Natural gas is steadily becoming a key energy component. With various environmental benefits, efforts are being undertaken to promote its use, with targets to raise the share of natural gas in the national energy mix to 15 per cent by 2030. At a recent India Infrastructure conference, industry leaders discussed the recent trends in the gas market and their views on the entry-exit system and pricing aspects. Edited excerpts…
Dr A.K. Balyan
Over the decades, the energy sector has witnessed several significant disruptions/energy transitions towards efficient and user-friendly energy sources. Off late, climate change has significantly impacted the energy sector, with a tremendous amount of pressure to reduce emissions linked to fossil fuels and transition to cleaner fuels. Gas is incrementally gaining importance in this transition, being cleaner, cheaper and more efficient than the other fossil fuels.
Energy projections by various entities indicate a significant reduction in fossil fuels as a component of primary energy sources to about 50:50 by 2050. The dependence on coal is expected to witness a drastic reduction, and the share of oil in the primary energy mix is expected to decrease to about 50 per cent of its current share. This drop in fossil-fuel share is set to be replaced by renewable energy sources such as solar and wind power along with newer energy sources such as bio-energy and nuclear energy. However, all projections indicate a continued significant contribution of gas in the overall energy mix.
While gas is largely considered to be a transition fuel, in my opinion, it is likely to continue to play a vital role for decades even beyond 2050 and therefore should not be thought of as only a transition fuel but as a cleaner, more stable and efficient component of the energy mix in the foreseeable future.
In India, domestic gas production has been seen to be stagnating at current levels and new gas finds are only making up for the decline in production from existing producing fields. Liquefied natural gas (LNG) imports are growing to fill the demand gap. According to projections by the Petroleum and Natural Gas Regulatory Board (PNGRB), gas demand is expected to reach 133 billion cubic metres (bcm) by 2030 and 230 bcm by 2040. The good-to-go scenario, on the other hand, projects the figures at 108 bcm by 2030. These PNGRB projections seem to be relatively ambitious in comparison to other industry estimates. Based on the current scenario, the ability to meet the PNGRB’s projections on demand targets looks to be a challenge. However, to achieve these projections, LNG is expected to serve as a larger contributor, with imports accounting for around 60-65 per cent by 2040.
In terms of drivers for the increase in gas consumption, the power sector has great potential; however, the higher LNG pricing in the current situation is playing spoiler. Other areas of demand include city gas distribution, being one of the fastest-growing sectors in the country, and LNG usage in commercial vehicles as well as merchant shipping.
On a global level, the LNG share in the market is growing faster in the gas business compared to gas transportation through pipelines. Significant investments in LNG (upwards of $800 billion) are expected globally, led by the US. Moreover, in the coming years, significant LNG export capacities are expected to come up globally, which is a good indicator for countries such as India – a significant consumer.
“While oil and gas have long served as the primary fuels for the energy sector, there is a need to carefully evaluate the opportunities to use gas, as it is likely to play a significant role in the transition to a cleaner, cheaper and more efficient energy source.” Dr A.K. Balyan
Rajesh K. Mediratta
The Indian Gas Exchange (IGX) commenced operations in 2020, seeing value in creating market infrastructure. One important objective of creating such a market infrastructure was the provision of a price signal. The integration of an IT-enabled platform has brought in flexibility. Today, IGX provides nine kinds of contract for trading in natural gas and LNG, ranging from day-ahead and intraday to monthly and six-month contracts.
The platform is designed to be non-discriminatory and neutral, and there is anonymity for customers trading on it. It provides information on price, quantity, location, delivery point and the contract.
We see participation from almost all CGD players and marketing companies, as well as many power plants, large industries etc. Focus is also placed on providing flexibility to smaller customers by offering contract sizes as small as 50 MMBTU per day.
The platform also features domestic gas, with almost 40 per cent of the total volume traded last year being from domestic gas producers and 60 per cent from marketing freedom gas.
Further, since the platform is delivery-based, all transactions are meant for delivery, and no defaults have been observed. Looking ahead, IGX aims to handle around 5-6 per cent of consumption in the country in the next three years.
In the gas sector, the transmission tariff is linked to distance, necessitating a model where anonymous trade can be carried out at designated delivery points. IGX initially began with six to eight delivery points, covering all LNG terminals and domestic gas production fields. More domestic fields, coal bed methane fields and LNG terminals were added over time. There are currently around 22 delivery points. Prices discovered vary with locations due to differences in value-added tax and distance-based transmission tariffs. However, IGX would like to discover a uniform price for gas in India, facilitating one-nation, one-grid, one-price.
With the addition of more networks and alternative routes, the gas network is expected to become more interconnected. Customers would then have to assess the contract paths and book capacity in different pipeline networks. However, in the case of the entry-exit system, only the entry and the exit points would be stated, and the path and the number of pipelines being crossed would not be a concern. The entry-exit system is expected to be a notable step. In this system, the tariff is not linked to the contract-path of each transaction, but linked to the location of each entry and exit point. Today, state-level taxes give rise to price arbitrage. If the tax arbitrage is removed through common GST and the entry-exit system is brought in, then the market is likely to converge towards a single virtual hub. Further, tariffs can be fixed for the whole year, and capacities can be booked for a longer term. This is advantageous for pipeline operators, as they will receive full upfront tariffs. Long-term contracts could have lower tariffs in comparison to short-term bookings. This will incentivise consumers to book longer term, so pipeline operators get revenue based on the capacity.
“IGX targets to handle around 5-6 per cent of consumption in the country in the next three years.” Rajesh K. Mediratta
Akhil Mehrotra
India has around 25,000 km of pipelines, with an additional 10,000 km under way. Sub-transmission lines are set to gain importance in the future, with questions currently arising as to whether CGDs are facing difficulties in connecting to trunk lines due to large distances. Hence, in another 10 years, 10,000-15,000 km of pipeline is set to come up, including sub-transmission lines.
Works are under way to connect the southern part of India, which was previously not connected, and pipelines have also been laid in the Northeast. However, for the national gas grid to function effectively, a few issues must be addressed. Firstly, there is a need to balance the risk-reward ratio. In the gas sector, the volume risk is entirely with the transporter. Discussions are under way with regulators for measures to mitigate this, in order to increase pipeline utilisation. A balanced risk-reward ratio would likely bring in more investments and support the development of pipelines without the need for viability gap funding. This could be made more viable by increasing the gas demand, thereby increasing utilisation. Bringing gas under the GST would also aid in increasing the gas demand in the country.
The existence of an independent system operator (ISO) and an entry-exit system is the best practice. However, a step-by-step approach is required. First, there must be greater transparency. Normally, a TSO or ISO ensures that transportation is reliable, and provides open access on a non-discriminatory basis and on non-discriminatory terms. Moreover, there are smaller steps that will help in achieving this. Plans are under way by the PNGRB to set up a national gas management centre, where the capacity available in each pipeline will be transparently declared. Also, unbundling could prove beneficial, with contract unbundling possibly acting as a starting point. Meanwhile, regulators are working on a new access code and developing a standard GTA.
Moving from the zonal system to the unified tariff mechanism has ensured a uniform tariff for customers, even far from the source of gas, ensuring that the transportation tariff is the same, helping in socialising the use of gas. As the market develops over the next few years, there is need to start planning towards an entry-exit system. As far as trading and exchanges are concerned, it would prove to be a much more viable option, as payments are based on the entry and the exit point rather than the path traversed. A path towards achieving this from the side of the regulators and the government would be welcome. This will also help in bringing in transparency, more trading and aid market development.
From a pricing point of view, there is a need for measures to bring in price stability. With only 40-50 per cent of gas expected from domestic sources in the next 5-10 years, international prices have to be affordable. However, by 2027, the prices in India are estimated to be $8, mainly due to the expected LNG capacity addition by some countries. There would hence be softer, more favourable pricing. Gas storage mechanisms also need attention, where in the case of price volatility, the government can intervene and release gas from storage. This would also be beneficial for micro, small and medium enterprises that are currently apprehensive on shifting to gas due to price fluctuations. Further, there is a need to abolish tax arbitrage between states. Taxes must be brought down through GST or VAT for uniformity. The use of coal and renewable energy is essential for energy security, but there should be a level playing field for all fuel types.
“A balanced risk-reward ratio would likely bring in more investments and support the development of pipelines without the need for viability gap funding.” Akhil Mehrotra
Sanjay Kumar
In 2024-25, gas consumption in India stood at around 195 million metric standard cubic metres per day (mmscmd). Based on the investor presentations by domestic companies, domestic supplies are estimated to be around 130 mmscmd by the end of the decade, excluding the recent discovery made in Andaman. Looking at sectoral insights, CGD continues to dominate and is expected to be the largest driver of demand in the country. Refinery expansions would also improve the consumption of gas in the country. The LNG transportation business has already commenced and is expected to see notable growth. The critical success factors include price and contracts, regulatory stability and commitment towards long-term contracts.
On the infrastructure front, India has over 24,000 km of existing pipelines and 9,200 km under construction. GAIL commissioned 1,500 km of pipelines in 2025. Some of the other new initiatives include CGD authorisation, connectivity and access, and the Sustainable Alternative Towards Affordable Transportation initiative. GAIL currently supplies over 250,000 cubic metres per day of compressed biogas to CGD entities.
Looking ahead, gas demand is expected to grow to over 300-400 mmscmd in the coming decades. Most of India’s LNG imports come from Oman, Qatar and the UAE, given that they are among the nearest sources. According to industry estimates, global LNG supply is forecasted to grow to about 700 mt by 2035.
A few key steps are essential to increase gas consumption in the country. There is a need for tax rationalisation across the country and the introduction of a better tax structure. Moreover, the GST on pipeline transportation and LNG regasification has recently become 18 per cent from the earlier 12 per cent, along with input tax credit (ITC) applicability. A lower GST rate would prove much better, with the most ideal being a 5 per cent ITC GST rate. Further, the process of receiving permissions is time-consuming, which is obstructing the growth of the pipeline network and hampering the progress of the sector. The issue also affects last-mile connectivity pipelines and those being laid by CGD entities. Further, mandating gas use could have notable benefits.
While there is no denying that an entry-exit system is the ultimate structure for the market, several enablers must first be in place. Currently, gas traverses through one or more pipelines and is then consumed by the customer. Differences in taxation among states would pose multiple difficulties for the adoption of the entry-exit system. There is a need for a liquid gas market and well-spread-out infrastructure to move into the entry-exit system.
Currently, approximately 35 per cent of the gas consumption in the country falls under the controlled pricing. The price of the remaining is based on external factors or on market indices for LNG. LNG follows a pure demand-supply game. Looking at trends over the past 10 years, LNG prices saw a varied range, from as high as $60 to as low as $1.5-$2. On a positive note, LNG is expected to enter into a golden era spanning from 2027 until 2032, with various companies increasing LNG supply in the market, and prices expected to be at moderate levels of $6-$8/MMBtu, as per industry estimates. Moreover, LNG markets in the past have demonstrated an ability to rebalance quickly, which may happen again.
“There is a need for tax rationalisation across the country and the introduction of a better tax structure.” Sanjay Kumar
