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While state-owned gas major GAIL has slashed the allocation of administered price mechanism (APM) gas by up to 20 per cent, it has replaced the same with equal or higher volumes of pricier New  Well Gas (NWG), city gas distribution (CGD) firms said. While CGDs said the move will hit their profitability, petroleum ministry officials said the move was to be expected and is in line with the government's ongoing effort to reduce the share of APM gas.

 

From Wednesday, GAIL has slashed APM gas allocation by 18 per cent and 20 per cent, respectively, to Mumbai-based Mahanagar Gas Ltd and Delhi-based Indraprastha Gas Ltd, while Adani Total Gas Ltd, which serves areas in Gujarat, will now get 15 per cent less APM gas, the companies said in separate stock exchange filings. But GAIL will also provide up to 1.25 times the allocation it has cut, through NWG to IGL, while the other two CGD firms will see their volumes replaced.

 

 

But considering that NWG is priced at 12 per cent of the Indian crude basket, the CGDs would have to fork out more for their gas purchase.

 

Moving towards market prices

CGDs receive gas from older fields, called the regulated or APM gas, at prices determined by the government. On the other hand, gas from new wells follows a formula linked to Indian crude oil prices. Currently, there is a ceiling price of $6.5 per million British thermal units (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 more. In its widely anticipated 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.

 

"The share of APM gas has been declining consistently, mostly suffering natural decline. The government has therefore been reducing its allocation to CGDs since there is a decline in overall gas volumes. This was along expected lines," an official said.

 

The latest move comes two and a half months after the petroleum and natural gas ministry had asked state-owned GAIL and ONGC to divert 1.27 million metric standard cubic metres per day (mmscmd) of natural gas to CGD firms. Natural gas from new wells will be allocated proportionally on the basis of volume to companies, an official order issued on December 31 last year had said.

 

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).