Cheaper global gas supply and rising urban consumption could alter India’s energy mix for the better

The move comes amid ongoing negotiations between India and the US that seek to bring greater parity in trade between the two countries. While it remains to be seen whether the supplies work out cheaper, how do these gel with our medium-to-long-term energy priorities?

Broadly, any move away from our traditional suppliers must have strong commercial underpinnings, be it directly or indirectly by way of trade offsets in other sectors. From here on, we can expect an expansion in India’s hydrocarbons trade with the US, especially since the latter has recently approved the setting up of many LNG export terminals.

Natural gas, however, remains a minor source of energy in India, at a little under 6% in our energy mix, while it accounts for a quarter of the global energy cauldron.

As much as natural gas purchases from the US will provide a strong negotiating handle, higher domestic consumption offers multiple co-benefits. These include a cleaner energy mix, savings in the national energy bill and enhanced energy security.

This is especially so since emissions from natural gas combustion are 20% lower than from diesel or petrol and 50% lower than coal’s. Also, in energy equivalence terms, the landed price of LNG is 20% lower than that of crude oil. However, higher taxes and mark-ups by intermediaries raise the supply price at the consumption end in some cases.

Secondly, domestic piped natural gas offers the convenience of being available ‘on tap,’ in contrast with LPG, a competing fuel, that requires an elaborate supply chain for filling and delivering cylinders.

On the supply side, there is cause for cheer on the domestic as well as the overseas front (the latter beyond US markets). Domestic prospects have vastly improved in the near term, thanks to recent gas finds in the Andaman Sea.

Meanwhile non-US supplies are also expected to rise, given developments in European markets, which are weaning themselves off imports from Russia and setting up LNG terminals to source gas from the US.

This switch-over process has also meant that vast gas discoveries in Russia lie stranded. Coupled with an American LNG export thrust, the global market for natural gas looks over-supplied in the medium term, with prices expected to soften.

Hence, going forward, natural gas imports from the US augur well for India, though this needs to be understood from a gas utilization perspective. How do the country’s consumption sectors stack up in this regard?

The future scope of gas utilization in India’s electricity sector is limited. Both coal-based power and renewable electricity are cheaper to produce. A role for electricity from gas-fired plants is at best limited to meeting peak demand or supplying it during off-solar hours. The latter is a diminishing role, since storage technologies such as batteries and hydro pumped storage facilities are scaling up to plug gaps in renewable supply.

In the case of fertilizer production, another major consumer industry, gas demand has saturated. Until new urea plants are conceived, we will not see incremental demand for gas as an input. In the near term, cheap urea imports are an option to cover shortfalls.

The potential for growth in consumption lies in other industrial sectors and city gas distribution (CGD); the latter includes gas used by household kitchens, commercial/small industries (within urban agglomeration limits) and transport systems.

In the case of industry, consumption could rise provided there is climate-agenda driven impetus for this cleaner fuel to displace dirty fuels like fuel oil, naphtha, coal and pet coke.

So far, this shift has been modest. Judicial action in the NCR of Delhi has helped mitigate sulphur and nitrogen oxide emissions by getting old diesel vehicles off the streets. More recently, Bombay high court directed the state to address pollution arising from transportation fuel use within Mumbai urban limits.

A judicial nudge, hence, is a factor that could raise gas utilization. From a commercial standpoint, carbon markets, once implemented, could boost prospects of gas utilization by industries.

A softening in global LNG prices in 2026 would make gas more attractive, and given the low utilization rate of our LNG import terminals (currently below 50%), there is significant space for greater gas absorption if demand strengthens.

The CGD sector has seen feverish growth. Piped gas for cooking and compressed natural gas (CNG) for transportation have grown at a compound annual rate of 8% and 20% respectively over the last three years. CNG offers a low-carbon alternative to petrol and diesel, which dominate the country’s transport sector. While electric mobility has taken large strides, the upfront cost of battery-run vehicles, range anxiety and patchy access to charging infrastructure remain adoption barriers.

Gas consumption for cooking, though, could see a growth spurt. The Petroleum and Natural Gas Regulatory Board (PNGRB) has signed agreements with various companies to connect 120 million homes by 2032 with piped LNG. These firms are laying out supply infrastructure within urban precincts with high population densities. This will displace a vast number of LPG connections and may reach rural areas too over time, where homes are served by LPG cylinders under the the PM Ujjwala Scheme. While only 15 million homes have been connected thus far, its rollout could gain pace.

For the long term, a recent PNGRB study indicates that broadly, gas demand is expected to rise two-and-half times by 2040. Further, the CGD sector, which currently accounts for only 20% of consumption, is expected to become the largest consumer of gas, rising to 45% during this period.

These are the author’s personal views.

The author is chairman, Petroleum and Natural Gas Regulatory Board.