A reduction in government-controlled natural gas supply from legacy fields has escalated tensions between the oil ministry and city gas operators, as the latter push to raise compressed natural gas (CNG) prices to offset rising costs of imported fuel.

The government slashed legacy gas allocations to the city gas sector by 21% in October and 20% in November, citing declining production from older fields. This shortfall is forcing companies like Indraprastha Gas Ltd (IGL), Mahanagar Gas Ltd (MGL), and Adani Total Gas to rely on costlier alternatives such as gas from new fields or imported liquefied natural gas (LNG), squeezing their profit margins.

Despite not directly controlling CNG or PNG prices, the Centre faces mounting pressure to prevent a price hike, particularly in politically sensitive regions like Delhi and Maharashtra, ahead of impending elections. However, oil ministry officials have questioned the operators’ claims of financial strain, citing robust profit margins.

In 2023-24, IGL reported a net profit of ?1.748 billion (?1,748 crore) on a revenue of nearly ?160 billion (?16,000 crore), achieving an 11% margin. Similarly, MGL posted a profit of ?130 billion (?1,300 crore) on a revenue of ?70 billion (?7,000 crore), compared to IndianOil Corporation’s 4.5% margin on revenues of ?8.7 trillion (?8.7 lakh crore). Officials argue these figures suggest operators can absorb rising costs without passing them onto consumers.

A senior ministry official challenged operators to disclose cost breakdowns to justify their demands for price hikes, a request the companies reportedly declined. "There cannot be a situation where operators demand low-cost inputs but avoid transparency in pricing," the official remarked.

The standoff highlights the balancing act between economic realities and political sensitivities in India’s energy sector.