More Cuts in Domestic Gas Supply to CNG firms, IGL Says to Impact Profitability

The government has for the second time in a month cut supplies of cheaper domestically produced natural gas to CNG retailers, who have warned of their profitability being hit.

Indraprastha Gas Ltd - the firm that retails CNG to automobiles and piped cooking gas to households in the national capital and adjoining cities - in a stock exchange filing said domestic supplies have been cut by about 20 per cent effective November 16.

Previously, supplies had been cut by about 21 per cent effective October 16.

"Based on another communication received by the company from GAIL (India) Ltd (the nodal agency for domestic gas allocation), this is to inform that there has been further reduction in domestic gas allocation to the company effective from November 16, 2024. The revised domestic gas allocation to the company is approximately 20 per cent lesser than previous allocation which will have an adverse impact on profitability of the company," IGL said.

IGL gets domestic gas allocation for meeting the requirement of CNG sales volumes at the pricing fixed by the government (presently at $6.5 per million British thermal unit).

The alternative to this is to use imported gas, which is twice the domestic rate.

"The company is exploring all options to address the issue," IGL said.

Natural gas pumped from below the ground and from under the seabed from sites ranging from the Arabian Sea to Bay of Bengal within India is the raw material that is turned into CNG for sale to automobiles and piped cooking gas to households.

Production from legacy fields, whose price is regulated by the government and which are used to feed city gas retailers, has been falling by up to 5 per cent annually due to the natural decline that has set in. This has led to supply cuts to city gas retailers.

While the input gas for piped cooking gas that households get is protected, the government has cut supply of raw material for CNG. Gas from legacy fields used to meet 90 per cent of the demand for CNG in May 2023 and has progressively fallen. The supply was cut to just 50.75 per cent of the CNG demand beginning October 16 from 67.74 per cent last month. Now it has further been reduced.

Buying imported and costlier liquefied natural gas (LNG) to make up for the shortfall may lead to a hike in CNG prices that varies from Rs 4-6 per kg, sources said.

For now, the retailers have not raised CNG rates as they are engaged with the Ministry of Petroleum and Natural Gas to find a solution, they said.

CNG price hike is also a political issue since Maharashtra goes to the polls next week and elections are also due in Delhi soon. Delhi and Mumbai are among the biggest CNG markets in the country.