All you need to know about government changes to gas allocation policy for city gas distributors

The government of India has made amendments to its gas allocation policy for the city gas distributors which will be applicable from May 16. The prices will be uniform and calculated post consultation with Petroleum Planning & Analysis Cell. GAIL will also charge a marketing margin on the gas supplied.
gaillogo

Gail Logo (Courtesy: gailonline.com)

Photo : Times Now Digital
KEY HIGHLIGHTS
  • It will be GAIL’s responsibility of providing gas to the CGDs.
  • GAIL will source gas from normal fields, difficult fields, long-term contracts, and spot markets.
  • Prices will be uniformed and calculated post consultation with PPAC and GAIL will also charge a marketing margin.


New Delhi: The government of India made amendments to its gas allocation policy for the city gas distributors for the first time since 2014. According to the new rules, which will be made applicable from May 16, it will be GAIL’s responsibility of providing gas to the CGDs.
Earlier the Government used to allocate cheap domestic gas to CGDs based on their last six months' consumption. Cheap domestic gas used to be allocated for CNG transportation and PNG domestic consumption only. For industrial use, CGDs used to source gas through long-term contracts and the spot market.
How Will GAIL Provide Gas?
GAIL will pool gas firstly from normal gas fields, and any shortfall in the same will be met by domestic difficult fields and international markets – long-term contracts or spot markets.
How The Price Will Be Decided?
The prices will be uniform and calculated post consultation with Petroleum Planning & Analysis Cell. GAIL will also charge a marketing margin on the gas supplied.
How Much Gas Will Be Supplied?
GAIL will allocate and supply 102.5% of the gas consumed in the previous quarter by any CGD. Earlier, the government used to allocate and supply 110% of the gas consumed in the last six months. For instance, if MGL consumes 100 mmscm of gas for CNG transportation and PNG domestic in the last quarter, then for the ongoing quarter it will receive an allocation of 102.5 mmscm of gas from GAIL.
Why The Change?
In the last three quarters, CGDs were not able to meet the entire demand from CNG transportation and the PNG domestic segment from APM gas allocation. This was because gas consumption in the previous six months was lower due to Covid-19 and also due to lower gas production from normal fields.
However, to meet the requirement, they were forced to source gas from the expensive spot market. This created a big difference in the raw material cost as not all CGDs have long-term gas contracts and also created uncertainty around gas availability.
Currently, 55-60 operational areas consume around 39 mmscmd of gas. As 150-160 new areas all come into the consumption basket over the next few years, the consumption requirement from CGD alone is expected to double. And with lower production from normal fields, the government had to ahead with the pooling of gas.
How Will It Impact?
The impact will vary for different companies.
Pooling of gas will create uniform cost for all CGDs, will also lift uncertainty on gas availability, especially for one’s dependent heavily on cheaper APM gas, and will also help cushion the impact of higher LNG prices.
However, on the other hand, for the companies that were earlier getting most of their gas requirement at a cheaper price, pooling could lead to an increase in gas sourcing costs to some extent. The exact quantum of this as we still don’t know how the gas pooling mechanism will work.
Gujarat Gas is expected to be least impacted as it supplies most of the gas to industries for which gas is sourced through long-term contracts and from the spot market. Thus its dependence on gas from normal fields.
For Indraprastha Gas, Mahanagar Gas, and Adani Total Gas, the gas sourcing cost could increase as compared to the time when it was getting its entire gas requirement from normal fields. While, this move by the Government of India, seems to be positive for GAIL as the same negates the concern regarding the sale of its own long-term LNG contracts.
Gas Prices At Glance
APM gas price:- $6.1/mmBtu
Difficult Field gas price:- $9.9/mmBtu
Spot Gas Price:- $23-25/mmBtu
End of Article