The government has increased the supply of cheaper gas to city gas retailers such as IGL, Adani-Total, and Mahanagar Gas, restoring a significant portion of the allocation that was reduced in 2024, according to regulatory filings from the companies. In October and November of the previous year, the government had reduced supplies of APM Gas (low-priced natural gas from older fields like Mumbai High and Bassein in the Bay of Bengal) by up to 40 per cent due to limited output. This led to city gas retailers raising CNG prices by Rs 2-3 per kg and planning further hikes as they replaced lost volumes with more expensive fuel.

The price increase made CNG less competitive compared to alternative fuels like diesel. In response, the Ministry of Petroleum and Natural Gas issued a directive on December 31, 2024, to reorganize some gas allocations produced from below ground and undersea. The ministry ordered a reduction in gas supplied to state-owned GAIL and Oil and Natural Gas Corporation (ONGC) for LPG production, reallocating those volumes to city gas entities. Of the total 2.55 million standard cubic meters per day of gas used for LPG production, 1.27 mmscmd (0.637 mmscmd each for GAIL and ONGC) was directed to be diverted to the CNG and piped cooking gas segment for the January-March quarter.

In their regulatory filings, city gas retailers stated that the increased volumes of APM gas would begin on January 16. Indraprastha Gas (IGL) informed that, according to a communication from GAIL (India), the allocation of domestic gas for IGL would increase by 31 per cent starting January 16, 2025, which would raise the share of domestic gas in the CNG segment from 37 per cent to 51 per cent. IGL also secured additional volumes of imported LNG at competitive prices from one of its major suppliers (around 1 million standard cubic meters per day). The company stated that these changes would positively impact its profitability.

Adani-Total Gas, which supplies CNG in cities across Gujarat and other areas, confirmed that its allocation of APM gas had been increased by 20 per cent effective January 16, 2025. The company added that this revision would help stabilize retail prices for end-consumers. Similarly, Mahanagar Gas, which retails CNG in Mumbai and other cities, reported a 26% increase in its APM gas allocation, raising its share of CNG gas from 37 per cent to 51 per cent.

GAIL and ONGC will now need to use higher-priced gas from newer fields or rely on imported liquefied natural gas (LNG) to make up for the volumes diverted to city gas retailers. The LPG produced by GAIL and ONGC is sold to fuel retailers like Indian Oil Corporation (IOC) for distribution as domestic cooking gas in cylinders, which is subsidized by the government. As a result, the government is likely to bear the higher production costs.

The government had previously reduced supplies of domestically produced gas to city gas retailers by 5-5.25 mmscmd. Half of this reduction is being restored immediately, with more expected once gas from the Ramnad field and new wells begins flowing.

Natural gas extracted from beneath the ground and from offshore fields in India is used to produce CNG for vehicles and piped cooking gas for households. However, production from legacy fields, known as APM gas, has been declining by up to 5 per cent annually due to natural depletion. This decline has resulted in reduced supplies to city gas retailers.

Although the gas for piped cooking gas remains protected, the supply of gas for CNG has been cut. In May 2023, APM gas met 90 per cent of the CNG demand, but this proportion had fallen to 50.75 per cent by October 16, 2024, and further decreased starting November 16, 2024. While APM gas is priced at $6.5 per million British thermal units, gas from newer fields costs about $2 more.