Government's Gas Supply Cut Shakes Up City Distributors

The government has reduced the supply of lower-cost Administered Price Mechanism (APM) gas to city gas distributors by up to 20 percent, leading to increased costs as more expensive alternative gas sources are used. This move is causing profitability concerns among major distributors like Indraprastha Gas Ltd and Adani Total Gas Ltd.

The government has significantly slashed the supply of lower-cost APM gas to city gas distributors, including Indraprastha Gas Ltd, Mahanagar Gas Ltd, and Adani Total Gas Ltd, by up to 20 percent, filling the shortfall with pricier fuel options.

State-owned nodal agency GAIL (India) Ltd announced the cut affecting gas from legacy fields. The declining production of APM gas, priced currently at USD 6.75 per million British thermal unit, is exacerbating the situation as older fields yield less. New drilling efforts by Oil and Natural Gas Corporation (ONGC) raise costs further, leading to higher prices for newly produced gas, now termed as new well gas.

The reduction has resulted in a substantial decrease in APM gas supply for city gas retailers, pushing them to cover only about 34 percent of their requirement now. This scenario is squeezing profits for the companies, who are exploring ways to manage the impact of the costlier input, risking potential CNG price hikes.

(With inputs from agencies.)