Domestic gas prices set for a high stroll on record global rates

The government faces the tough task of deciding on domestic gas prices as the date for the biannual exercise for fixing the prices approaches on September 30. According to sources, prices would likely increase by $9 to $10 per million British thermal units if the government implemented the administered price mechanism (APM) (MBtu). The price cap for gas from high-pressure high-temperature fields (HPHT) will also increase, reaching above $12-12.5 per mBtu. Additionally, the damage will be worsened by the falling rupee. After the significant increase of $6.1 per mBtu (APM gas) in April, CNG prices have already gone up multiple times since October 2021.

Even if APM costs reach $9–10 per mBtu, there’s a likelihood that the companies will just gradually increase their pricing by 3-5 cents per kilogramme. However, because inflation is already higher than what is considered to be acceptable, the government may add a new “variable or component” to the price to offer some relief. The price of APM gas may be in the region of $8-8.5 per mBtu “in case the government decides to lessen the blow with the introduction of a new variable or component to mitigate the impact.

When the Parikh committee produces its findings, which are anticipated to be released soon, this can be evaluated subsequently, the government source noted. In FY23, Crisil anticipates that sales growth would slow to 8–10%. Due to price-sensitive consumers and realisations susceptible to the volatility in LNG prices, the industrial PNG market may suffer the most. Given the sustained competition with alternatives, the CNG segment’s performance would stay solid. Customer loyalty will help the domestic PNG segment’s gradual growth to continue.

Regarding margins, Crisil stated that players have been able to turn around their performance with repeated price increases following a sharp decrease in per unit profitability recorded in Q3 of FY22. However, the price increases have caused gamers to lose money on large-scale sales. Gas prices at Henry Hub (U.S.), Alberta Gas Reference (Canada), NBP (U.K.), and Russia Gas are used to calculate APM over a 12-month period with a quarter-quarter lag. Typically, an increase in gas costs of $1 per mBtu corresponds to a rise in CNG prices of $4–$4.50 per kilogramme. CNG costs 75.61 rupees per kilogramme at the moment in Delhi.

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