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In line with the global gas prices firming up, the Union government has hiked the price of natural gas by as much as 40 percent. At $8.57 per mmbtu, the price for the regulated portion of natural gas is at the highest level since 2014. This is the price at which companies like Indraprastha Gas and Mahanagar Gas buy before selling it to consumers at a profit.

The abbreviation mmbtu stands for Million Metric British Thermal Unit, a measure of heat content or energy value.

Before the current price revision, domestic gas prices have already been increased by 2.5 times over the last 18 months from $1.9 per mmbtu to $6.1 per mmbtu. So, will the cost piped cooking gas rise again?

Jefferies believes that the city gas players may have to hike CNG prices by as much as Rs 8.3 per kg in order to have a margin neutral price post the latest round of hikes.

Harsha Upadhyaya of Kotak Mahindra AMC believes that another round of price hikes will be increasingly difficult for the gas distributors. "The recent hike will leave some pain in the short term until they manage their cost dynamics," he told CNBC TV-18 in an interview.

Upadhyaya's views were echoed last week by Indraprastha Gas' Director-Commercial Pawan Kumar, who said that the gas distribution firm will not pass any increase in gas prices to consumers in the short term, adding that the company can absorb any hikes in the short-term.

The latest price hikes are for APM gas. APM stands for Administered Pricing Mechanism. This is the natural gas sold by participating companies to customers at a rate decided by the government periodically.

The Indian government revises domestic gas prices every six months, on October 1, and April 1 respectively. However, Antique stock broking believes that the increase is a surprise for the market.

Also Read: Govt cuts windfall profit tax on domestic crude oil and diesel; scrapped for jet fuel export

Gas prices shot through the roof across first because of the war between Russia and Ukraine, and they rose further following the blasts in the Nord Stream pipeline that supplies Russian gas to Europe.

Nations from Germany to France are urging citizens to curb energy consumption. The European Union has agreed to voluntarily cut gas consumption by 15 percent.

The prices of APM gas is significant as it is the feedstock for compressed natural gas (CNG) used as fuel in vehicles as well as in piped cooking gas. It is also the primary raw material for companies like Mahanagar Gas (86 percent) and Indraprastha Gas (80 percent), according to a note from Jefferies.

Companies like Mahanagar Gas have also kept prices of CNG unchanged in Mumbai over the last two months at Rs 80 per kg. Jefferies says that to achieve the margin neutral price, the company will have to hike prices by as much as Rs 8.6 per kg.

However, if the companies decide to hike prices, it will reduce the gap between CNG (a relatively cheaper and cleaner fuel) and petrol and diesel.

Who will gain if gas prices are hiked?

Hong Kong-based broking firm CLSA believes that the gas price hike will add value worth 35-40 percent of the current prices of ONGC and Oil India. It also expects ONGC's Earnings per Share for FY24 to go up by 18 percent and Oil India's by 27 percent. It expects material costs for GAIL's LPG business and expects its FY24 Earnings per Share to decline by 8 percent.

Other beneficiaries of a gas price include companies like Reliance and ONGC. Antique Broking finds the valuations of ONGC and Oil India to be "highly attractive."

First Published:Oct 3, 2022 11:28 AM IST