CNG price may go up Rs 4-6 on input supply reduction; excise duty cut to ease situation

RETAILERS ARE FORCED TO BUY IMPORTED AND COSTLIER LNG TO MAKE UP FOR SHORTFALL

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NEW DELHI: The government has reduced the supply of cheaper, domestically-produced natural gas to city gas retailers by up to 20 per cent, which is likely to result in a Rs 4-6 per kg increase in the price of compressed natural gas (CNG) used in vehicles unless excise duties on the fuel are lowered, sources say.

This natural gas, extracted from beneath the seabed and ground across sites like the Arabian Sea and the Bay of Bengal, serves as the raw material for CNG and piped cooking gas distributed to households.

However, production from legacy fields, whose prices are regulated by the government, has been decreasing by about 5 per cent annually due to natural depletion, leading to significant cuts in supply to city gas distributors. According to industry insiders, the supply of gas from these fields, which met 90 per cent of the demand for CNG in May 2023, has fallen progressively. As of October 16, 2024, only 50.75 per cent of CNG demand is being met, down from 67.74 per cent last month.

City gas retailers are forced to buy imported and costlier liquefied natural gas (LNG) to make up for the shortfall, which will lead to a hike in CNG prices that varies from Rs 4-6/kg.

The gas from legacy fields is priced at USD 6.50 per million British thermal unit (mmBtu) as against imported LNG that costs USD 11-12 per mmBtu.

For now, the retailers have not raised CNG rates as they are engaged with the Ministry of Petroleum and Natural Gas to find a solution, sources said.