APM gas price: a positive development for domestic gas market

The APM gas price hike is a positive development for the orderly growth of the domestic gas markets. The union cabinet has given its approval for increasing the APM gas price to $4.20 / MMBTU from the prevailing level of $1.79 / MMBTU.

The revised gas price is inclusive of royalty of 10 per cent on the basic price, but excludes marketing margin of 11.2 cents / MMBTU.

More than 65 per cent of the domestic gas market is already deregulated in terms of prices and a controlled pricing regime for only a select set of consumers was distorting the consumers' price expectations.

This will of course be positive for the profitability and cash flows of the upstream players such as ONGC and OIL (both rated LAAA by ICRA with a 'stable' outlook), which have been making losses in the last couple of years from the sale of APM gas produced in nomination blocks.

While the consuming sectors would be impacted, the extent of such impact will be quite marginal for the major consumers except the city gas distribution (CGD) sector.

As per GoI directives, APM gas is allocated only to a select category of consumers belonging primarily to the power, fertilisers and city gas distribution business.