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Average CNG price of City Gas Distribution Companies.
Feb 5, 2014

Now that the elections are approaching, the Government is trying to woo public with pleasant surprises. The latest surprise came in the energy sector. After a series of price hikes, the prices of compressed natural gas (CNG) and piped natural gas (PNG) are to be slashed by around 30% and 20% respectively. It is to be noted that the gas prices for city gas distribution (CGD) companies have gone up significantly in the last few years due to fall in domestic supplies and higher share of costlier imported gas. However, post the Central Government's decision to meet the full need for CGD through domestic gas, the price curve is likely to take a reverse turn.

But an obvious question is: Where is this supply coming from when domestic gas supply scenario remains broadly unchanged? It is the non priority sectors like steel, refineries and petrochemicals bearing the brunt of reallocation of domestic (excluding NELP) gas. It is their share of domestic gas that will now be diverted for CGD, on a pro rata basis. Well, the best part about this is that the benefits of reallocation will be passed on to the end users. Further, the order to provide same share of domestic gas to all CGD entities at the same base price will help to remove price distortions across different regions as seen in today's chart. Also, the lower prices will aid in further spread of CGD network.

The move may be cheered by the public in the short term. However, it will not help to resolve the issue of shortage of domestic gas supply. Further, post the gas price hike applicable in few months from now, we wonder if the benefit from price cuts will remain.

Data source: Business Standard
#Bhagyanagar Gas Ltd

This Chart Of The Day was published in The 5 Minute WrapUp - Has SEBI got this one wrong?

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