Why Do CNG Prices Not Follow Petrol & Diesel Hikes or Cuts?

Why are CNG prices not as volatile as petrol and diesel? We explain.

CNG prices were hiked by Rs 1.36 in Delhi recently. 

Photo: The Quint

CNG or compressed natural gas is increasingly been seen as a cheaper alternative to petrol, given its price. CNG is priced at Rs 40.61 a kg in New Delhi compared to petrol, which is Rs 78 per litre as of 4 June. Petrol prices have fallen a few paisa recently, after 13 continuous hikes since mid-May.

On the other hand, CNG price have risen in a few states.

On 29 May, CNG prices in Delhi went up by 1.36 per kg to Rs 41.97. The previous revision to CNG prices in Delhi was in April, where it went up by Rs 2.61 a kg. In Uttar Pradesh, CNG is now Rs 48.60 a kg owing to the higher VAT in the state.

On 1 June, Adani Gas has increased the prices of CNG in Ahmedabad by Rs 1.51 to Rs 51 per Kg. It has also increased prices of PNG (piped natural gas for domestic use) by Rs 23 per mmBtu (million metric British thermal units) to Rs 630.29 per mmBtu.

Why did CNG prices not rise earlier in sync with petrol and diesel? Why are they rising now, when petrol and diesel are slipping? We explain.

Factors Affecting CNG Prices

CNG, unlike petrol and diesel, is not dependent on crude oil prices. The sources may be petroleum-based, but the way it is extracted and transported is different. It is not extracted from crude oil, like petrol and diesel.

India has natural gas fields in Assam and Gujarat, which were initially operated by ONGC, but later private companies were allowed to extract gas, including foreign firms. India has gas fields in the Krishna-Godavari, Tripura and Cauvery basins as well. However, the supply isn't enough to meet domestic needs, and hence LNG (liquified natural gas), which is then re-gassified, is imported as well.

The currency used to purchase natural gas is the US dollar (instead of the Indian rupee) and hence fluctuations in the exchange rate influence purchase prices.

Different gas extraction firms quote different prices. For instance, gas from the Panna-Mukta-Tapti fields is 66 percent more expensive than gas from ONGC. Hence, depending on where the gas is sourced from, the price will wary. Take a look at the price breakup of CNG.

Price Break-up of CNG

Price break-up of 1 kg of CNG. Delhi does not charge VAT on CNG. (Photo: The Quint)

If you look at the price break-up of CNG, you will find that the basic cost of 1 kg of CNG is just under Rs 21 a kg after the recent hike. Transport, selling and distribution is Rs 11.21 a kg. CNG dealers have a margin of Rs 5.02 a kg (this is higher compared to margins on petrol and diesel, but sales volumes are lower).

Excise duty on CNG is Rs 4.88 a litre, compared to Rs 19.48 a litre for petrol. Delhi government does not charge VAT on CNG compared to close to 27 percent on petrol. In Uttar Pradesh, VAT is Rs 6.23 a kg of CNG (and hence CNG prices are much higher in UP).

The final price to the consumer is Rs 41.97 per kg in Delhi and Rs 48.60 per kg in Uttar Pradesh.

Given the infrequent hikes in gas prices by producers (owing to contracts), CNG prices have stayed stable. This is also because they are not dependent on crude oil price fluctuations and the taxes are lower.