India is projected to be the fastest growing G20 economy on the back of robust domestic demand and the government’s reforms-driven growth agenda. Consequently, primary energy demand is expected to rise by 3-4 per cent annually over the next decade. The oil and gas sector is anticipated to play a key role in meeting this energy demand. While the country has taken a number of steps to facilitate a shift towards renewable energy, oil and gas will continue to be the transition fuel to bridge the demand-supply gap, in line with the government’s vision of achieving energy security.
Market trends depict strong growth
Domestic crude oil consumption increased to 262.5 million tonnes (mt) during 2023-24 from 174.5 mt during 2012-13, rising at a CAGR of 3.8 per cent, while the domestic production of crude oil declined to 29.4 mt from 37.9 mt during the same period. At present, only 12 per cent of the country’s crude oil needs are met from domestic sources, while 88 per cent are met through imports, entailing a substantial import bill.
India’s gas market has been growing consistently in line with the government’s commitment to transform the country to a gas-based economy. With prices stabilising (following the Kirit Parikh committee’s recommendations) and domestic production rising (especially from the KG basin), gas consumption registered an increase of about 10 per cent in 2023-24 to reach 61 bcm from 54 bcm in 2022-23.
India remains heavily reliant on imports to meet its energy needs. According to the Petroleum Planning and Analysis Cell, India’s import dependence for crude oil soared to 87.7 per cent during 2023-24, underscoring the critical need to increase domestic production. As the world’s third largest oil importer and consumer, the country paid $132.4 billion for imports during 2023-24, compared to $157.5 billion during 2022-23. Despite similar import volumes in both years, the crude oil bill dropped by 16 per cent during 2023-24.
Meanwhile, the demand for natural gas has been rising with the expansion of the city gas distribution (CGD) network, a favourable gas allocation policy for the CGD sector and increased urea plant commissioning in the fertiliser sector. While demand from refineries continues to remain strong, gas consumption growth in the power sector has been tepid.
Reliance on LNG imports to continue
The country’s LNG import dependence remains around 45 per cent and is expected to go up to 70 per cent by 2030 with domestic production from new fields anticipated to plateau in the next five to six years. The sector will see the addition of 25 million tonnes per annum (mtpa) of LNG regasification capacity over the next few years, most of which is currently under construction. This will take India’s total LNG regasification capacity to 73 mtpa.
The country currently operates seven LNG import facilities with a combined capacity of approximately 47.7 mtpa. These facilities include Petronet LNG’s Dahej and Kochi terminals, Shell’s Hazira terminal, as well as the Dabhol, Ennore, Mundra and Dhamra LNG terminals. There are several LNG terminals that are being set up, including at Jaigarh and Charra, which will increase competition in the market.
India is looking to augment its LNG imports through long-term contracts with overseas exporters. Some of these are the Indian Oil Corporation’s long-term contract with French energy company TotalEnergies for LNG supply, ArcelorMittal Nippon Steel’s 10-year deal to buy LNG from Shell, and Petronet LNG’s renewal of its contract with RasGas Company Limited.
Expanding pipeline infrastructure and connectivity
Downstream connectivity has been a constant cause of concern over the years, with most terminals operating below capacity owing to pending completion of pipeline connections. The natural gas pipeline network in India is poised for significant expansion, with a total announced length of 33,000 km. Of this, around 23,300 km is currently operational and 10,000 km is under construction. The existing infrastructure is heavily concentrated in the western and northern regions, where major terminals such as Dahej (Petronet LNG), Mundra gas subcooled process (GSP), Hazira (Shell India) and Dabhol (GAIL) serve as key nodes. The eastern and southern regions of India are still awaiting integration into the national gas grid.
GAIL (India) plans to finish its eastern grid by completing the remaining section to the port city of Haldia soon. A new cross-country pipeline from Mumbai to Odisha will further integrate the western and eastern parts of India from September 2024.
City gas distribution: The next growth frontier
India’s CGD sector sector has registered a healthy growth in the past one year. The sector’s natural gas consumption increased by 16 per cent during April-May 2024-25 to 41 mmscmd over the corresponding period of 2023-24, supported by a favourable gas allocation policy.
The country currently has close to 7,000 compressed natural gas (CNG) stations, and the number is growing at around 1,200 new stations per year. The government targets to reach ~18,000 stations by 2030. There are about 13 million domestic pipeline connections, with nearly 2 million new connections being added in the last 12 months, and a target to reach 125 million by 2030. There are also over 44,000 and 19,000 commercial and industrial connections, of which around 3,500 and 2,000 new connections in the last 12 months respectively.
Under rounds 12 and 12A of the latest CGD bidding, five firms won the licence for the development of the CGD network in eight GAs. The anticipated investment for the 12th CGD bidding round is Rs 410 billion. With this, nearly 100 per cent of the country will be covered under the CGD network.
Supportive measures such as priority high pressure high temperature gas allocation to the CGD sector, implementation of the Kirit Parikh committee recommendations, and a unified tariff regime have improved the CGD industry’s competitiveness. Phase-wise mandatory blending of compressed biogas in the CGD network is a promising step towards achieving the target of net zero emissions and improving pipeline utilisation.
Stepping up the technology play
Despite the emergence of new and sustainable technologies, the country is expected to continue using oil and gas as a transition fuel in the near future. The oil and gas industry has been at the forefront in the deployment of advanced technologies for improving pipeline tracking efficiency, construction management, automating operations, and real-time monitoring of assets. Cloud-based solutions, AI/ML, virtual twins, drones, SCADA, automation, smart metering, project management tools, integrated digital solutions, etc. are witnessing a higher uptake.
The oil and gas sector should be encouraged and incentivised to develop a digital strategy, creating a coalition of reinforcing initiatives to direct organisations’ actions towards integrating digital technologies into their operations. It is therefore recommended that stakeholders discuss the technical feasibility, associated costs, economic gains and other considerations.
Tapping new opportunities
Despite public transport systems such as city buses converting their fleets to EVs, there continues to be ample opportunity for CNG adoption in private transport. Factors such as climate change and the total cost of ownership advantage are driving vehicle conversion to CNG. There is also immense scope for LNG adoption, especially in heavy commercial vehicles, if supported by the PLI scheme and other fiscal incentives. Similarly, there is untapped potential in the commercial and industrial segment which is exploring natural gas for trigeneration and cogeneration.
Phase-wise mandatory blending of compressed biogas in the CGD network is a promising step towards achieving net zero and reducing import dependence. However, improving green hydrogen economics may pose a risk to gas utilities in the long run.
Promising outlook
The government has set a target of investing $67 billion in the natural gas sector over the next six years in order to ensure supply to the end consumer at stable prices. The country is expected to witness a three fold increase in natural gas consumption from the current 185 mmscmd to 500 mmscmd by 2030. This will also help in promoting ancillary industries dependent on natural gas. Over 17,000 CNG stations, about 15,000 km of natural gas pipelines and 1,000 LNG stations are likely to be added by 2030.
Policy interventions are needed to address issues such as GST on gas, excise duty on CNG, and the pricing of subsidised liquified petroleum gas. These factors affect the competitiveness of natural gas. Government policies, including viability gap funding for cross-country pipelines, single-window clearance and accelerated asset monetisation, are needed to expedite the creation of natural gas infrastructure. A simplified tax structure and incentives for conversion to natural gas could significantly boost the growth of the sector.
Ishita Gupta
