The government has increased the supply of cheap domestic gas to city gas distribution companies Indraprastha Gas Limited (IGL), Adani-Total and Mahanagar Gas Limited (MGL). These companies have given information about this to the stock markets. Last year i.e. in 2024, the government had reduced the domestic gas allocation for these companies. GAIL India is the nodal agency for domestic gas allocation. City gas retailers get domestic gas allocation to meet the requirement of CNG sales volumes at a price fixed by the government. The price fixed by the government is currently $6.5/mmbtu.
In October and November last year, the government had cut the supply of APM gas (cheap natural gas from old fields like Mumbai High and Bay of Bengal) to city gas retailers by 40 percent in view of limited production. Due to this, city gas retailers had increased the price of CNG used in vehicles by Rs 2-3 per kg and were also planning to increase the price further. Due to cuts in gas allocation, companies had to buy fuel at higher prices, making CNG less attractive compared to alternative fuels like diesel.
How did the government increase the supply?
Subsequently, the Ministry of Petroleum and Natural Gas through its order dated December 31, 2024 rearranged some allocations of gas produced from below ground and below sea level. The ministry has ordered to reduce the supply to public sector companies GAIL and Oil and Natural Gas Corporation (ONGC) for LPG production and divert this volume to city gas retailers.
According to news agency PTI, as per the government order, a total of 2.55 million metric standard cubic meters per day (MMSCMD) of gas is used for LPG production. Of this, 1.27 MMSCMD (0.637-0.637 each for GAIL and ONGC) has been ordered to be diverted for consumption in the CNG/Piped Natural Gas (PNG) segment in the January-March quarter. City Gas Retailers said that supply of increased quantity of APM gas will start from January 16.
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How much allocation increased for IGL, MGL, Adani-Total?
Indraprastha Gas Limited said in a communication sent to the stock exchanges, “As per communication received from GAIL (India) Limited, the domestic gas allocation for IGL has been increased to 31 percent with effect from January 16, 2025.” With this, the share of domestic gas in the CNG segment will increase from 37 percent to 51 percent.
Adani-Total Gas Limited, which retails CNG in Gujarat and other cities, said that the allocation of APM gas has been increased by 20 percent from January 16, 2025. This increase will have a positive impact on the company and will help in stabilizing retail prices for end consumers. Mahanagar Gas Limited, the company that retails CNG in Mumbai and other cities, said that the allocation of domestic gas at APM price has been increased by 26 percent.
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Will LPG become more expensive?
For GAIL and ONGC, the reduced supply will force them to either use high-value gas produced from new fields or rely on imported liquefied natural gas (LNG). LPG produced by these companies is supplied to petroleum companies like Indian Oil Corporation (IOC). IOC uses it as Domestic Cooking Gas (LPG) for cooking gas cylinders used in homes. The government gives subsidy on domestic cooking gas LPG, hence the government will have to bear the burden of high cost of production.