India has set an ambitious target to increase the share of natural gas in its energy mix to 15% by 2030, positioning it as a cleaner alternative to coal. Natural gas is viewed as a "bridge fuel" in the country’s energy transition, offering lower carbon emissions compared to coal while meeting the growing energy demands of a rapidly developing economy. However, with such a lofty target, a crucial question arises—are the current efforts enough to meet the goal?

Expansion of City Gas Distribution Networks

The Indian government’s focus on expanding the City Gas Distribution (CGD) networks has been one of the key strategies in pushing natural gas usage across the country. LNG terminals have been developed, and thousands of kilometers of pipelines have been laid to facilitate this expansion. The increase in Geographical Areas (GAs) from 54 in 2013 to 307 by 2024 reflects a significant momentum achieved through multiple bidding rounds, including the 12th CGD Bidding Round concluded in March 2024. The goal here is 100% national CGD coverage.

Despite this remarkable infrastructure growth, the actual gas uptake in newly licensed areas is quite low. For instance, states like Arunachal Pradesh, Odisha, West Bengal, and Chhattisgarh—which gained coverage in later bidding rounds—are still showing very low gas consumption. This highlights a critical paradox: Infrastructure expansion alone does not guarantee increased demand.

Price Sensitivity and the Demand-Supply Mismatch

India's domestic gas production has plateaued in recent years, and the country is increasingly reliant on imported LNG to meet its growing demand. This shift has led to higher costs, as re-gasified LNG (RLNG) from international markets has become more expensive. As a result, CGD companies have been forced to raise prices for consumers, making natural gas less attractive, especially in newly operational GAs.

Price sensitivity is a major challenge in the CGD sector, as rising prices have slowed demand growth in both urban and rural areas. With petrol and diesel prices still competitive, and electric vehicles (EVs) gaining popularity with government incentives, natural gas faces tough competition as a fuel choice.

Government Subsidies and Sectoral Disparities

While the fertilizer sector, the largest consumer of natural gas in India, is shielded from price fluctuations through government subsidies, the CGD sector continues to face demand stagnation despite infrastructure expansion. These disparities underscore the need for policy interventions to address demand-side barriers, such as targeted incentives for new consumers, dynamic pricing mechanisms, and strategies for increasing upstream investment in domestic gas production.

The Role of Natural Gas in the Energy Transition

Natural gas is increasingly recognized as a low-carbon option in comparison to coal. However, it is important to note that growing dependence on imported LNG exposes the country to global price fluctuations and additional lifecycle emissions from liquefaction, transportation, and regasification. While imports will continue to play a crucial role, India must focus on boosting its domestic production to reduce reliance on costly and environmentally taxing imports.

Furthermore, the declining price competitiveness of natural gas relative to EVs and subsidized LPG is a growing concern. The electric vehicle sector is receiving increasing policy support, and while EVs have low emissions at the tailpipe, their overall carbon footprint remains high due to reliance on coal-heavy power generation.

The Path Forward for a Gas-Based Economy

To achieve a gas-based economy and meet the 15% target by 2030, India must address supply-demand imbalances and price issues. This requires significant policy changes, such as pricing reforms, improved investment incentives, and targeted demand-side measures. Importantly, natural gas must receive policy support on par with the electric vehicle sector to compete with alternatives like electric vehicles and LPG.

As India moves toward a sustainable energy future, natural gas must remain a key player in the country's energy strategy, offering immediate environmental benefits and serving as a transitional fuel.

Conclusion

India’s vision for a gas-based economy is bold and necessary, but it faces significant hurdles. A balanced approach—combining infrastructure development, pricing reforms, and demand-side interventions—will be essential for transforming India into a leading natural gas consumer. The coming years will determine whether this transition can successfully bridge the gap between aspirations and reality.

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