Gas deliveries to CGD companies were earlier assessed on a distorted base that took into account the demand in the first three months of the coronavirus pandemic, a time when most economic activities had dipped. 
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Gas deliveries to CGD companies were earlier assessed on a distorted base that took into account the demand in the first three months of the coronavirus pandemic, a time when most economic activities had dipped. In a bid to provide some relief to the city gas distribution (CGD) entities, the government has revised the guidelines for domestic gas supply to compressed natural gas (CNG) for transport and piped natural gas (PNG) for domestic use.
CGD companies had approached the Ministry of Petroleum and Natural Gas (MoPNG) for increased allocation in both segments following the rapid expansion in their networks as well as for quarterly revision of allocation towards a better assessment of demand.
To address these concerns, a meeting was summoned by the secretary, Ministry of Petroleum and Natural Gas (MoPNG), Pankaj Kumar Jain on April 2, in New Delhi, to discuss the rise in domestic gas prices. The discussion revolved around the themes of the rise in domestic gas prices and an upward revision in the supply of gas to CGD companies by GAIL.
On April 9, Business Today published an extensive report on how the price escalations and shortages could potentially dent Asia's third-largest economy's plans to double the share of gas in its energy mix. Domestic gas prices have increased first by 62 per cent in October 2021, and then again by 110 per cent on April 22, an increase from $1.9 to $6.1 per MMBtu.
Following the publication of the story, MoPNG initiated further discussions with CGD companies to resolve the looming crisis through a consultative approach, industry sources told BT.
"It's a welcome step that shows the government's seriousness in resolving the issue. We hope that this step, along with meeting the growing demand from the middle-class segment, will help in maintaining the attractiveness of CNG and cooking gas," an industry source said in a guarded response, declining to be named.
Revision in allocation guidelines
Under the amended guidelines detailed in MoPNG circular 'L-16016/3!2020-GP-I-Part (1) (E: 42577)' - a copy of which is with BT - revision of allocation for the supply of pooled natural gas to the CGD companies will be done quarterly for a better evaluation of the consumption pattern.
Gas deliveries to CGD companies were earlier assessed on a distorted base that took into account the demand in the first three months of the coronavirus pandemic, a time when most economic activities had dipped. This involved a six-monthly rolling base where 10 per cent extra gas was allocated to a company after taking into account the average of its previous six months' outgo. The problem here was that the six-monthly average calculated was way below the actual consumption once demand started reviving.
To meet the growing gas requirement of CGD companies, GAIL will supply 2.5 per cent pooled natural gas over and above the total requirement of both CNG for transport and PNG for domestic segments. The total requirement of the company will be calculated based on consumption in the previous quarter, with the calculation for the demand of pooled natural gas carried out for each geographical area separately.
Gas supplies by GAIL to geographical areas commissioned in a quarter with consumption of up to 6000 SCMD, will be over and above the 2.5 per cent additional supply to meet the growing demand of existing geographical areas.
To bridge the shortfall in the availability of domestic gas for supplies of pooled natural gas allocated as per the above-revised guidelines, GAIL will source domestic High Pressure, High Temperature (HPHT) gas at a competitive ceiling or actual price for mixing with the available Administered Price Mechanism (APM) or Non-Administered Price Mechanism (NAPM) gas.
Mixing imported gas with domestic supplies
Furthermore, GAIL will also source long-term Regasified Liquefied Natural Gas (RLNG), failing which spot RLNG may be sourced for mixing with available APM or NAPM gas. RLNG or imported gas will be mixed with domestic gas much like imported thermal coal is being blended with domestic supplies for power plants currently.
APM gas is sourced from domestic gas fields managed by the public sector Oil and Natural Gas Corp. (ONGC) and Oil India Ltd (OIL). Its price is determined by the Petroleum Planning and Analysis Cell (PPAC), reporting to the MoPNG. The non-APM gas is sourced either from joint venture fields or through imports.
The pooled natural gas, including HPHT and RLNG gas, will be supplied to CNG and PNG segments as per their allocation and at a uniform base price arrived at in consultation with the PPAC.
With the commissioning of new geographical areas that were awarded in project bidding rounds 9-11, the CGD segment is expected to witness sharp sales growth going forward.
"That raises supply concerns for the priority sector and the attempt of the ministry to manage the gap through pooled gas is a welcome development. The move towards quarterly allocation rather than six months is also beneficial," said senior group vice president, Motilal Oswal Financial Services, Swarnendu Bhushan.
"However, the policy lacks a lot of clarity and is also likely to be challenged by CGDs. After all, there is no perceived benefit of sourcing through GAIL. All non-APM gas is anyway on a free-market basis. Many CGDs like Gujarat Gas, Torrent and Adani Total already have some kind of internal gas sourcing arrangements and they may want to use that instead of sourcing through GAIL," he added.
Bhushan and others in the CGD industry, therefore, felt that MoPNG must explore the possibility of allowing sourcing of the shortfall to the respective entities in the space to reach a widely acceptable solution at the earliest.
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