Margin woes to continue for city gas distribution majors in Q4

During Q3FY25, the administered price mechanism (APM) gas allocation for the CNG segment was reduced twice, impacting the gas sourcing strategy.

- DEVANGSHU DATTA

The second cut was rolled back but analysts expect another cut in allocation in early FY26.

Moderation in crude prices (to which gas prices are linked) provides some relief for city gas distribution (CGD) players who were hit hard by allocation cuts.

CGD players are expected to focus on volumes, which implies that margins will be compressed.

The first APM reduction was on October 16 last year, with allocation reduced from 63 per cent to 51 per cent. A further reduction to 37 per cent was made on November 16 last year.

But on January 16 this year, APM allocation was rolled back to 51 per cent. Nevertheless, this is lower than Q2FY25.

The global LNG market stayed tight through CY24 with limited growth in LNG supply.

LNG demand in Asia and Europe jumped in the last few months (due to winter, end of Russian gas supply to Europe via Ukraine at end-CY24 and low inventories).

Continued geopolitical tensions will keep Europe's demand high in CY25.

Asian spot LNG traded higher at 18 per cent of Brent (versus historical average of 12 per cent pre-Russia-Ukraine crisis).