The Oil Ministry has not made any new natural gas allocations from domestic fields to the municipal gas industry, sending CNG and pipeline gas prices to record highs, but the ministry asserts that the allocation Addition has not been stopped and more supply to the industry will lead to cut supply to industries such as electricity and fertilizers.
Despite the decision of the Union Cabinet to dedicate 100% of gas supplies under a ‘no cut’ priority to the municipal gas distribution (CGD) sector, current supply is at the level of demand in March. 2021. This has forced the city’s gas operators to buy imported LNG at high prices to make up for the shortfall, resulting in a record price spike, three people familiar with the matter said.
Commenting on the matter, the ministry said it is “awaiting updated data for the October 2021 to March 2022 period from CGD institutions for the April 2022 allocation. It has not been received yet. data from organizations”.
The department is supposed to allocate domestic natural gas, which costs one-sixth of imported LNG, every six months – in April and October each year – based on verified demand over the past six months. previous month. But no allocations have been made as of March 2021, the sources said.
In response, the ministry said: “Based on consumption data from October 2020 to March 2021, the allocation for April to October 21 has been revised in accordance with the guidance of April last year.”
CGD operators have asked the Department to maintain gas supplies to the industry that have not been cut at the average of the past 2 months to ensure that demand for both CNG and pipeline natural gas (PNG) is met. adequate response to households but the ministry has yet to release any new information. sources said have allocated more than a year now.
“CGD units have requested quarterly allocations. This is also under review,” a ministry spokesman said. “Additional allocations to CGD will require supply cuts to competing demand centers such as fertilizer, electricity, LPG plants.”
Besides the shortfall in allocation, price management mechanism (APM) gas prices for CNG and PNG were adjusted from $2.90 per million British thermal units to $6.10, an increase of 110 %.
While demand is growing at a rapid rate in existing cities with CNG networks and supply starting in newer regions, the lack of allocation from domestic sectors means operators purchased imported liquefied natural gas (LNG) at a price at least six times higher than the domestic price. .
Result – CNG prices increased by 60% or more Rs 28/kg in a year and PNG increased by more than 1/3.
Sources say this has put a question mark on the economic viability of the entire CGD area, putting at risk a planned Rs 20,000 investment to expand into newer cities as high prices drive CNG is roughly on par with diesel and gasoline, eroding the incentive for users to switch vehicles to cleaner fuels.
The city’s gas projects are needed to meet the government’s goal of raising the share of eco-friendly natural gas in the country’s primary energy basket to 15% by 2030 from 6, 7% today.
The sources said that cutting domestic gas supplies for such projects would affect progress towards the goal.
On August 20, 2014, the Ministry of Oil issued revised guidance, promising to allocate gas from domestic fields to municipal gas operators every six months based on a demand assessment of gas fields. CNG and PNG in a specific geographic area (GA).
This has been used as a point of sale for bidding for over 200 GA since 2018, attracting over Rs 2 lakh committed investment in the implementation of the city gas distribution infrastructure.
But the gas allocation is not increased at the April 2021 review and subsequent cycles, they said, in addition to the standard 22 million cubic meters of gas per day requirement, the CGD sector is receiving 17 mmscmd from domestic mines.
They said the balance is met by buying imported LNG, which in the current month is priced at $37/mmBtu. This compares to the $6.10/mmBtu rate for domestic gas.
“Domestic gas prices have increased sharply by 110% – from 2.9 USD/mmBtu to 6.1 USD from April 1. This in itself poses a great burden and, above all, is forced to buy imported LNG with Higher prices will drive the sector, a source said.
The new GAs tendered in CGD Rounds IX, X and XI are now coming and no gas allocation has been made meaning they will have to purchase imported LNG to supply as CNG to cars and PNG for home kitchen.
Another source said: “GAs with imported LNG will mean a price of Rs 100-105/kg”.
This compares with prices of Rs 71.61 per kg in Delhi and Rs 72 in Mumbai, where almost 70% of the requirements are met by domestic gas.
“The CGD sector is in a bad shape. It has faced an onslaught of EVs and now high CNG prices will be a deterrent to bids for diesel or petrol vehicles to convert to CNG.
“CNG is an eco-friendly fuel but ultimately what’s important is cost economics and if the conversion and operating costs are higher than diesel or gasoline, then no one will convert,” said the first source. said.
Earlier this month, CGD executives met with Oil Minister Pankaj Jain on the matter.
“The Department only listens to CGD entities and does not make any recommendations/decisions,” said a ministry spokesperson.
The ministry did not increase its allocation to the CGD sector as that would mean cutting supply to other sectors such as fertilizers.
“The domestic gas supply is finite. If we have to increase the supply of one sector, it will come at the expense of supplying other sectors. The government is facing a subsidy bill. fertilizer supply is higher this fiscal and the subsidy will increase further if fertilizer plants will use higher priced imported LNG to make urea and other crop nutrients,” a ministry official said.
(Except for the title, this story has not been edited by NDTV staff and is published from an aggregated feed.)