Rising Input Costs Ahead? ONGC’s Shift in Gas Supply Mix Could Pressure CGD Margins

India’s city gas distribution (CGD) sector may soon feel the squeeze as

's cheaper APM (Administered Pricing Mechanism) gas supply declines, while costlier gas from new wells has doubled for CGD companies. What’s Changing? Traditionally, APM gas—priced by the government—has been a lifeline for CGD players, enabling affordable piped natural gas (PNG) and compressed natural gas (CNG) for urban consumers. However, recent supply data suggests: * APM gas to CGDs is declining. * Supply from ONGC’s costlier new wells has doubled, carrying higher market-linked prices. Sectoral Impact For CGD players like Mahanagar Gas Ltd (MGL), Indraprastha Gas Ltd (IGL), and Gujarat Gas, this shift could: * Increase input costs * Pressure margins, especially in the price-sensitive CNG and PNG domestic segments * Force selective price hikes that may impact demand elasticity Bigger Picture This shift also aligns with India’s broader natural gas market reforms—pushing toward market-based pricing and reducing dependence on subsidies. While it's a step toward long-term efficiency, short-term volatility in gas procurement costs is inevitable. What to Watch: * Quarterly margin trends for listed CGD companies * Potential pass-through to consumers via price revisions * Long-term sourcing strategies to reduce exposure to pricing shocks As the government balances affordability with energy sector liberalization, CGDs will need to adapt to a more dynamic and less subsidized gas sourcing environment. Source: NDTV Profit No Recommendations