India introduces advance and pro-rata gas allocation system for CNG and PNG segments

The Indian government has introduced reforms to the domestic natural gas allocation policy to improve availability, affordability, and predictability of gas supplies to CNG and PNG segments. Beginning in Q1 FY2025-26, allocations will be made two quarters in advance, and a quarterly pro-rata system will be used for New Well Gas allocation. The move aims to ensure timely and reliable gas supplies to these segments, with projected allocation ratios maintained at 54.68-55.68%. The pricing of APM gas and New Well Gas remains linked to the Indian Crude Basket, making domestic gas more affordable for CNG and PNG consumers.

The Indian government has introduced significant reforms to the domestic natural gas allocation policy, aiming to enhance the availability, affordability, and predictability of gas supplies to the compressed natural gas (CNG) and piped natural gas (PNG) segments. Effective from Q1 FY2025-26, the new policy introduces a two-quarter advance allocation system and a quarterly pro-rata system for New Well Gas (NWG) allocation. These changes are designed to ensure timely and reliable gas supplies, with projected allocation ratios maintained at 54.68-55.68%.

The pricing of both APM gas and NWG remains linked to the Indian Crude Basket, making domestic gas more affordable for CNG and PNG consumers. This reform is part of broader efforts to stabilize the energy sector and support economic growth.

In response to the recent policy changes, city gas distribution (CGD) firms like IGL, MGL, and Adani Total Gas have indicated potential price hikes for CNG. The reduction in cheaper APM gas allocation, coupled with the shift to costlier NWG and the impact of the EV policy, could lead to price increases of Rs 1.5-2 per kg [1]. Analysts predict that these hikes are necessary to compensate for the reduced allocation and higher procurement costs.

The government's decision to cut the APM gas allocation by up to 20% has significantly impacted the profitability of CGD companies. The shift to NWG, which is more expensive, has further exacerbated the financial strain. While some relief was provided in January, the latest cut nearly reverses the entire relief, leaving CGD firms with reduced allocations and higher costs.

The EV policy introduced by the Delhi government is also expected to weaken the growth outlook for the CNG segment. Similar policies in other metros could further impact demand and margins for CGD firms.

The new policy aims to address these challenges by providing more predictable and reliable gas supplies. However, the immediate impact on CGD firms and consumers remains uncertain, with potential price increases and reduced demand outlook. The success of these reforms will depend on how effectively the government manages the transition and mitigates the adverse effects on the energy sector.

References:

[1] https://www.financialexpress.com/business/industry-cgd-firms-may-hike-cng-prices-by-rs-1-5-2kg-3813008/