City Gas distributors' stocks rally up to 5%; Adani Total Gas, ONGC, MGL lead

Shares of city gas distribution companies such as Adani Total Gas, Mahanagar Gas (MGL), Oil and Natural Gas Corporation (ONGC), Gail India, Indraprastha Gas (IGL), and Oil India saw a surge in buying activities on Monday after they reduced prices following revision in domestic gas pricing guidelines by the central government.

Boosted by the development, shares of Adani Total Gas hit a 5% upper circuit limit of ₹907.55 on the BSE. The share price of Mahanagar Gas also rallied 4.2% to touch its fresh 52-week high level of ₹1,024.40. While ONGC shares rose 3.2% to ₹155.50, IGL gained 2.2% to ₹472.70 apiece, and the stock price of Gail and Oil India climbed up 1%.

In comparison, the BSE oil and gas index was up 1.2%, while the BSE Sensex was trading flat with a marginal gain of 12 points at 59,845 levels at the time of reporting.

Adani Total Gas, a part of billionaire Gautam Adani’s Adani Group, has cut prices of compressed natural gas (CNG) by ₹8.13 per kg and those of piped natural gas (PNG) by ₹5.06 per standard cubic metre (scm), effective from midnight April 7, 2023.

Similarly, GAIL Gas, the city gas arm of the nation’s largest gas firm GAIL (India), also lowered the prices of CNG by ₹8 per kilogram to ₹79 per kilogram. It also lowered the piped natural gas (PNG) price by ₹5/scm to ₹49/scm.

Meanwhile, Mahanagar Gas also cut the CNG prices by ₹ 8 per kg to ₹79/kg and PNG by ₹5/scm to ₹49/scm.

In a bid to ensure stable pricing and provide adequate protection to producers from adverse market fluctuation, the Union Cabinet on April 6 approved the recommendations of the Kirit Parikh panel, which included revised pricing methodology for domestically-produced natural gas.

As per the revised norms, the price of such natural gas will be 10% of the monthly average of Indian crude basket and will be notified on a monthly basis. The government has revised domestic natural gas pricing norms for gas produced from nomination fields of ONGC/OIL, new exploration licensing policy (NELP) blocks and pre-NELP blocks, where production sharing contract (PSC) provides for government's approval of prices.  

For the gas produced by ONGC & OIL from their nomination blocks, the Administered Price Mechanism (APM) price will be subject to a floor and a ceiling. Gas produced from new wells or well interventions in the nomination fields of ONGC & OIL, would be allowed a premium of 20% over the APM price. 

As per the government, the new guidelines are intended to ensure a stable pricing regime for domestic gas consumers while at the same time providing adequate protection to producers from adverse market fluctuation with incentives for enhancing production.

The government has targeted to increase the share of natural gas in primary energy mix in India from current 6.5% to 15% by 2030. The reforms are intended to expand the consumption of natural gas and will contribute to the achievement of the target of emission reduction and net zero.

The reforms will lead to a significant decrease in prices of Piped Natural Gas (PNG) for households and Compressed Natural Gas (CNG) for transport, according to the Ministry of Petroleum & Natural Gas. The reduced prices will also lower the fertilizer subsidy burden and help the domestic power sector. With the provision of a floor in gas prices as well as provision for 20% premium for new wells, this reform will incentivise ONGC and OIL to make additional long term investments in the upstream sector leading to greater production of natural gas and consequent reduction in import dependence of fossil fuels, it said. The revised pricing guidelines will also promote a lower carbon footprint through the growth of a gas-based economy.

Currently, domestic gas prices are determined as per the new domestic gas pricing guidelines, 2014 which were approved by the government in 2014. The 2014 pricing guidelines provided for declaration for domestic gas prices for a 6-month period based on the volume-weighted prices prevailing at four gas trading hubs - Henry Hub, Albena, National Balancing Point (UK), and Russia for a period of 12 months and a time lag of a quarter.