IGL, Mahanagar Gas, Adani Total Gas shares decline; ONGC gains after government hikes APM gas price

Shares of the city gas distribution companies such as Indraprastha Gas Limited (IGL), Mahanagar Gas Limited (MGL), GAIL India (GAIL) and Adani Total Gas edged lower in trade on Tuesday, April 1 after the government on Monday increased price of natural gas produced from old legacy fields called APM - the key input used to make CNG.

On the flipside, shares of Oil and Natural Gas Corporation (ONGC) and Oil India (OIL) rose 2.06% and 0.61% respectively as they produce APM gas from fields that were given to them on a nomination basis.

APM gas is provided to city gas distributors for supply to CNG and residential PNG segments, which together account for 60 per cent of their sales volume.

Following April 2023 decision, APM gas prices are revised on a monthly basis but are subject to ceiling and floor prices. The ceiling price now is $6.75 per MMBtu.

APM gas prices had seen wide fluctuations in the years running up to the April 2023 decision. From a low of $1.79 per mmBtu in 2021 to a high of $8.57 for the 6-month period ending March 2023.

As per the key recommendation of the committee accepted by the government, the APM formula is now revised and determined as a 10 per cent slope to crude oil prices, but with a floor and ceiling price of $4 per mmBtu and $6.5, respectively.

This is the first increase in the APM gas price in two years and in accordance with the roadmap that was laid out by the government.

In April 2023, the Union Cabinet accepted an expert committee report to price the bulk of domestically produced natural gas at 10 per cent of the monthly average import price of crude oil with a floor of $4 per million British thermal unit and a cap of $6.5.

In doing so, the government had tinkered with the recommendation of a $0.50 per mmBtu annual increase till full deregulation in 2027. The Cabinet decided that rates will not change for two years and will be increased by $0.25 annually thereafter.

The hike announced on Monday is in line with that decision.