing segments like transport and domestic cooking,” said the Petroleum Ministry.
“These strategic measures by the Government will lead to enhanced ability of CGD entities to forecast demand and manage supply efficiently, improved supply predictability and better affordability for CGD companies due to crude-linked pricing. These measures will ensure a stable, affordable, and transparent domestic gas supply system for the critical transport and domestic segments under the CGD network, benefitting millions of urban and semi-urban consumers across India,” said the government.
The decision comes at a time when APM gas allocation to CGD entities has been reduced by about 15-20 percent due to declining production of this category of gas. APM gas is the gas produced from fields handed over to state-run Oil & Natural Gas Corporation (ONGC) and Oil India Limited (OIL) on a nomination basis. Gas produced from these fields is priced at 10 percent of the monthly average rate of the crude oil basket India imports. However, the price is capped at a floor of USD 4/mmBtu and a ceiling of USD 6.75/mmBtu. NWG, on the other hand, is the gas produced from the new wells drilled by ONGC and OIL in the same nomination fields and is priced at 12 percent of the Indian crude oil basket. Sources said that NWG is currently priced at around USD 8/mmBtu.
Since APM gas comes from fields that are maturing and ageing, the production of this category of gas is declining at the rate of 10 percent per annum, said sources. This has reduced the allocation of APM gas to CGD entities by about 50 percent in the last one year. The shortfall has been covered up through allocation of NWG. However, it is still costlier than APM gas — APM gas is priced at USD 6.75/mmBtu and NWG is priced at USD 8/mmBtu — and it increases the input cost for CGD companies.
On April 15, major CGD entities like, Mahanagar Gas Limited (MGL), Indraprastha Gas Limited (IGL) and Adani-Total Gas communicated to the stock exchanges that the allocation of cheaper APM gas has been reduced by about 15-20 percent by GAIL, which is expected to impact their profitability.
However, with crude oil prices on the decline, the gap between the pricing of the two categories of gas is expected to narrow. “As both APM gas and New Well Gas prices are linked to Indian Crude Basket prices, calculated monthly, with the recent decline in crude prices, this allocation of domestic gas would make natural gas more affordable for CNG (T) and PNG (D) consumers,” said the Petroleum Ministry. Even though the pricing gap between APM gas and NWG may grow smaller, however, it would still be costlier than APM gas in any scenario. With declining APM production, its share in the overall allocation has reduced from 51 percent earlier to 34 percent now and is expected to decline further. It remains to be seen whether CGD companies absorb, mitigate or pass on the increased cost of gas to consumers through price hikes.
