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breaking news Oil Ministry freezes gas allocation, CNG prices and Png surge

The Ministry of Petroleum has stopped re-allocating natural gas from domestic fields to the town gas sector, threatening the viability of planned Rs 2 lakh crore investments in the sector besides driving up CNG prices and piped cooking gas at record levels, sources mentioned. Despite a Union Cabinet decision to grant 100% gas supply under a ‘no cut’ priority to the Town Gas Distribution (CGD) sector, the current supply was maintained at the March 2021 demand level.

In addition, the process of allocating gas on a half-yearly average also penalizes the CGD entities which drive growth. CGD operators have asked the ministry to keep the sector’s gas supply in the uninterruptible category with the average of the last two months to ensure that the demand for CNG and piped natural gas (PNG) for homes is fully met. , but the ministry has not made any new allocations for more than a year now, three sources familiar with the matter said.

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In addition to the shortfall in allocation, APM gas prices for CNG and PNG have been revised from $2.90 per million British thermal units to $6.10, an increase of 110%. While demand grew at a rapid pace in existing cities with CNG networks and supplies starting in newer areas, the lack of domestic field allocation meant operators were buying imported liquefied natural gas (LNG) at prices that were at least six times higher than the national tariff. . Result – CNG prices increased by 60% or more than 28 rupees per kg in one year and PNG by more than a third.

Sources said this has put a question mark over the economic viability of the entire CGD sector, jeopardizing the planned investment of Rs 2 lakh crore in expansion into new towns, as high prices bring CNG nearly on par with diesel and gasoline, eroding the incentive for users to convert vehicles to cleaner fuel. The Ministry of Petroleum had, on August 20, 2014, issued revised guidelines, promising the allocation of gas from domestic fields to town gas operators every six months based on an assessment of demand from CNG and PNG in a particular geographical area (GA). This has been used as a selling point to bid on over 200 GAs since 2018, attracting over Rs 2 lakh crore of investment commitment in rolling out city gas distribution infrastructure.

But the gas allowance was not increased in the April 2021 review and subsequent cycles, they said, adding that against the requirement of 22 million standard cubic meters of gas per day , the CGD sector receives 17 mmscmd from national fields. The balance is covered by the purchase of imported LNG which in the current month costs $37 per million British thermal units, they said. This compares to the rate of $6.10 per mmBtu for household gas.

“The price of domestic gas has seen a massive increase of 110% – from $2.9 per mmBtu to $6.1 per mmBtu from April 1. This in itself is a huge burden and, on top of that, being forced to “Buying even more expensive imported LNG will make this sector economically unviable,” a source said.

New GAs that were tendered in CGD Rounds IX, X and XI are now coming and no gas allowance would mean they would have to buy imported LNG to supply CNG to automobiles and PNG to household kitchens.

“GAs with just imported LNG would mean a price of Rs 100-105 per kg,” another source said. This compares to the price of Rs 71.61 per kg in Delhi and Rs 72 in Mumbai, where almost 70% of needs are met by domestic gas. “The CGD sector is in bad shape. It is already facing an onslaught of electric vehicles and high CNG prices will now deter diesel or gasoline vehicles from converting to CNG. CNG is an environmentally friendly fuel, but at the end of the day what matters is the cost savings and if the cost of conversion and operation becomes higher than diesel or petrol, no one will convert,” the first source said.

Earlier this month, CGD operators met with Petroleum Secretary Pankaj Jain over the matter, but the ministry did not back down on the allocation and instead asked operators to pass on the increased cost of gas on consumers, sources said, adding that the ministry had asked CGD operators to buy imported products. LNG and pass the cost on to consumers. The ministry is not increasing the allocation for the CGD sector as it would mean cutting off supply to other sectors such as fertilizers.

“Domestic gas supply is limited. If we are to increase supply to one sector, it must come at the expense of supply to other sectors. The government is already facing a higher fertilizer subsidy bill. high this fiscal year and subsidy expenses will increase further if fertilizer plants have to use more expensive imported LNG to make urea and other crop nutrients,” a ministry official said.

First post: STI


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