Over the past six months, city gas distribution companies have experienced a significant shake-up in their natural gas supply dynamics. The Administered Price Mechanism (APM) gas, a crucial and affordable fuel source for these companies, has seen its allocation cut by nearly 50%. This has already led to a retail price increase of ₹4–5 per kg for both compressed natural gas (CNG) and piped natural gas (PNG).Now, with the latest APM gas cut, another round of retail price hikes appears imminent. According to brokerage firm CLSA, leading players such as Indraprastha Gas Ltd (IGL) and Mahanagar Gas Ltd (MGL) may need to implement an additional ₹1 per kg increase to maintain their operating margins.
In the current revision, APM gas allocation has been further reduced by 18–20%, bringing the overall share down to 40% from 51%. While the government has attempted to mitigate this reduction by allocating 125% of the lost domestic volumes as New Well Gas (NWG), this replacement comes at a higher cost, priced at 12% of the Indian Crude Basket.
Why are prices going up?The rising prices of CNG and PNG can be traced back to two major factors:Reduced APM gas allocationAPM gas, typically reserved for priority sectors due to its affordability, is being allocated in smaller volumes. As a result, city gas companies are increasingly relying on more expensive alternatives such as High Pressure High Temperature (HPHT) gas and New Well Gas, both of which significantly inflate input costs.Increase in APM gas pricing
Effective from April to September 2025, the APM gas price has been increased by 4% to $6.75/mmBtu (from $6.50/mmBtu). This hike follows the Kirit Parikh Committee’s 2023 recommendation, which called for a gradual increase in APM prices after two years of policy implementation.The bigger picture: Impact beyond the gas sectorThe implications of rising gas prices extend well beyond city gas distributors:For consumers: The financial impact is already visible at the consumer level. If CNG prices continue to rise, the cost advantage over petrol and diesel will narrow, especially in metro cities like Delhi and Mumbai — potentially affecting consumer choices.For Automakers: The automotive industry, particularly companies with a strong CNG portfolio, is exposed to these pricing trends. For instance, Maruti Suzuki sees one in every three cars sold running on CNG, while Hyundai derives 13% of its volumes from CNG models. At a time when the passenger vehicle market is already sluggish, reduced fuel affordability could dampen demand further.Piped gas: Still competitive for nowDespite recent hikes, PNG remains a more economical choice compared to LPG for household use. In Mumbai, for example, a 14.2-kg LPG cylinder costs approximately ₹830, whereas 1.564 standard cubic meters of PNG — the equivalent household consumption — is priced at ₹586, offering nearly 30% in savings.What lies ahead?Looking forward, Jefferies predicts a gradual decline in APM gas allocation through FY26–27. This trend is expected to increase city gas companies’ dependence on costlier alternatives like NWG and HPHT gas. Without policy interventions or pricing buffers, this could lead to continued upward pressure on retail CNG and PNG prices.ALSO READ | Mahanagar Gas, other CGD shares fall up to 6% in reaction to another APM gas allocation cut
