India's long-term natural gas demand will depend not only on expanding liquefied natural gas (LNG) import capacity but also on accelerating investment in transmission and distribution infrastructure, gas-intensive industries, and reforms to market design, regulation and pricing, according to a report released by the International Gas Union (IGU). 
The report stated that although India has substantially expanded its LNG regasification terminal capacity in recent years, investment in midstream infrastructure has not kept pace, restricting the country's ability to increase natural gas consumption. It added that reforms to gas pricing mechanisms and improved market access would be essential to sustain future demand growth. 
The IGU report also examined the implications of recent geopolitical tensions in West Asia, stating that the Strait of Hormuz crisis had highlighted India's dependence on imported gas. It noted that the country's reliance on Gulf-sourced liquefied petroleum gas (LPG) and LNG, with Qatar remaining its primary LNG supplier, had raised questions about the risks associated with depending on geographically concentrated sources that are vulnerable to supply disruptions. 
According to the report, the resulting increase in gas prices has affected the economics of imported gas in the short term for power producers, industrial consumers and domestic users. 
India currently meets only around 50–52% of its natural gas demand through domestic production, with the remaining requirement fulfilled through LNG imports from Qatar, Australia, the United States and Russia. The country's dependence on imports is even higher for LPG, with approximately 60–65% of domestic demand met through overseas supplies despite India being among the world's largest LPG consumers. 
A significant share of these imports passes through the Strait of Hormuz. The report noted that disruptions to energy shipments during the recent Iran conflict exposed vulnerabilities in India's energy supply chain. 
Looking ahead, the IGU said the long-term outlook could improve if tensions in the Gulf region ease. It pointed to a substantial increase in global LNG export capacity expected over the remainder of the decade, which is likely to keep international LNG markets well supplied, place downward pressure on prices and improve the economics of gas consumption in India. It added that weaker demand elsewhere in Asia following the recent price shock could further reduce regional benchmark LNG prices. 
To benefit from lower international prices, the report said India would need to further liberalise LNG terminal capacity bookings and system entry charges, enabling buyers to respond more effectively to short-term market opportunities while improving utilisation of existing import terminals. 
The report also argued that natural gas would struggle to compete with coal unless pipeline infrastructure expands significantly. It stated that additional transmission pipelines, supported by competitive transport tariffs, would be required to improve gas supplies across northern, eastern and central India, where pipeline networks remain limited. Low pipeline utilisation in coal-dependent regions has also contributed to higher delivered gas costs and discouraged wider adoption. 
The IGU maintained that lower wholesale gas prices alone would not be sufficient to increase gas consumption. Instead, greater investment in infrastructure, commercial contracting and wider market reforms would be necessary to strengthen the role of natural gas in India's energy mix. 
It further argued that meaningful investment would require comprehensive reform of wholesale gas pricing. The report noted that India's pricing framework has undergone several changes over the past decade, moving from a regulated regime to hub-linked pricing in 2015 before shifting to an oil-linked mechanism in 2022. While the latest formula helped moderate prices after the global energy crisis, domestic gas prices have remained above USD 7 per million British thermal units, whereas the earlier hub-linked mechanism would have resulted in lower prices. 
The report concluded that although the Gulf crisis has raised concerns about the reliability of LNG imports, some of these risks could be mitigated through a more diversified import portfolio. It added that any resolution of shipping disruptions through the Strait of Hormuz, coupled with weaker LNG demand elsewhere in Asia, could create favourable conditions for India to accelerate gas adoption, provided domestic infrastructure constraints and market barriers are addressed. 
Source - PTI