City gas distribution companies can reduce
prices of compressed natural gas (CNG), used by vehicles, and piped natural gas
(PNG), used by homes, by 9-11 per cent, with the government accepting the key
recommendations of the Kirit Parikh Committee.
"This revised gas pricing norms would lend greater stability to gas
prices for city gas distributors and sustained competitiveness with alternative
fuels,
thus driving demand and supporting massive capex plans," research firm
CRISIL said in a statement.
It added that had the previous pricing
regime continued, prices would have likely risen. Sustained competitiveness
and stability in pricing are likely to drive city gas consumption, it said.
“APM prices declining to $6.5/mmBtu could
mean a 9-11% cut in CNG and PNG prices, assuming companies pass
on the benefit to end-consumers," said Naveen Vaidyanathan, Director,
CRISIL Ratings.
In contrast, as per the earlier APM regime, gas prices could have risen further
to $10-11/mmBtu for the first half of fiscal 2024 from $8.57/mmBtu for the six
months ended March 2023, necessitating a price increase, in turn, for city gas
distributors to maintain profitability.
So far, the price of gas produced from
fields covered under the Administered Price Mechanism (APM) regime — which accounts for 70 per
cent of domestic gas production — was determined semi-annually based on a formula that
benchmarks it to average international prices at four gas trading hubs. Under
this, gas is provided to CGD firms for supply to CNG and PNG segments, which
together account for 60 per cent of their sale volume.