The Indian government has reduced the domestic gas allocation to the city gas distribution sector by state-run distributor Gail, effective from 17 November.
This is the second cut after they first slashed allocation by 20pc, or 4mn-5mn m³/d, last month.
The cut for Delhi-based city gas entity Indraprastha Gas is a reduction of 20pc, for Mumbai-based Mahanagar Gas it is 18pc, and for privately owned Adani Total Gas it is 13pc, the firms' stock exchange filings stated over the weekend.
The move would reduce the overall share of domestic gas allocation to city gas distributing companies to 30-37pc from 50pc last month and 70pc at the beginning of the year. City gas firms had received priority status for gas allotment over the past two years.
"It is uncertain what could have re-instigated this cut, but this may translate into 6.5mn-7mn m³/d based on the different growth rates of city gas firms," Moody's affiliate ICRA senior vice-president Prashant Vashisht told Argus.
City gas entities are mulling a hike in CNG rates and are heard to be in talks with the government over the policy changes. The government is yet to formally announce a statement over the cuts and is heard to be asking retailers to give a cost break-up to justify the hike, sources say.
These cuts are mainly aimed at compressed natural gas (CNG) supply that has been receiving domestic gas allocation at a fixed price by the government of $6.5/mn btu under New Delhi's pricing mechanism — almost half the price that firms would pay for spot LNG.
City gas firms are discussing the possibility of increasing CNG prices by Rs5-5.5/kg by the end of the year to preserve their margins. This would represent a 7pc increase compared with the average CNG price of Rs75.1/kg ($0.88/kg) against Rs94.77/litre of petrol in New Delhi.
But the price hike may reduce CNG's competitiveness, hampering further development of the sector and limiting LNG demand growth. CNG vehicles have rapidly expanded their share of the Indian fleet, accounting for 14pc of all four-wheelers at present, up from 8pc three years earlier, data from the government's Vahan website show.
The reduction in allocation is linked to reduced supply from conventional gas fields run by state-controlled upstream companies such as ONGC and Oil India. The sector received 27.8mn m³/d of domestic gas over April-September, including about 5mn m³/d of higher-priced supply from high-pressure, high-temperature fields, oil ministry data show. Allocation to the sector was largely unchanged during the same time last year.
To bridge this shortfall, city gas firms are exploring options of sourcing gas through LNG, domestically produced high-pressure and high-temperature gas, production from ONGC's new wells, and long-term gas contracts.
