New Delhi, April 18 -- India's top oil and gas producer ONGC has seen a drop in natural gas production from aging fields that supply CNG and piped cooking gas, resulting in supply reductions for city gas distributors like IGL, MGL, and Adani-Total, officials said.
Oil and Natural Gas Corporation (ONGC) is offsetting the natural decline in output from ageing gas fields by drilling new wells. However, gas from these new wells is sold at a higher price to cover the added costs, officials said.
Natural gas extracted from the ground and seabed is converted into CNG for vehicles and used as cooking fuel when piped to households. Gas from fields allocated to ONGC on a nomination basis is priced by the government and referred to as APM gas. This APM gas serves as the feedstock for city gas distributors.
APM gas is priced at 10 per cent of the monthly average rate of the crude oil basket India imports for its energy needs. However, the price is capped with a floor of $4 per million British thermal units and a ceiling of $6.75. Gas from new wells drilled by ONGC in the same nomination fields is priced at 12 per cent of the Indian crude oil basket.
Officials said ONGC sells that APM gas to state-owned GAIL (India) Ltd, which makes onward supplies to city gas retailers like Indraprastha Gas Ltd, Mahanagar Gas Ltd and Adani-Total Gas Ltd. The APM gas is currently priced at $6.75 per MMBtu. With production falling, GAIL intimated the city gas retailers of up to 20 per cent cut in APM gas supplies effective April 16. The lost volumes were made good by supply of new well gas, they said.
This month, ONGC added about 3 million standard cubic metres per day of new well gas for supplies to city gas companies. This made up for an almost equivalent decline in lower priced APM gas production.
With this, ONGC's new well gas supplies have almost doubled to 6.8 mmscmd.
Officials said of the 22-23 mmscmd of APM gas production of ONGC coming to Hazira in Gujarat, 4 mmscmd goes to fertilizer companies for production of urea, 1.1 mmscmd is supplied to industries in Agra as per a Supreme Court order and 1.56 mmscmd is meant for the Bawana power plant in Delhi.
About 10 mmscmd of that gas is supplied to city gas companies at $6.75 per MMBtu rate. City gas firms also get 6.8 mmscmd of new well gas, which is priced at almost $8 per MMBtu.
The difference will further narrow next month, when rates are expected to be revised lower in line with declining oil prices.
APM gas is declining at the rate of 9-10 per cent annually as recovery from old and ageing fields falls. In the last one year, APM gas supplies to city gas retailers have been cut by almost 50 per cent. With the latest cut, the APM gas now meets about 34 per cent of the total city gas requirement, down from 51 per cent previously.
Earlier this week, IGL, the firm that retails CNG to automobiles and piped cooking gas to households in the national capital and adjoining cities, in a stock exchange filing stated that it gets "domestic gas allocation for meeting the requirement of piped natural gas (to household kitchens) and CNG sales volumes at the pricing fixed by the government (presently at $6.75 per MMbtu)."
"Based on communication received by the company from GAIL (India) Ltd (the nodal agency for domestic gas allocation), this is to inform that there has been a reduction in domestic gas allocation to the company effective from April 16, 2025. The revised domestic gas allocation to the company is approximately 20 per cent lesser than previous allocation," IGL said, adding that it has been allocated an additional 125 per cent of the reduction in domestic gas volumes as New Well Gas (NWG), which is priced at 12 per cent of Indian Crude Basket.
This, it said, is expected to impact the profitability of the company. MGL, the city gas retailer in Mumbai, said as per Policy Guideline dated August 10, 2022, issued by the Ministry of Petroleum and Natural Gas, domestically produced Administrative Price Mechanisms (APM) natural gas is to be allocated to City Gas Distribution (CGD) companies for priority segments, specifically domestic Piped Natural Gas supplies (PNG) to household kitchens for cooking and CNG (transport fuel).
Published by HT Digital Content Services with permission from Millennium Post.