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City gas distributors to gain as spot LNG prices decline
A steep drop in spot liquefied natural gas (LNG) rates has come as a major respite for city gas distributors in India. Spot LNG prices have fallen to about $14-15 per metric million British thermal units (mmBtu) from average of over $45 per mmBtu in the fiscal second quarter, and average of slightly above $30 per mmBtu in the third quarter.
Persistently high gas prices have continued to weigh on the earnings of city gas distributors, squeezing their margins. Although these companies raised prices, this has narrowed the gap between compressed natural gas (CNG), piped natural gas (PNG), and other fuel options such as diesel, prompting concerns about volume growth.
The near-term outlook for spot gas prices remains favourable. Ayush Agarwal, an analyst at S&P Global Commodities Insights, expects Platts JKM (Japan Korea Marker) and WIM (West India Marker) to average below $15/mmBtu in Summer 2023 and below $20/mmBtu for 2023.
With gas prices declining, city gas distributors are poised to reap benefits, which could be further enhanced by the anticipated cap on administered pricing mechanism (APM) prices in the upcoming fiscal year. The Kirit Parikh panel has recommended a floor of $4 per mmBtu and a ceiling price of $6.5 per mmBtu for APM gas. Analysts expect benefits to accrue in FY24.
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