IGL faces 20% cut in gas allocation in November, impacting profitability

Indraprastha Gas Ltd (IGL) has announced a further 20% reduction in its domestic gas allocation, effective from November 16, 2024. This cut brings the company’s total gas allocation to 46%, compared to 70% last month. The revised allocation is expected to significantly impact IGL’s operations, particularly its ability to meet Compressed Natural Gas (CNG) sales volumes.

In a filing to the stock exchanges, the company stated, "the revised domestic gas allocation to the Company is approx. 20% lesser than previous allocation which will have an adverse impact on profitability." The gas is provided by GAIL (India) Ltd. at a fixed price of $6.5 per million British thermal units (mmbtu).

This announcement follows a similar reduction in gas allocation earlier in October 2024, which had already raised concerns about the company’s ability to meet demand. “The Company is exploring all options to address the issue,” the statement added.

While the company has not specified which alternatives are being considered, the reduced allocation is expected to weigh on IGL’s margins in the short term.

The recent reduction in domestic gas allocation to IGL is believed to be linked to a shift in priorities, with a portion of the gas now being redirected to support OPAL, a petrochemical plant run by ONGC. At the same time, gas production from older fields has been declining, further tightening domestic supply.