New gas pricing norms can reduce CNG, PNG prices by 9-11 per cent

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.