Margins Likely to Improve for City Gas Distribution Majors

Margins for city gas distribution (CGD) players are expected to improve, with the administered pricing mechanism (APM) prices reduced due to a decline in crude oil prices.

- DEVANGSHU DATTA

The upside is partly offset by lower APM allocation since replacement New Well Gas (NWG) costs 20 per cent more.

LNG prices may remain muted over the next 3-4 years due to new LNG capacity and bearish crude oil trends. This implies sustained margin improvement for CGDs, with blended gas costs at $9.7-10 per million British thermal units (MMBtu) over FY26-FY28. Downside risks include further cuts in APM allocations and rapid electric vehicle (EV) rollouts.

Demand fell in H2FY25 due to high gas costs. The new pricing policy capped APM prices but was followed by deallocations of APM to the compressed natural gas (CNG) segment, reducing the allotment from 70 per cent (October 2024) to 38 per cent currently.

APM prices were cut from $6.75/MMBtu (April 2025) to $6.41/MMBtu (June 2025) due to lower crude prices. This reduces blended gas costs by 0.6 to 1.5 per cent for Indraprastha Gas (IGL), Mahanagar Gas (MGL), and Gujarat Gas (GGL) for FY26.