A report from Motilal Oswal released this week says CNG firms are set to face their “steepest uphill battle ever” due to the expected price hike. The problem for gas manufacturers is that the past few quarters have presented especially favourable conditions which are now likely to change.
Starting April 2019, the price of domestic gas (the key raw material for CNG) fell from $4.1 per metric million British thermal unit (mmBtu) to just $1.8 mmBtu currently.
However, CNG companies raised retail CNG prices (in New Delhi) to Rs 43.4 per kg from Rs 37.9 per kg during the same period.
Going by the trend in international markets, the APM gas price is likely to rise to $5.93 per mmBtu from April 2022 to September 2022 and to $7.65 during October 2022 to March 2023.
This would mean another 22-23 per cent hike in CNG and piped natural gas prices in April 2022 and 11-12 per cent in October 2022, it said.
“Rise in APM gas price from $1.79 per mmBtu in H1FY22 to $7.65 per mmBtu in H2FY23E would mean MGL and IGL would have to make price hikes of 49-53 per cent during October 2021 to October 2022,” it said. “CGD players may be able to make the required hefty price hikes given sharply higher prices of competing fuels, petrol and diesel. However, some hit to prevailing lofty margins of MGL and IGL cannot be ruled out.”
The rise in gas price would help boost margins of ONGC and Oil India Limited as well as private companies such as Reliance Industries Ltd (RIL).