India's Natural Gas Challenge: Escaping the vicious price-demand loop

India’s natural gas sector is increasingly caught in a self-reinforcing and complex vicious cycle.

By Tanvi Khurana 

India aims to raise natural gas's share in its energy mix to 15% by 2030, positioning it as a cleaner alternative to coal and a transitional fuel for a sustainable future. As a “bridge fuel,” it offers lower carbon intensity and supports rising energy needs, but the key question remains: are current efforts enough to meet this goal?

Expanding City Gas Distribution (CGD) networks, investing in LNG terminals, and laying thousands of kilo-meters of pipelines certainly suggest unstoppable momentum. The increase from 54 Geographical Areas (GAs) in 2013 to 307 by 2024 reflects a remarkable rise achieved through multiple bidding rounds, including the 12th CGD Bidding Round concluded in March 2024, which sought to achieve 100% national CGD coverage.

Despite the significant expansion of City Gas Distribution (CGD) coverage following the 9th and 10th bidding rounds, where the majority of newly licensed Geographical Areas (GAs) were concentrated in the eastern, northeastern, and southern regions of India, recent consumption data suggests that gas uptake in these regions remains relatively low. For instance, as of February 2025, Petroleum Planning and Analysis Cell (PPAC) data shows that Arunachal Pradesh, Odisha, West Bengal, and Chhattisgarh, states that gained coverage in later bidding rounds, record total CGD consumption of just 0.11, 2.94, 2.37, and 0.18 MMSCMD, respectively. In contrast, legacy CGD markets such as Gujarat (372.16 MMSCMD), Maharashtra (230.76 MMSCMD), and Delhi (157.94 MMSCMD) continue to dominate overall demand.

Similarly, in the southern region, which saw expanded CGD licensing under Rounds 9 and 10, states like Kerala (7.18 MMSCMD), Tamil Nadu (16.44 MMSCMD), and Telangana (17.18 MMSCMD) lag significantly behind in absolute gas consumption, especially when benchmarked against their population coverage and industrial potential.

Thus, a critical paradox remains dangerously underexplored: infrastructure alone does not create demand. Despite the rapid licensing and network build-out, actual gas uptake in newly licensed areas remains limited, highlighting a persistent mismatch between supply-side infrastructure growth and sustainable demand creation.

India’s natural gas sector, today, is increasingly caught in a self-reinforcing and complex vicious cycle. With domestic gas production plateauing in recent years, the country has grown more dependent on imported liquefied natural gas (LNG) to meet its rising demand. The prevailing Administered Pricing Mechanism (APM), which sets price ceilings on domestically produced gas, has inadvertently disincentivized private investment in upstream exploration by curtailing potential returns. As domestic output declined further in October 2024, the government reduced APM gas allocations to City Gas Distribution (CGD) companies, compelling them to procure higher-cost re-gasified LNG (RLNG) from international markets. This shift significantly increased end-user prices in the CGD segment, an outcome also noted in the IEA’s India Gas Market Report: Outlook to 2030.

The price-sensitive nature of CGD consumers has rendered elevated gas prices a major constraint on demand uptake, particularly in newly operational GAs. This stagnation in downstream consumption weakens investment incentives upstream, reinforcing a structural imbalance between supply and demand. Without timely interventions, such as coordinated pricing reforms and targeted demand-side incentives, India’s vision of a gas-based economy risks remaining aspirational.

The situation is further exacerbated by the erosion of natural gas’s former price advantage. Compressed Natural Gas (CNG), once cost-competitive with petrol and diesel, is losing ground as electric vehicles (EVs) benefit from growing policy support and consumer interest. Similarly, Piped Natural Gas (PNG) faces stiff competition from subsidized Liquefied Petroleum Gas (LPG). While natural gas offers clear environmental benefits, its declining cost competitiveness relative to other fuels appears to have reduced its attractiveness as a preferred energy option for households and transport.

A sectoral analysis further reveals disparities in policy treatment and demand outcomes. Fertilizer production, the largest consumer of natural gas, remains shielded from market volatility through significant government subsidies, ensuring stable demand. In contrast, the CGD sector, though politically prioritized and the second-largest gas consumer, has seen demand growth lag behind infrastructure expansion, reflecting limited adoption and weak market pull.

To unlock the full potential of a gas-based economy, greater emphasis must be placed on enabling domestic production. This requires reforms to pricing structures, improved investment certainty, and the creation of a level playing field to attract private capital. Without these measures, large-scale infrastructure risks becoming underutilized, leading to inefficiencies and stranded assets.

In this context, natural gas merits policy support on par with, if not greater than, that for EVs. While EVs have lower tailpipe emissions, their overall current carbon footprint remains high due to coal-heavy power generation, and decarbonizing their supply chain will take time. Natural gas, by contrast, currently offers lower lifecycle emissions and immediate air quality gains, warranting stronger backing in India’s energy transition strategy.

That said, growing dependence on imported LNG exposes the domestic gas market to global price fluctuations and additional lifecycle emissions. The processes of liquefaction, transportation, regasification, and methane leakage can substantially reduce the environmental advantages of natural gas. While imports will continue to play a role in meeting India’s energy needs, it is equally important to develop a parallel strategy aimed at boosting domestic production through regulatory reforms and increased private sector engagement.

To prevent overbuilt and underutilized infrastructure, India’s gas transition must be rooted in robust demand-side strategies. These should include dynamic pricing for stable users, targeted incentives for new CGD consumers, flexible tariffs or supply guarantees for industry, and improved upstream revenue models. Complementary measures like a Carbon Intensity Index for imported gas and targeted awareness campaigns can further strengthen demand.

India’s natural gas ambition is timely and necessary, but infrastructure alone is not enough. Without coordinated policies that drive real demand, the risk is a hollow build-out disconnected from consumer needs. Ultimately, the success of this transition will hinge not just on infrastructure, but on whether gas is affordable, accessible, and genuinely preferred. In energy transitions, it is often the intangible drivers, consumer trust, price signals, and market readiness, that prove decisive.

(Tanvi Khurana is a Research Consultant at Chintan Research Foundation.)

Views are personal, and do not represent the stance of this publication.