India’s Natural Gas Growth and Infrastructure Challenges

India aims to increase natural gas in its energy mix to 15% by 2030 from the current 6.3%. The country is a major importer of liquefied natural gas (LNG), sourcing mainly from Qatar, the US, and the UAE. Despite strong government support, progress in expanding natural gas usage remains slow. Key challenges include infrastructure development, pricing complexities, and taxation issues.

Current Energy Context

India’s natural gas demand is rising. Projections show growth from about 260–300 million standard cubic metres per day (MMSCMD) in 2030 to 365–500 MMSCMD by 2040. Domestic production is expected to reach 120 MMSCMD soon but may decline later, increasing dependence on imported LNG. The country must secure diverse, long-term supply contracts and build efficient import and distribution networks.

Infrastructure Development

The Petroleum and Natural Gas Regulatory Board (PNGRB) is tasked with expanding gas transportation infrastructure. The Vision 2040 report stresses transparent and fair allocation of infrastructure to facilitate a shift to natural gas. Adequate regasification terminals and pipeline connectivity are critical to support growing demand and leverage expected global LNG oversupply, which should lower prices.

Pricing Challenges

Domestic gas prices in India are fixed by the government and are lower than imported LNG prices. For example, domestic gas costs around $6.7 per million British thermal units (mmBtu), while spot LNG prices hover near $11/mmBtu, excluding taxes and transport. This price gap discourages local production but encourages imports. Balancing affordability and domestic production incentives remains a complex issue.

Taxation and Regulatory Issues

Natural gas taxation is a major hurdle. Industry advocates for including gas under the Goods and Services Tax (GST) with lower rates and input tax credit. State-level value-added tax (VAT) reductions are also sought. A clear and supportive regulatory framework is needed to promote domestic exploration, avoid monopolies, and encourage investment in gas storage and infrastructure.

Gas Storage and Supply Security

India’s LNG storage capacity currently covers only about 12 days of consumption, posing risks from supply disruptions or geopolitical tensions. Developing strategic reserves faces challenges such as high costs, regulatory gaps, and geological limitations. Strengthening storage infrastructure is essential to ensure energy security and stable supply.

Outlook and Strategic Importance

Global LNG markets are expected to face an oversupply between 2028 and 2030. This could reduce prices and create an opportunity for India to secure affordable gas supplies. Lower LNG prices would benefit key sectors like fertilisers, power, and city gas distribution. Coordinated efforts among government, regulators, and industry are needed to capitalise on this opportunity and support India’s clean energy transition.

Questions for UPSC:

1. Critically discuss the role of natural gas in India’s energy transition and its impact on energy security and sustainability.
2. Analyse the challenges of infrastructure development in the energy sector and how regulatory frameworks can address them.
3. Examine the pricing mechanisms of domestic and imported natural gas in India and their effects on production and consumption patterns.
4. Estimate the strategic importance of gas storage facilities in India and how they can mitigate risks from global supply fluctuations.

Answer Hints:

1. Critically discuss the role of natural gas in India’s energy transition and its impact on energy security and sustainability.

1. Natural gas share target – increase from 6.3% to 15% in energy mix by 2030 for cleaner energy.
2. Natural gas emits less CO2 than coal and oil, aiding India’s sustainability goals and climate commitments.
3. Gas supports economic resilience by diversifying energy sources and reducing dependence on coal.
4. Growing demand projected – 260–300 MMSCMD (2030) to 365–500 MMSCMD (2040), indicating rising importance.
5. Increased LNG imports diversify supply but raise energy security concerns due to geopolitical risks.
6. Transition to gas facilitates inclusive growth by enabling cleaner power, fertilizer, and city gas sectors.

2. Analyse the challenges of infrastructure development in the energy sector and how regulatory frameworks can address them.

1. Current infrastructure gaps – inadequate regasification terminals, limited pipeline connectivity.
2. Slow progress despite government backing due to complex allocation processes and investment hurdles.
3. PNGRB mandated to ensure transparent, non-discriminatory, and consumer-friendly infrastructure allocation.
4. Need for coordinated efforts among government, regulators, and industry for infrastructure expansion.
5. Regulatory clarity can incentivize private investment and streamline project approvals.
6. Long-term planning (Vision 2040) aligns infrastructure growth with national priorities and global energy trends.

3. Examine the pricing mechanisms of domestic and imported natural gas in India and their effects on production and consumption patterns.

1. Domestic gas pricing fixed by government (~$6.7/mmBtu), cheaper than imported LNG (~$11/mmBtu spot price).
2. Price gap discourages domestic production, making local gas unviable compared to imports.
3. Imported LNG price volatility affects affordability and consumption, especially in price-sensitive sectors.
4. Complex pricing balances need for affordable energy and incentives for domestic exploration.
5. Lower global LNG prices expected by 2028-2030 due to oversupply could improve affordability.
6. Taxation and levies add to cost, influencing end-user prices and market competitiveness.

4. Estimate the strategic importance of gas storage facilities in India and how they can mitigate risks from global supply fluctuations.

1. Current LNG storage covers only ~12 days of consumption, insufficient for supply disruptions.
2. Strategic gas reserves reduce vulnerability to geopolitical risks and price shocks.
3. Storage infrastructure development faces challenges – high cost, regulatory gaps, geological constraints.
4. Robust storage ensures supply reliability and supports energy security during demand-supply mismatches.
5. Transparent regulatory framework needed to encourage investment and efficient utilization of reserves.
6. Storage capacity expansion critical for managing import dependence and stabilizing domestic gas markets.