In recent years, India’s city gas distribution (CGD) sector has witnessed calibrated growth, increased utilisation of existing assets and a renewed emphasis on financial and regulatory stability. The sector’s growth is driven by maturing networks, addition of newly authorised geographical areas (GAs) and revival in industrial demand. At a recent Indian Infrastructure conference, industry experts shared the operational priorities, policy expectations and strategic adjustments expected to shape the CGD sector’s trajectory over the coming years. Edited excerpts…
Praveer Kumar Agrawal
Compressed natural gas (CNG) volumes constitute nearly 70 per cent of the Central Uttar Pradesh (U.P.) Gas’s portfolio, but growth has slowed to approximately 8-10 per cent, owing to increased electric-rickshaw penetration and the outward migration of industries from city centres. Conversely, industrial sales have surged by around 38 per cent over the past year, reflecting the rising adoption of natural gas among commercial and manufacturing consumers. Central U.P. Gas has a relatively lower domestic gas allocation, ranging between 30 and 35 per cent. This domestic portion comprises a mix of administered price mechanism (APM), non-APM, new well gas (NWG), and high-pressure high-temperature (HPHT) gas, with variations depending on availability and allocation cycles.
There is a need for significant expansion of domestic piped natural gas (DPNG) infrastructure, supported by revised taxation frameworks that have improved the segment’s viability in Uttar Pradesh. Around a 10-20 per cent increase is expected in domestic connections in the coming year. In addition, CNG growth is constrained by high taxation, which cumulatively exceeds the tax burden on several sin goods. Another key priority is promoting biogas, because a thriving natural gas ecosystem is essential for scaling compressed biogas (CBG) under the synchronised CBG-CGD scheme.
Sustained growth in CNG will require policy recognition of the climate advantages inherent in natural gas-CBG blends. Research shows that even a 5 per cent biogas blend mitigates methane leakage and yields climate benefits on par with green electric vehicles (EVs). Blending also supports domestic value chains by utilising agricultural residues such as Parali, thereby cutting emissions while fostering rural enterprise. However, excessive taxation on natural gas hampers demand and erodes competitiveness.
Further progress hinges on expedited municipal approvals and the adoption of a unified CGD policy that accounts for natural gas-CBG-hydrogen fuel complementarities. While legacy GAs continue to face challenges such as industrial relocation, delayed DPNG bill recovery and rising competition from e-mobility, especially e-rickshaws, demand from commercial users and passenger vehicles is expected to remain a critical driver of growth in Central Uttar Pradesh.
“Sustained growth in CNG will require policy recognition of the climate advantages inherent in natural gas-CBG blends.” Praveer Kumar Agrawal
Sanjeev Kumar Bhatia
Indraprastha Gas Limited (IGL), one of the leading companies in India, has exhibited steady performance over the past few years. In the Delhi-National Capital Region (NCR), which constitutes the company’s core market, CNG demand has gradually stabilised over a period. However, newer GAs, where network expansion activities are rapidly under way, have started generating volumes and are helping achieve the company’s overall demand profile. Delhi-NCR continues to account for about 80 to 85 per cent of IGL’s total volumes, with the remaining volumes now coming from these newer territories. IGL’s gas sourcing portfolio comprises APM gas, NWG and HPHT gas, collectively adding up to around 50 per cent of the total domestic component, with the remaining requirement being met through imported RLNG.
Legacy GAs face structural constraints due to limited expansion headroom, mainly due to the unavailability of suitable land parcels for establishing CNG infrastructure. Identifying non-performing entities is therefore essential to enable more capable operators to unlock value in underdeveloped areas.
In the near term, IGL aims to regain momentum despite disruptions caused by rising EV penetration in public transportation and challenges faced in gas sourcing due to the limited availability of domestic gas and volatile gas prices in the international market. The company is prioritising expanding the CNG network through various dealership models, apart from adding its own CNG stations. The same is supported by renewed engagement from automotive original equipment manufacturers whose upcoming portfolios feature a substantial share of CNG models. Concurrently, IGL is strengthening its CBG procurement strategy and expanding its footprint in liquefied natural gas (LNG) as part of a broader diversification agenda.
The company will continue to deepen penetration within Delhi-NCR through targeted marketing and accelerated household connections in peri-urban zones. In new GAs, it intends to leverage emerging industrial opportunities while remaining competitive against alternative fuels. IGL is also evaluating inorganic growth avenues to support its long-term strategic aspirations of expanding its operations across India.
Support from the MoPNG and the Petroleum and Natural Gas Regulatory Board will be crucial for the development of LNG retail infrastructure, particularly through incentives or seed mechanisms that can catalyse the adoption of LNG as a clean fuel in long-haul transportation. Given that domestic gas production is unlikely to keep pace with rising demand, greater dependence on regasified LNG (RLNG) is inevitable. In response, IGL is building a diversified sourcing portfolio with mid- to long-term contract tenures; RLNG supplies linked to multiple indices such as HH, Brent, etc.; and enhanced flexibility through favourable take-or-pay obligations.
“Support from MoPNG and the Petroleum and Natural Gas Regulatory Board will be crucial for the development of LNG retail infrastructure, particularly through incentives or seed mechanisms that can catalyse the adoption of LNG as a clean fuel in long haul transportation.” Sanjeev Kumar Bhatia
Goutom Chakraborty
GAIL Gas has registered an annual gas sales growth of 35 per cent, with approximately 48 per cent of the incremental volume driven by the CNG segment, which continues to benefit from its relative affordability despite elevated gas procurement costs. The company maintains a balanced sales portfolio, with 60 per cent of its volumes generated from the industrial segment, supported by the presence of large anchor customers across key regions. GAIL Gas sources its entire gas requirement from its parent company, GAIL. Within this mix, approximately 30 per cent comprises domestic gas, predominantly from the non-APM (NWG category), with a portion still drawn from APM allocations. NWG gas is nearly 20 per cent costlier than APM, which influences the overall pricing structure for downstream consumers. The remaining supply is met through RLNG, also procured from GAIL, supplemented occasionally by the Indian Gas Exchange.
Currently, GAIL Gas is advancing three strategic priorities. First, the company aims to secure price-stable and diversified gas supply agreements to soften the impact of market volatility. Second, it is accelerating infrastructure roll-out across its seven GAs awarded in the 9th and 10th bidding rounds to enable sustained, scalable growth. Third, the company is focused on improving revenue realisation in the DPNG segment, where outstanding receivables have reached about Rs 500 million. It is also deploying smart meters and digital monitoring tools to enhance billing accuracy and ensure timely payments.
CNG remains a core growth driver for the company. To stimulate long-term demand, GAIL Gas is investing Rs 0.5 billion to incentivise CNG vehicle adoption across its GAs. GST harmonisation for natural gas remains critical to delinking the sector from the broader petroleum tax framework, which complicates its integration into the GST regime. Additionally, the PNGRB must revisit bidding norms and extend favourable tariff zones for industries operating in RLNG-dependent regions.
Persistent global price volatility remains a major challenge in maintaining affordability across end-user segments. Further, operators with mature PNG networks are beginning to generate robust returns due to asset depreciation benefits. Particularly, DPNG continues to offer a stable and resilient demand base, helping balance the inherent cyclicality of industrial consumption.
“GST harmonisation for natural gas remains critical to delinking the sector from the broader petroleum tax framework, which complicates its integration into the GST regime.” Goutom Chakraborty
Bhashit Dholakia
The CGD sector has demonstrated strong volumetric expansion, with national sales rising to nearly 46 million standard cubic metres per day (mmscmd) from the earlier 37-38 mmscmd. This growth has been driven by the monetisation of legacy infrastructure and the commissioning of new CNG stations, both of which have directly boosted consumption. Although the pace of new infrastructure development has moderated due to the inherent lag in network build-out, utilisation levels across existing networks have increased significantly. Within IndianOil-Adani Gas Private Limited (IOAGPL), volumes have grown by nearly 30 per cent, with 65 per cent of company-wide sales arising from CNG and up to 90-100 per cent in non-industrial GAs. IOAGPL’s sourcing portfolio is broadly aligned with that of GAIL Gas, with domestic gas constituting between 30 and 35 per cent of the portfolio from APM sources. An additional 5-7 per cent comes from non-APM categories such as NWG, supplemented further by HPHT gas. In aggregate, domestic sources account for nearly 50 per cent of IOAGPL’s supply. The balance is secured through RLNG, which forms the other half of the company’s sourcing basket. This relatively higher domestic share provides a marginal cost advantage compared to operators with heavier RLNG dependence.
IOAGPL is now prioritising the optimal utilisation of capacity created through years of Minimum Work Programme investments. In the coming year, the company plans to intensify efforts to onboard domestic consumers and enhance throughput from established assets. While infrastructure expansion will continue, the strategic focus will remain on converting installed capacity into revenue-generating volumes. Parallelly, IOAGPL is advancing its digital transformation initiative to strengthen operational efficiency, compliance and customer experience. Key growth enablers include rising throughput from maturing GAs, the commissioning of major transmission pipelines such as the Maharashtra-Odisha corridor, and the inclusion of natural gas under GST. GST implementation would materially enhance price competitiveness and stimulate industrial and commercial adoption.
A key concern is that India may enter a sustained period of low-cost LNG availability yet fail to fully leverage it due to a high-tax regime that restricts affordability and competitiveness.
Moving ahead, regulatory recalibration is needed regarding domestic-connection timelines and penalty frameworks, ensuring alignment with operational realities and supporting long-term financing. A prolonged low-priced LNG phase over the next two to three years is expected to revive industrial consumption. While industrial demand growth may remain conservative at below 6 per cent, favourable fiscal interventions, such as GST inclusion and reduced state-level value added tax, could meaningfully accelerate uptake and improve overall system utilisation.
“Given that rising demand cannot be met through domestic gas supplies alone, substantial opportunities exist for international LNG trading entities to partner with CGD operators.”
Nayantara Nag
While regulatory developments in the CGD sector have generally been proactive, several ambiguities continue to weigh on investor sentiment, particularly in the context of secondary market transactions. With all GAs now allocated, investors are increasingly seeking equity participation in operational CGD entities. However, inconsistencies in PNGRB approvals for ownership changes have introduced uncertainty. Divergent interpretations of Regulations 10.3 and 10.4 pertaining to transfer and relinquishment further compound these concerns.
Unlike concession-based sectors such as highways and ports, the CGD framework does not provide explicit lender protections, leaving financing institutions with elevated exposure. Clearer guidance on penalty regimes, especially for non-performing GAs, is therefore critical to enhancing the sector’s bankability and attracting long-term institutional capital.
Given that rising demand cannot be met through domestic gas supplies alone, substantial opportunities exist for international LNG trading entities to partner with CGD operators. Secondary transactions are expected to increase meaningfully once regulatory predictability improves and penalty structures become more transparent. To unlock broader institutional participation, the sector requires clarity on penalty calculations, the removal of double-counting provisions and formal recognition of lender rights. These measures will be essential to strengthening investor confidence and enabling sustained capital inflows.
“Given that rising demand cannot be met through domestic gas supplies alone, substantial opportunities exist for international LNG trading entities to partnerwith CGD operators.”
