Spot LNG, Domestic Natural Gas Price Drop May Not Lead To CNG, PNG Rate Cut
Since CGD firms have to source almost 20% of their requirement from the spot market or IGX, CNG and PNG price cuts are less likely.
City gas distribution companies are unlikely to cut prices of compressed natural gas and piped natural gas despite a correction in spot LNG and domestic natural gas prices between 20 and 30% from the peak.
The spot prices of liquefied natural gas have dropped from $15–17/mmBtu in November–December to $11–12/mmBtu in January, on the back of high storage levels in Europe, ample supply of gas and less severe winters than expected.
The administered price mechanism of domestic gas has also dropped from the high of $12.12/mmBtu in March last year to $7.82/mmBtu in January, when the prices were aligned to the Indian basket of crude.
However, city gas distribution firms such as Mahanagar Gas Ltd., Indraprastha Gas Ltd., and Gujarat Gas Ltd. have been getting only 78–80% of their quota of domestic gas under the administered price mechanism. The remainder they source from the spot market, where the prices are higher.
They have been sourcing domestic gas auctioned by Reliance Industries Ltd. and Oil and Natural Gas Corp. on the Indian Gas Exchange to meet the shortage in the administered gas quota provided by the Ministry of Petroleum and Natural Gas.
Given that CGD firms have to source almost 20% of their requirements from the spot market or IGX, the likelihood of a price cut in CNG and PNG is minimal, Rajesh Mediratta, managing director and chief executive officer of IGX, told NDTV Profit.
With the growth in demand for CNG and PNG—on account of the proliferation of CGD networks—the APM quota will further go down, forcing CGD firms to source higher volumes from the IGX or the spot market, Mediratta said. "That will keep their margins very tight, giving them little hope for a price cut."
CGD companies might be waiting to see a petrol or diesel price cut and then decide on a CNG price cut, said a Mumbai-based oil and gas analyst with a brokerage. This would help CGD firms maintain a healthy price differential without impacting their margins, the person said on the condition of anonymity.
IGX has carried out 80 auctions for domestic gas on the exchange, aggregating to around 510 lakh mmBtu or around 1,285 MMSCM.
"About 90 entities have purchased cheaper gas at a ceiling price of $10/mmBtu on IGX, as compared to $11 and more in spot markets, including all operating CGD companies, aggregator/marketers like GAIL, IOC, BPCL, HPCL and large industries,” Mediratta said.
The exchange is hopeful that RIL and ONGC will continue to sell gas for several reasons, like new incremental production from newly explored gas fields, part of their portfolio of gas that is stranded due to buyers' take-or-pay and new test fields.
“This will bring sufficient volumes on the exchanges that will also be beneficial for CGD firms, as they can source cheaper gas compared with spot markets,” Mediratta said.
