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Why City Gas Distribution Companies Want Greater Freedom to Source Gas Supplies

Why City Gas Distribution Companies Want Greater Freedom to Source Gas Supplies

Natural gas supply guidelines have been amended, but industry wants greater freedom to source supplies from the free market

Allocation of natural gas to CGD companies will now be done quarterly for better evaluation of consumption patterns Allocation of natural gas to CGD companies will now be done quarterly for better evaluation of consumption patterns

In a bid to provide relief to city gas distribution (CGD) companies, the Ministry of Petroleum and Natural Gas has revised the guidelines for domestic supply of compressed natural gas (CNG) for transport and piped natural gas (PNG) for domestic use. Allocation of natural gas to CGD companies will now be done quarterly for better evaluation of consumption patterns, instead of on the basis of demand in the first three months of the pandemic, when most economic activities had dipped, and both demand and supply had shrunk.

“It’s a welcome step…we hope that this step, along with meeting the growing demand from the middle-class segment, will help in maintaining the attractiveness of CNG and cooking gas,” an industry source says in a guarded response, declining to be named.

The government’s move follows a report by Business Today explaining how price escalations and shortages could potentially dent Asia’s third-largest economy’s plans to double the share of gas in its energy mix. Why? When economic recovery began after the pandemic, demand for gas spiked, but supply did not rise in tandem. This caused a shortage, inflating domestic gas prices by 62 per cent in October 2021, and by 110 per cent on April 22, an increase from $1.9 to $6.1 per metric million British thermal unit (MMBtu).

To bridge this shortfall, GAIL, which supplies both CNG and PNG to CGD operators like Indraprastha Gas and Gujarat Gas, will source domestic high pressure, high temperature gas at a competitive ceiling or actual price, for blending with administered price mechanism (APM) or non-administered price mechanism (NAPM) gas. APM gas, which is subsidised by the government, is sourced from onshore domestic gas fields managed by ONGC and Oil India Ltd. NAPM gas, which is not subsidised, comes from onshore and offshore domestic and foreign gas fields. GAIL will also source long-term regasified liquefied natural gas (RLNG) from the global market, failing which spot RLNG may be sourced for mixing with available APM or NAPM gas.

Sources confirmed that GAIL, from May 16, has started supplying blended gas at $8.04 per MMBtu.

Not everyone is happy about it. “The policy lacks clarity... there is no perceived benefit of sourcing through GAIL. All non-APM gas is anyway on a free-market basis. Many CGDs like Gujarat Gas, Torrent and Adani Total already have some kind of internal gas sourcing pacts, and they may want to use that instead of sourcing through GAIL,” says Swarnendu Bhushan, Senior Group Vice President at Motilal Oswal Financial Services.

Plus, the CGD segment is expected to grow sharply because of its low cost compared with petrol, diesel or LPG. To leverage this opportunity, the CGD industry feels the government should allow operators to expand their gas sourcing from the free market, instead of depending more on GAIL. Time for another amendment, perhaps? 

 

@manishpant22