CNG to cost more after govt hikes APM gas price

New Delhi: The government on Monday raised by 4 per cent the price of natural gas produced from old legacy fields called APM - the key input used to make CNG and produce electricity and product fertiliser.

The APM price has been hiked to $6.75 per million British thermal units effective April 1 from $6.50 per MMBtu, a notification of the Petroleum Planning and Analysis wing of the Oil Ministry said.

APM gas is produced by state-owned firms Oil and Natural Gas Corporation (ONGC) and Oil India Ltd (OIL) from fields that were given to them on a nomination basis. This gas is the input that is used in the cooking gas piped to household kitchens as well as turned into CNG for running automobiles, making fertilisers and producing electricity.

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.

Petroleum Planning and Analysis Cell (PPAC) said the APM gas price for April 1 to April 30, 2025, should have been $7.26 per MMBtu, going by the 10 per cent indexation to the crude oil price. But this was subject to the ceiling price. The ceiling price has been raised from $6.50 per MMBtu to $6.75. This ceiling will be effective from April 2025 to March 2026 and will rise by another $0.25 per MMBtu in April next year.

Prior to April 2023, the price of gas produced from fields covered under the Administered Price Mechanism (APM) regime -- which accounts for 70 per cent of domestic gas production -- was determined semi-annually based on a formula that benchmarked it to average international prices at four gas trading hubs.

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.

Subsequent to the 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.

Two different formulas govern rates paid for gas produced from legacy or old fields of national oil companies like ONGC and OIL and for newer fields lying in difficult-to-tap areas like deepsea.

The rate for difficult fields like KG-D6 of Reliance Industries has been set at $10.04 per MMBtu for six months beginning April 1 compared to $10.16 in the preceding six-month period, according to PPAC.