Major beneficiaries of CGD on approval of new gas price recommendations

The recommendations include setting a minimum price of $4 per mmBtu (million British thermal unit) and a maximum price of $6.5 for gas produced from old fields such as ONGC Ltd and Oil India Ltd, as well as raising the ceiling price to $0.5 per mmBtu. Increase option is also included. A year ago, this market becomes operational from 1 January 2027.

“The reduction in APM gas prices for CGD is encouraging as they account for 90% of the priority sector demand (Compressed Natural Gas + Piped Natural Gas Domestic),” said Avishek Dutta, Research Analyst, Prabhudas Lilladher. natural gas) prices are positive for Indraprastha Gas Ltd and Mahanagar Gas Ltd, followed by Gujarat Gas, Dutta said.

IGL and MGL depend on a significant portion of the allocation of APM gas to meet their gas distribution requirements. So both will benefit more from lower domestic gas prices. Gujarat Gas, on the other hand, relies heavily on imported LNG (Liquefied Natural Gas) for its gas supply and hence a fall in LNG prices is positive.

Domestic natural gas (APM) price in H2 FY2023 was seen to rise by 40% to $8.57/MMBtu (Gross Calorific Price basis) (from $6.1/MMBtu in H1 FY2023). The increase in domestic gas prices coupled with rising international gas prices meant that CGD had to continue to hike prices for CNG. Gas companies were taking the price hike after the October 2022 APM price hike. The price gap between gas prices and other auto fuels in the form of petrol diesel has been steadily narrowing raising concerns over volume growth.

Lower gas prices could mean lower CNG prices. An analyst with a domestic brokerage said APM gas price will come down to $6.5 per mmBtu from the current $8.6 per mmBtu and thus CNG price could come down by Rs 8.5 per kg. The analyst said profit would be higher if gas prices fall below $6.5 per mmBtu and if companies pass on APM lower gas prices.

Besides, to encourage fresh investments, gas produced from new fields should be given pricing and marketing freedom, which is a positive for Reliance Industries and ONGC, said analysts at Prabhudas Lilladher.

CareAge Ratings said free pricing of domestic gas from difficult fields would attract larger investments from upstream companies, which could lead to higher domestic gas production in the long run.

However, CareAge Ratings believes natural gas realizations to domestic gas producers from older fields may decline to this extent. 23,000 crore in FY24

CareAge Ratings believes that the recommendations of the Kirit Parikh Committee are a great balancing act to protect the interests of gas consumers, city gas distribution companies and gas producers from difficult areas. It will promote the use of natural gas and help the government to control high inflation

The committee has not made any immediate recommendations for HPHT (high pressure high temperature) gas, but analysts expect it to be market driven from January 1, 2026.

With the fall in APM gas prices, GAIL’s feedstock cost for LPG business may also decline, while lower gas prices augur well for increase in gas transmission volumes.