New Delhi: The price of compressed natural gas (CNG) may rise across the country after the government cut the allocation of cheaper domestic gas by about 20% to city gas distributors.

The government allocates price-controlled domestic gas, or APM gas, to city gas distributors for further sale to CNG drivers and households. The latest cut in allocation will not affect household supplies but may push up CNG prices, city gas executives said.

Indraprastha Gas Ltd, the nation’s largest city gas distributor, has said the company has been receiving 21% less APM gas since October 16, which “will have an adverse impact on profitability of the company”.

For IGL as well as other established city gas operators, the share of cheaper domestic gas has now fallen to about 50% of their CNG sales. This is sharply lower than about 68% until Tuesday, and about 88% last October.

The latest cut was necessitated after the government permitted ONGC to use incremental output from its legacy gas fields for petrochemical production. This reduced the domestic gas pool available for city gas players.

City gas companies were intimated about the allocation cut on October 14. Just two days’ notice was too short for such a substantial cut, a city gas company executive said. “There is no dearth of supplies in the market, but it’s quite expensive. The allocation cut should have been gradual. It would have given companies time to tie suitable sources of supply,” the executive said.

If some city gas distributors don’t quickly arrange alternative gas, the supplies at CNG pumps could be temporarily affected in some places. Distributors would need to meet the shortfall by purchasing gas at market rates in the domestic or international markets, which can push up their overall gas cost by INR 4-6 per unit based on their supply sources. The benchmark spot rates in the international markets are around USD 13.5 per mmbtu, more than double the price of USD 6.5 city gas companies pay for domestic APM gas.

Another executive said companies are deliberating the timing and quantum of price increases. “Companies also need to keep in mind that price hikes can spoil the festive mood for consumers,” he said, adding that some companies may absorb part of the cost increases, affecting their profitability.

Some city gas distributors, which were already charging very high CNG prices, may not have room for further hike, another industry executive said. If they take it too close to petrol prices, the conversions from petrol vehicles would stop, he said.