Oil Ministry to divert gas from industries after CNG, piped gas prices jump 70% in a year

The Oil Ministry has ordered the diversion of natural gas from industries to the city gas distribution sector to cool CNG and piped cooking gas prices that have shot up by 70% on the use of imported fuel.

Less than three months after it ordered the use of costlier imported LNG to meet incremental demand for automobile fuel CNG and household kitchen gas PNG, the ministry on August 10 reverted to an old policy of primarily supplying domestically produced gas for city gas operations.

The allocation for city gas operators like Indraprastha Gas Ltd in Delhi and Mahanagar Gas Ltd of Mumbai has been increased from 17.5 million standard cubic meters per day to 20.78 mmscmd, officials said.

The increased allocation will meet 94% of the demand for CNG to automobiles and piped cooking gas to household kitchens in the country.

Previously, about 83-84% of the demand was met and the remaining was met through the import of LNG by GAIL, they said.

Use of domestic gas instead of imported fuel will bring down the cost of raw material and ease CNG and PNG rates, officials said.

The move follows a massive jump in CNG and PNG prices in the country in the last one year as operators used costlier imported LNG. CNG prices in Delhi went up by a massive 74% (from ₹43.40 per kg in July 2021 to ₹75.61 per kg now) while PNG prices rose by 70% (from ₹29.66 per standard cubic meter to ₹50.59 per scm).

Natural gas is the raw material that is used for CNG and PNG. This gas comes from fields such as Mumbai High and Bassein in the Arabian Sea. As the domestic production of gas is insufficient to meet all the requirements, the fuel is imported in the form of Liquefied Natural Gas (LNG) in ships.

To promote the use of cleaner fuel, the government in 2014 included the City Gas Distribution (CGD) sector on the top priority list for receiving gas from older or regulated fields of state-owned ONGC and Oil India.

The CGD was put on a ‘no cut’ priority sector and allocation was made twice a year — in April and October — based on consumption data of the previous six months.

The ministry made such full allocation in March 2021 and thereafter, in May 2022, issued an amendment to the 2014 supply guideline to state that incremental demand over and above the last year’s level would be met through imported LNG.

State-owned gas utility GAIL was asked to average out the price of domestically produced gas and imported LNG every month and supply gas at a pooled price.

This pooled price for August came to $10.5 per million British thermal unit. In comparison, the gas from regulated fields of ONGC is priced at $6.1 per mmBtu (it was $2.9 last year when CNG operators started meeting additional demand through imported LNG).

LNG rates shot up this year, leading to a hike in CNG and PNG prices, officials said.

Spot or current LNG prices have more than doubled in the last few months to about $40 per mmBtu.

With industry saying that CNG was losing an edge over petrol and diesel because of the price hikes, the ministry relented and agreed to increase the allocation of gas from regulated fields, they said.

The allocation for CGD was increased by cutting some supplies to LPG-making plants of GAIL and petrochemical units of ONGC, officials said.

City gas operators complained against the May 2022 guideline as it meant using high-priced imported LNG, which led to frequent CNG and piped natural gas price hikes, they said.

After the latest amendment, the gas price will come down to $7.5 from $10.5, officials said.

“Supply for domestic gas to the CGD entities shall be made only up to the quantity available and allocated to GAIL for CNG (transport) and PNG (domestic) segment instead of 102.5% of consumption level in the previous quarter,” the August 10 order of the ministry said.