Gas Price Hike: CNG Prices Likely To Rise By Rs 8-12, Household Piped Gas By Rs 6 Per Kg

Gas Price Hike: CNG prices are expected to rise by Rs 8-12 per kg, while household piped gas prices will rise by Rs 6 per kg.

Economists predicted that CNG prices would rise by 8 to 12 rupees per kg and that gas piped to household kitchens would rise by more than 6 rupees per unit, according to a report by news agency PTI. The development comes after the government raised the price of input natural gas to a record high last week. Given the sharp increase in gas prices over the last year, CNG and piped natural gas (PNG) charges were also expected to rise.

Natural gas prices rose 40% to a record high on Friday, reflecting a global firming of energy prices.

The price of APM gas, or gas produced from old fields, was increased by the government last week from USD 6.1 to USD 8.57 per million British thermal units. Gas generated from challenging fields now costs USD 12.46 per mmBtu instead of USD 9.92.

Natural gas is used to generate electricity, fertilizer, power automobiles, and be piped into household kitchens for cooking. Two-thirds of the gas produced in the nation is APM gas. For usage in cars, this gas is transformed into CNG, and it is also pumped into homes' kitchens for cooking.

Kotak Institutional Equities said that the APM gas prices have increased more than five times in a year, from USD 1.79 per mmBtu through September 2021 to USD 8.57. "We expect CGDs to raise prices, but only in tranches, affecting near-term earnings," PTI reports. For every increase in the USD per mmBtu gas price, city gas distribution (CGD) organisations may raise the price of CNG by Rs. 4.7-4.9 per kg.

"For USD 2.5 per mmBtu price rise, and also for recent currency weakness, CGDs will need an immediate CNG price increase of Rs 12-14 per kg," it said adding CGDs cannot absorb gas price increases.

In the past, CGDs have been able to pass on all cost increases, and per unit margins have been on long-term rising trends for CGDs.

Piped cooking gas, also known as PNG, and CNG prices, according to ICICI Securities, will need to be raised by Rs 6.2 per standard cubic metre and Rs 9-12.5 per kg to fully reflect the impact of these high input costs.

"At best, we expect a slow and gradual pass-through of these costs during the third quarter (October to December)," it said.

According to Jefferies, Indraprastha Gas Ltd, which sells CNG and PNG in the national capital, will have to raise CNG prices by Rs 8 per kg, while Mahanagar Gas Ltd, which sells CNG in Mumbai, will have to raise prices by Rs 9.

"This would reduce CNG's discount to petrol/diesel from 45/30 per cent to 40/20 per cent for IGL. Similarly, the discount for MGL would reduce from 45/30 per cent currently to 40/20 per cent," it said. "This could impact volume growth." As a key producer of domestic APM gas, a sharp 40 per cent increase in price is positive for upstream producers ONGC and Oil India. The price hike will boost ONGC's earnings by about 16 per cent, Kotak said.

"However, we believe that such high prices will not last. Furthermore, there is a risk that the government will reduce benefits by imposing additional taxation, such as the recent windfall tax on oil prices," it stated.

However, unlike APM gas, higher rates for gas from new and difficult fields can be sustained. Reliance Industries Ltd, which has the most new gas production, stands to benefit the most, reports PTI. 

(With Inputs From PTI)