Soaring prices of gas might affect the CNG, PNG prices

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New Delhi: After the fuel price surge, prices of gas used for cooking and transportation are expected to soar this year putting consumers in India at the risk of inflated CNG and PNG rates.

As per an assessment of the gas market done by ICICI Securities, prices in the gas futures market are estimated to rise by US$4.1/mmbtu to US $7.35/ mmbtu in HIFY23 and by another US$3.6/mmbtu (49 percent) to US $10.95/MMBtu in H2FY23.

This would mean that three main players supplying CNG and PNG Green Gas (GGL), Mahanagar Gas (MGL), and Indraprastha Gas (IGL) would need to hike CNG prices by 50-56 percent in April-October, 2022 to fully pass on APM gas price rise to keep their margins at lofty levels.

APM gas price was at US $2.3-3.8/mmbtu in FY17- FY22 and bottomed out at the US $2/mmbtu in HIFY22. It is up US $1.22/mmbtu (62 per cent) to US $3.22/mmbtu in H2FY22.

What is interesting is that gas suppliers to CNG and PNG markets have made lofty margins in the pandemic period due to non revision of piped natural gas and compressed natural gas prices during the inadequacy when the cereal gas prices had fallen globally due to demand compression and lockdowns.

Since Q2FY20, gas cost fall for CNG is Rs 5.7/scm vs Rs 1.3-2.2/scm CNG price cut by GGL, MGL, and IGL. Hence, their margin was up 21-84 per cent (Rs 1.4-4.0/sem) to Rs 7.9-13.9/scm in QIFY22 from Rs 4.3-9.9/sem in Q2FY20. In fact, CGD margins are up 44 130 percent since FY14, and 21-84 percent since December 2019 as gas cost fall has not been passed on.

CGD players have not fully passed on the fall since December 2019 and in fact, on occasions, hiked prices to boost margins to make up for covid-caused volume plunge the brokerage report said.