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ndia’s city gas distribution (CGD) segment has witnessed significant growth in coverage and infrastructure over the years. The segment primarily involves the supply of piped natural gas (PNG) to domestic, commercial and industrial consumers, and compressed natural gas (CNG), as a transport fuel, through CNG stations. The retail prices of CNG and PNG vary across geographical areas (GAs), and are determined by the respective CGD entities. Key factors taken into consideration for price determination include the costs of gas, supply and distribution, entity margins, state taxes, and value-added tax (VAT). Several initiatives have been taken to keep domestic piped natural gas (DPNG) and CNG lower than liquefied petroleum gas (LPG) and liquid transport fuel prices.
Network expansion under CGD
The Petroleum and Natural Gas Regulatory Board (PNGRB) has successfully completed 12 bidding rounds, authorising entities to develop CGD networks in 307 GAs. This covers 733 districts across 34 states and union territories. As per the minimum work programme (MWP) target, the country aims to have over 126.3 million domestic PNG connections, 18,336 CNG stations and over 546,867 inch-km of pipeline infrastructure by 2034. Against this target, as of August 31, 2025, the country has achieved over 15.4 million PNG connections, 8,269 CNG stations and 297,268 inch-km of pipeline infrastructure. Further, as of June 2025, the authorised natural gas pipeline network in India stood at 34,233 km, with 32,661 km of common carrier pipelines, 792 km of tie-in connectivity and 780 km of dedicated pipelines. The total operational length stood at 25,429 km while 10,459 km was under construction.
Varying VAT rates across states
VAT rates levied on natural gas is seen to vary across states ranging from 5 per cent to over 20 per cent. This variation, in addition to other price determinants, causes price differences across states, in turn affecting prices for end users. As of July 2025, gas saw varied prices for both CNG and DPNG across GAs, with CNG retail prices ranging from Rs 74.6 per kg to Rs 125 per kg and DPNG prices ranging from Rs 38.25 per standard cubic metre (scm) to Rs 66 per scm.
The varying VAT structure across states can affect investment decisions, create an uneven playing field and influence prices for end consumers. Hence, VAT rationalisation across states could help create a stable, competitive and inclusive natural gas market, promoting equitable and affordable access for consumers across regions. PNGRB has also been encouraging states to lower VAT on natural gas. For instance, Bihar reduced VAT on CNG and PNG from 20 per cent to 12.5 per cent, and VAT on PNG for industrial use from 20 per cent to 5 per cent.
Amendment to regulations
A notable regulatory development was the PNGRB’s approval of the second amendment of the Natural Gas Pipeline Tariff Regulations in July 2025. The amendments aim to ensure equitable benefits for both consumers and industrial players.
Earlier, India’s gas grid featured three tariff zones based on distance from the gas source: Zone 1 for up to 300 km, Zone 2 for distances between 300 km and 1,200 km and Zone 3 for distances beyond 1,200 km. The amendment reduces the number of unified tariff zones from three to two: Zone 1 up to 300 km and Zone 2 beyond 300 km. The move is aimed towards ensuring a more equitable tariff structure, while also driving for better natural gas access in regions previously underserved.
The amendment also focuses on strengthening the CNG and domestic PNG segments by enhancing affordability and promoting clean energy adoption. In line with this, the benefits of the unified zonal tariff for Zone 1 have been extended nationwide. Notably, tariffs have been a key focus area., A mandate has been put forth for pipeline operators to procure at least 75 per cent of their annual system-use gas through long-term contracts with a minimum tenure of three years. The move is expected to mitigate risks associated with procurement and improve cost efficiency in transactions. The affordable and predictable tariffs will benefit both consumers and investors. Moreover, while the country moves towards a gas-based economy, the amendments emphasise future expansions. Pipeline entities with utilisation levels of over 75 per cent are now required to create a dedicated pipeline development reserve. These net-of-tax earnings are to be equally divided for reinvestment into infrastructure development, and to be passed on to consumers through tariff adjustments.
Curb on differential pricing for domestic PNG
PNGRB has issued directives and recommendations on pricing, while focusing on consumer affordability. In a recent development, it directed CGD companies to withdraw differential pricing for domestic PNG customers, and to not charge based on consumption thresholds. Such differential prices could lead to the misclassification of commercial consumers as domestic consumers, enabling the unauthorised use of subsidised administered price mechanism (APM) gas. Further, domestic consumers with higher consumption levels could be unfairly subjected to elevated charges, even though CGD entities receive natural gas at a uniform APM rate. As directed, a uniform rate must be applied for domestic PNG for all household consumers, irrespective of the consumption levels. Moreover, companies have been advised to review atypical cases where domestic consumption is notably higher than the average, and undertake corrective measures as per the regulations.
Revisions in domestic gas pricing guidelines
Gas pricing underwent major reforms with the revised domestic gas pricing guidelines, released in April 2023. Earlier, gas prices were determined based on the weighted average of the producer price in four foreign markets. As per the guidelines, the price of natural gas produced from the nomination fields of Oil and Natural Gas Corporation Limited (ONGC) or Oil India Limited (OIL), as well as from New Exploration Licensing Policy (NELP) blocks and pre-NELP blocks where production sharing contract provides for government’s approval of prices would be 10 per cent of the monthly average of the Indian Crude Basket. APM prices for gas produced by ONGC and OIL from their nomination blocks would be subject to a floor and a ceiling. The price was capped at $6.5 per metric million British thermal units (mmBtu) for two years, subject to a $0.25 per mmBtu increase on a yearly basis thereafter. Further, a 20 per cent premium over the APM price was permitted for gas from New Well or Well Interventions of the ONGC and OIL nomination fields. The guidelines aim to provide domestic gas consumers with a stable pricing regime and protect producers from adverse market fluctuations.
With the completion of the two-year period, the price cap was increased to $6.75 per mmBtu in April 2025. However, APM prices were reduced for the first time in two years in June 2025 from $6.75 per mmBtu to $6.41 per mmBtu. They were raised again in July 2025 to $6.75 per mmBtu. While prices fluctuate, the price ceiling has had a positive impact on CGD players. With a notable portion of gas sourced from APM, input prices for this portion remain low, impacting profitability and retail prices.
A key challenge has been the declining allocation of APM gas in recent months. In April 2025, several CGD operators witnessed notable cuts in APM gas allocations, at up to 20 per cent. As a result, gas would have to be sourced from new wells or well intervention gas, which is priced higher, thereby impacting profitability. The increase in input costs may also impact consumers.
In sum
The gas exchange is emerging as a competitive platform for gas sourcing. Indian Gas Exchange Limited (IGX), an automated national-level gas exchange, allows multiple buyers and sellers to trade in spot and forward contracts. With the key objective of maintaining market integrity, it enables efficient and competitive gas price discovery. IGX offers a range of products for CGD operators, including weekday contracts, daily or day-ahead contracts and benchmark-linked contracts among others. Notably, several CGD entities were able to source gas from IGX at short notice and at competitive prices when APM was reduced.
CGD network expansion is a key focus area in the country’s ongoing efforts to build a cleaner and more sustainable energy future. It is also in line with the government’s target to increase the share of natural gas in the energy mix to 15 per cent by 2030. Moreover, the country has seen notable efforts to streamline pricing and ensure the provision of affordable fuel to consumers. While challenges such as varying VAT rates across states, declining APM allocations and demand fluctuations persist, regulatory efforts are expected to help mitigate these issues and pave the way for a gas-based economy. Further, PNGRB is committed to facilitating ease of doing business while prioritising consumer affordability. It is also promoting the formulation and implementation of state-level CGD policies.
Shreya Annie Mathew
