The Nifty Oil and Gas Index fell by 1.23% today, led by sharp declines in shares of city gas distribution companies. This drop comes after the government reduced the allocation of cheaper domestic gas to these companies by up to 20%, forcing them to rely more on expensive imported gas. This shift is expected to put pressure on their profitability, although any price hikes for CNG could be delayed due to upcoming elections in Maharashtra.
Indraprastha Gas Limited (IGL) reported that its domestic gas allocation had been reduced by 21% from October 16, 2024. This gas, previously available at a capped rate and priced much lower than imported gas, has been crucial for the company’s operations. The reduction in supply is expected to negatively impact the company’s profitability.
Indraprastha Gas shares drop over 6% after domestic gas allocation cut by 21%
Mahanagar Gas Limited (MGL) is also affected by a 20% reduction in its domestic gas allocation for CNG transport. The Ministry of Petroleum and Natural Gas had earlier issued guidelines prioritizing domestic gas allocation for CNG and piped natural gas segments. However, with the reduced supply, MGL is looking for alternatives, including sourcing high-pressure high-temperature (HPHT) gas and new well/well intervention gas from ONGC to make up for the shortfall.
https://www.businessupturn.com/finance/stock-market/mahanagar-gas-shares-drop-over-8-after-20-reduction-in-gas-allocation/
The broader market sentiment has been negative, with the BSE Oil and Gas Index also reflecting declines as BPCL, HPCL, and other major companies saw drops in their stock prices.
The sector is bracing for challenging times as the increased reliance on imported gas is expected to drive up costs, potentially leading to price adjustments in the coming months.
