India’s city gas distribution (CGD) sector is undergoing significant transformation, driven by rapid urbanisation, rising energy demand and the government’s growing emphasis on low-carbon energy resources. Natural gas currently accounts for around 7 per cent of the country’s energy mix. India is the third largest emitter of greenhouse gases (GHGs), with energy-related emissions being one of the major contributors. To accelerate the clean energy transition, the government has set a target to increase the share of natural gas in the energy mix to 15 per cent by 2030. Against this backdrop, the CGD sector is expected to play a key role by providing last-mile connectivity through both compressed natural gas (CNG) stations and piped natural gas (PNG) connections to consumers.
Mapping the network expansion
With rising demand for natural gas in India, the CGD sector continues to witness network expansion across all key segments. Over the past year, the number of CNG stations and PNG connections, across domestic, commercial and industrial segments, has increased significantly. As of May 2025, the number of CNG stations in the country stood at 8,154, an 18 per cent year-on-year increase from 6,907 in May 2024. The total number of PNG connections reached around 15.33 million, up from around 13.13 million during the same period last year, reflecting a growth of 16.7 per cent. Within this, domestic connections grew by nearly 17 per cent to 15.26 million, commercial connections by over 3 per cent to 45,730 and industrial connections by 8 per cent to 20,697.
As of February 2025, the Petroleum and Natural Gas Regulatory Board (PNGRB) has authorised 307 geographical areas (GAs) for the development of the CGD network covering close to 100 per cent of the country’s mainland geographical area through various bidding rounds. The government has set the target to set up around 126 million domestic PNG connections and 18,336 CNG stations by 2034. However, land acquisition challenges and limited connectivity to the national grid continues to hinder progress. As of June 2025, 91 authorised GAs remain unconnected to the national grid. Of these, around 44 are currently being served through tankers, while 21 remain unserved. In a positive development, the PNGRB has announced plans to connect 44 of these GAs by December 2025.
Market trends
The share of natural gas in India’s energy mix has remained modest over the years, largely due to high dependence on imports and stagnant domestic production. However, with the government placing greater emphasis on clean fuels and demand steadily rising, the role of natural gas is set to grow in the coming years. Moreover, the CGD sector is expected to surpass the fertiliser sector to become the largest consumer of natural gas in India by 2030.
Currently, the sector accounts for around 21 per cent of the country’s total natural gas consumption, which is expected to grow at a CAGR of 10 per cent, from approximately 41 million metric standard cubic metres per day (mmscmd) in 2024-25 to about 72 mmscmd by 2029-30, raising its share to 25 per cent of the total consumption. Within the CGD segment, the primary growth drivers have been the increasing adoption of CNG vehicles and the expansion of the CNG station network. Meanwhile, domestic PNG connections still have low penetration, indicating significant potential for future growth.
According to industry reports, major CGD players recorded an average revenue growth of 18 per cent between 2019 and 2024. This trend is expected to continue in the short term. However, of late, the profitability of these companies has been impacted by reduced allocations of administered price mechanism (APM) gas. This is likely to improve in 2025-26, with an anticipated increase in APM gas supply. In the medium term, profitability will likely be supported by rising volumes and improved operating efficiency. Over the long term, sustained profitability will depend significantly on the gas sourcing strategies adopted by CGD companies.
Sectoral challenges and the need for policy intervention
The gas sector remains highly capital-intensive, with long monetisation cycles posing challenges for operators, particularly in the PNG segment. Expanding the CGD network into Tier II and Tier III cities and rural regions is further hampered by infrastructural and socio-economic gaps, highlighting the need for targeted interventions. Pipeline construction in these areas is often delayed by persistent issues such as utility conflicts, right-of-way hurdles, regulatory bottlenecks and difficult terrain – all contributing to time and cost overruns.
In mature GAs, there are operational complexities due to ageing infrastructure, the need for asset replacement, rapid urban development and increasing congestion. In contrast, newly authorised GAs often lack reliable transmission connectivity. The growing adoption of electric vehicles (EVs) is an emerging competition to CNG vehicles and, in turn, CGD operators. EVs benefit from tax incentives across the value chain, placing CNG at a disadvantage.
Another key concern is the lower allocation of APM gas, which can raise input costs for CGD companies. To address this, the government must ensure greater price stability and a level playing field so that natural gas remains competitive against polluting alternatives. The sector also faces a shortage of experienced contractors, who often charge premium rates, thereby driving up project execution costs. Moreover, limited domestic manufacturing capability for CGD-specific equipment further constrains development. Land acquisition for CNG stations and delays in obtaining necessary permissions and statutory clearances present additional challenges. There is a need to create a single-window clearance system to ensure timely project completion.
In recent years, the government has introduced key initiatives to improve gas pricing efficiency and stability. For instance, in April 2023, the government implemented APM gas prices based on the recommendations of the Kirit Parikh Committee. Additionally, the launch of the Indian Gas Exchange in 2020 has facilitated better price discovery. Despite such moves, much is yet to be done.
The inclusion of natural gas under the Goods and Services Tax (GST) regime has been a long-awaited decision. Further, offering subsidies for natural gas, similar to the Pradhan Mantri Ujjwala Yojana for liquefied petroleum gas (LPG), could help promote PNG as a cleaner and more efficient fuel. Households receiving PNG connections should be encouraged to surrender their LPG connections, ensuring subsidised LPG connections are reserved for those who need them. Equally important will be a balanced gas sourcing strategy by CGD operators that combines APM gas, long-term regasified liquefied natural gas (R-LNG) contracts, and optimised spot purchases of LNG. The greater involvement of state governments in gas market development can help create a more supportive ecosystem for CGD growth. Moreover, the establishment of core infrastructure prior to PNG system roll-out is essential. To this end, regulatory intervention is required to ensure timely and reliable connectivity, enabling the seamless expansion of the pipeline network.
The way forward
Looking ahead, the CGD sector is set for further growth, supported by a projected capital expenditure of around Rs 300 billion over 2024-27 as per industry reports. This investment will drive infrastructure expansion across the untapped market. However, sustaining this growth will require overcoming several key challenges.
One of the primary concerns is the sector’s increasing reliance on imported R-LNG, with its share expected to rise from around 26 per cent in 2023-24 to nearly 55 per cent by 2029-30. This highlights the need for CGD operators to secure long-term gas supply contracts to manage price volatility and ensure affordability, especially as they compete with alternative fuels. The progress continues to be slow in connecting authorised GAs to the national grid. Timely expansion of the transmission network and effective last-mile connectivity will be essential to unlock the full potential of planned investments. The government’s focus on compressed biogas (CBG) also presents a promising opportunity. It plans to set up 5,000 CBG plants across the country to contribute to a sustainable supply mix.
Going forward, the sector will witness increased digital deployment, with companies incorporating advanced technologies such as smart meters, supervisory control and data acquisition systems, edge computing and geographic information systems. These technologies will enhance asset mapping, enable real-time monitoring and improve efficiency. Overall, natural gas is well positioned to act as a transition fuel in India’s journey towards a cleaner energy future, provided supportive policies are in place.
Bhavya Bhandari
