CNG prices likely to fall over next few days, say industry executives

Compressed natural gas (CNG) prices will likely fall over the next few days as the overall cost of gas has reduced for city gas companies, according to industry executives who didn’t want to be named.

State-run GAIL will supply natural gas at $8.04 per mmBtu during the second fortnight of May to city gas companies for domestic use and transport, as per executives. This would help companies cut CNG rates by Rs 5-6 per kg, an executive said, adding that the reduction would vary from operator to operator.

GAIL’s supply price is higher than the rate of $6.10 that city gas companies pay for domestic gas but is much lower than the cost they incur in importing gas.





Cheap domestic gas supplies haven’t been able to keep pace with the rising CNG demand as city gas services have spread across the country and more drivers have switched to CNG-driven vehicles to avoid costly petrol. This has prompted city gas distributors to source pricey imports to make up for the domestic supply shortfalls. Rates in the international spot markets have been highly volatile in the past eight months and are currently around $22 per mmBtu.

“Companies with a higher share of imports will benefit more from GAIL’s blended gas price of $8 per unit,” another industry executive said. For many city gas companies, imports comprise about 10-15% although it varies from license area to license area.

CNG prices may also frequently change now as GAIL will likely change prices every fortnight or month depending upon its cost of imports, he said.

The government has recently tweaked its gas allocation policy, mandating GAIL to source gas from domestic difficult fields and international markets to meet the domestic supply shortfall for city gas companies. GAIL needs to supply gas at a uniform blended price based on the domestic and international rates.

The domestic natural gas price doubled on April 1, tracking the rise in international markets. As a result, city gas distributors raised CNG prices by Rs 13-14 per unit. Piped gas used by households also rose although not in that proportion.

The government's new guidelines helped end the uncertainty around gas allocation. "Now it's upon GAIL to ensure that reasonably-priced imported gas is blended with domestic gas to keep overall costs low," said an executive.