Your piped gas and CNG will cost less now, here is what has changed

The Ministry of Petroleum and Natural Gas on Friday issued a notification stating that the domestic natural gas prices for the period of April 8, 2023, to April 30, 2023, have been set at $7.92/mmbtu. While the gas produced by ONGC (Oil and Natural Gas Corporation) and OIL (Oil India Limited) from their nomination fields will have a ceiling of $6.50/mmbtu on a GCV (Gross Calorific Value) basis for the same period. The domestic natural gas price for the period April 1, 2023, to April 7, 2023, was set at $9.16/mmbtu on a GCV basis.

CRISIL Ratings is of the view that city gas distributors could reduce prices of CNG used by vehicles and PNG used by homes, by 9-11 percent, with the government accepting the key recommendations of the Kirit Parikh Committee.

It believes that had the previous pricing regime continued, prices would have likely risen. The revised gas pricing norms would lend greater stability to gas prices for city gas distributors and sustained competitiveness with alternative fuels, thus driving demand and supporting massive capex plans, it said.

Post the notification, Mahanagar Gas Limited (MGL) announced a reduction in CNG and PNG prices to pass on the benefit of the price cut in the domestic gas cost to its consumers. Accordingly, the price of CNG is reduced by Rs. 8/Kg and Domestic PNG (DPNG) by Rs. 5/SCM in and around Mumbai.

"The reduced MRP of CNG will now be Rs.79.00/Kg and Domestic PNG will be Rs. 49.00/SCM effective from midnight of 07th April 2023/ morning of 08th April 2023," the company said.

MGL’s CNG offers savings of about 49 percent and 16 percent as compared to petrol and diesel respectively at current price levels in Mumbai. Also, MGL’s Domestic PNG will offer around 21 percent savings as compared to the current price of Domestic LPG.

India imports 50 percent of gas in the form of liquefied natural gas (LNG) for its domestic consumption and the rest is produced by domestic players like ONGC, Oil India, Reliance Industries.

The pricing of a major share of gas supplies in the Indian market is controlled and is driven not by the market but a formula set by a committee.

For the gas domestically produced, gas pricing was divided into APM gas and non APM or free market gas. APM gas pricing was fixed on the basis of a formula — weighted average price of four global benchmarks US Henry hub, Canada based Alberta gas, the UK-based NBP, and Russian gas. This was the case for legacy fields.

During COVID-19, gas prices fell globally to multi-year low levels and this led to a fall in domestic prices to as low as $1.79/mmbtu, a negative for producers like ONGC and Oil India. However, this was positive for consuming sectors like city gas distribution companies that produce CNG and PNG which we all use.

This was followed by the Russia Ukraine war. Russia is a big supplier of gas globally and when sanctions were imposed on its exports, gas was not supplied to major consumers. This led to a shortfall in gas supply and ultimately led to record high gas prices globally.

The US and UK witnessed gas prices never seen before. At a point in time, US gas prices almost touched $10/mmbtu and UK gas prices rose 3X from April 2022 to August 2022.

This definitely had an impact on how gas prices are calculated in India. For the October to March 2023 period, gas prices were set at $8.57/mmbtu, an average of global prices. This is the price of the gas used to produce CNG and PNG. The immense cost pressure on city gas distribution companies was then passed on to consumers.

In 2022 itself, CNG prices in Mumbai were hiked from levels of Rs 49.40/kg to Rs 89.50/kg, almost an 80 percent increase. Similar hikes were seen in other regions as well. For industrial customers, like the ceramic industry, cost pressures were so much that they either switched from gas to propane or were forced to shut down the industry as they could not efficiently run their businesses.

The massive increase in gas prices is the reason why the government set up the Kirit Parekh Committee to change the way gas prices are calculated.

The committee proposed fixing a pricing band for gas from legacy fields, which make up two-thirds of all natural gas produced in the country. This would provide a predictable pricing regime for producers and help moderate the prices of CNG and piped cooking gas.

Gas from legacy fields is sold to city gas distributors that raised rates of CNG and piped cooking gas by over 70 percent after prices went up, reflecting a surge in global rates.

The panel’s recommendations have been approved and the new gas prices will be priced at 10 percent of the price of the basket of the crude oil that India imports.

This shall be done every month based on crude prices. To ensure that higher crude prices do not lead to higher gas prices, gas price has been capped at $6.5/mmbtu and to ensure that lower crude prices do not impact producers, the floor has been set at $4/mmbtu.