Domestic natural gas prices may fall in June on crude oil decline
New Delhi: Domestic
natural gas
could get cheaper next month, potentially bringing down driving and cooking costs for millions of customers.
For the first time in two years, domestic gas is likely to sell at less than the ceiling price set by the government, as
crude oil prices
have declined. This would boost the margins of
city gas distributors
. If they pass on part of the benefit to consumers, compressed natural gas (CNG) and piped natural gas (
PNG
) prices may fall.
The government revises the domestic price of gas-also known as the administered price mechanism (APM) price-every month, based on the average crude price in the trailing month. The gas price is pegged at 10% of the Indian crude basket price. Based on May's average crude price of $64 per barrel, the gas price for June would be around $6.4 per mmBtu, lower than the current ceiling price of $6.75 per mmBtu.
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The government introduced this crude-linked pricing formula in April 2023, setting a price band between $4 and $6.5 per mmBtu, with the ceiling scheduled to rise by 25 cents from April 2025.
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Since the formula's introduction, high crude prices meant the ceiling price effectively served as the market price each month.
June will mark the first time the effective domestic gas price falls below the ceiling.
In April 2023, the government also introduced the concept of "new well" domestic gas, which can be sold at 12% of the crude price and is not subject to a ceiling. With crude prices falling, new-well gas prices have also declined.
City gas distributors use both APM gas and new well gas to supply CNG to vehicles and PNG to households. New well gas accounts for about a quarter of the domestic gas supply to
Indraprastha Gas Ltd
, the country's largest city gas distributor. APM and new well gas allocations vary by company.
Falling input costs can boost the margins of city gas distributors, which have faced shrinking APM gas allocations over the past two years. The lower allocation of domestic gas-which is significantly cheaper than imported liquefied natural gas (LNG)-has eroded margins and triggered multiple retail price hikes.
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