Rising sales singe city gas companies' profitability

In the high natural gas prices scenario, city gas distribution (CGD) companies are facing a Hobson's choice: loss of profitability or volume.

For the first time since their inception, the companies are unhappy at increasing sales, which means sourcing expensive liquefied natural gas (LNG) to meet demand, industry insiders said. The costly natural gas also means slowing their expansion plans.

Companies, officials said, are happy to forgo sales volume currently to protect margins.

"We are selling CNG at ₹80 per kg and procuring the same at ₹90-100 per kg; this is impacting our margins," said a senior official from a CGD company who requested not to be identified. "We would rather be happy selling less at this point."

A Mahanagar Gas Ltd spokesperson said the GAIL-promoted natural gas distribution company expects the high gas prices to be short term.

"Sales volumes are growing as CNG/natural gas is still attractive compared to alternative transportation fuels and LPG," the person told ET in an emailed response. "Present high gas prices do impact margins in the short term, till gas prices normalise. However, the impact is partially mitigated through progressive price revisions undertaken by the company."

Expensive natural gas has forced CGD companies to take a price increase of up to ₹28 per kg. CNG prices have gone up by over 60% in a year while PNG (domestic piped natural gas) prices increased by a third.

Officials said CGD companies are following differential pricing to keep customers at bay. For instance, in Gujarat - where three CGD entities operate, namely, Gujarat Gas, Adani Total Gas, and Torrent Gas - CNG prices are ranging between ₹79.56 and ₹82.59 per kg.

Companies are keeping a wider gap between prices to avoid selling additional quantities of gas. So, users are flocking to gas stations selling gas cheaper, resulting in more sales volume for that company.

Indraprastha Gas, Gujarat Gas and Adani Total Gas did not reply to queries till press time Tuesday.

CGD companies get natural gas from the APM (administered price mechanism) pool as well as from imported or spot LNG as feedstock for CNG and PNG. Domestic gas forms 20-40% of the feedstock for these companies while the rest comes from spot LNG.

Beginning April, the government raised domestic natural gas price by 110% to $6.1 per mmBtu (million metric British thermal unit) for April-September from $2.9/mmBtu in the October-March period.