Forced to mix LNG, CNG makers see prices rising

Cheap natural gas, which had been slowly gaining ground in the competitive maze of powerful traditional sources of energy such as coal, petrol and diesel, may not be a cheap source anymore.

Two of the biggest city gas distribution companies in the country - Indraprastha Gas Ltd (IGL) and Mahanagar Gas Ltd (MGL) are expecting the prices of compressed natural gas (CNG) to go up at regular intervals in the coming years due to unavailability of domestic natural gas; as a result they have to resort to imported liquefied natural gas (LNG).

To meet the burgeoning demand from customers, both the companies are witnessing a gradual but marked shift towards the use of costly regassified-liquefied natural gas (R-LNG) and this is expected to be passed on to the customers, thereby denting the pockets of its customers.

“With APM gas almost reaching its full potential, our usage of R-LNG will increase from the current 10-15% and this will mean we will have to increase the price of supplied gas,” said Rajesh Vedvyas, managing director, IGL.

He was talking to newsmen at the side-lines of an energy conference organised by Proactive Universal Group, a global energy consultant.

Vedvyas said going forward there will not be any single revision in prices but the company will have to continue doing it at regular intervals to maintain its profitability and earnings.

The company currently has the mandate and supplies CNG to automotive customers and households in the National Capital Region (NCR) and plans to expand its network further to other cities.

“We have a plan to spend close to Rs3000 crore over a period of five years to expand our infrastructure. This year the company will be spending close to Rs600 crore only in building new infrastructure to supply gas,” he said.

LNG is currently available at $15 per million metric British thermal units (mmBtu) as against D6 which is available at $4.2 per mmBtu and APM gas which is over $5 per mmBtu.

Concurring with Vedvyas, VC Chittoda, chairman of MGL, said the only way forward for a gas-based economy will be to opt for R-LNG as domestic sources are not enough to suffice the demand.

“We have a plan to increase our customer base from 5.52 lakh to over 10 lakh and this will need almost doubling our gas sourcing, which can only be done through R-LNG,” he said.

The company currently consumes 2 million metric standard cubic metres per day (mmscmd) which will increase to 4.5 mmscmd by 2017, said Chittoda.

MGL currently sources part of its requirement from the administered price mechanism (APM) gas, part R-LNG and some from D6.

“Our share of R-LNG will have to increase further as we do not have higher allocation from Reliance Industries’ D6 which too is wavering,” he said and added that the company currently has an allocation of 0.36 mmscmd of gas from RIL.    

While government regulations and tardy pace of approvals have held back the expansion of gas-based services in the country, experts estimate the use of natural gas to expand manifold in the coming years.

“The demand scene in the country is very robust and if there is a smooth supply, companies can actually maintain a CAGR of 20-25%. But the major problem is supply which is strangulating the progress,” said Satish Mishra, analyst with brokerage Pinc Research.

He said going by the demand projections, the demand for natural gas in India is expected to rise to 350-380 mmscmd from the current figure of 170 mmscmd, but how will this demand be met is difficult to answer, he said.