The International Energy Agency (IEA) has urged India to implement crucial reforms in its natural gas sector, including freeing up gas pricing and unbundling marketing from transportation. These measures are expected to drive investment, increase consumption, and improve long-term energy security.
In its latest India Gas Market Report: Outlook to 2030, IEA projects a 60% rise in India’s gas consumption by 2030, reaching 103 billion cubic metres (bcm) annually. As India aims to increase the share of natural gas in its energy mix from 6% to 15% by 2030, the IEA emphasizes the need for a more competitive, transparent, and market-driven gas sector.
Gas Pricing: Need for Full Deregulation
Currently, gas pricing in India is regulated, with price caps imposed on production from both legacy and deep-sea fields operated by state-owned firms such as ONGC and Oil India Ltd. The IEA argues that this pricing structure discourages investment and limits domestic production growth.
“The anticipated easing of global gas market conditions in the latter half of the decade provides an opportunity for the government to implement full gas pricing freedom,” the IEA report states.
The agency suggests a phased approach to pricing freedom, following the recommendations of the Kirit Parekh Committee (2022). This could start with:
- Lifting the price ceiling on deepwater and high-pressure fields.
- Allowing upstream producers to sell more gas on the Indian Gas Exchange (IGX).
Market Reform: Unbundling Gas Transmission and Marketing
India’s gas infrastructure is dominated by GAIL, which owns most of the transmission pipelines and also operates as the country’s largest gas trader. This creates potential conflicts of interest, as the same entity controls both transportation and sales.
IEA emphasizes that separating gas supply and pipeline operations—a practice followed in Europe and North America—would enhance competition, improve infrastructure use, and support greater gas adoption.
Key recommendations include:
- Creating an independent gas transmission system operator (TSO) to ensure fair access to pipeline networks.
- Standardizing contracts and tariffs across pipeline operators to promote transparency.
- Strictly enforcing a code of conduct to prevent conflicts of interest.
“In the long run, legal separation of gas transport and marketing will increase flexibility and strengthen India’s gas market,” the report notes.
Gas Demand and Infrastructure Growth
IEA reports that India’s gas demand surged over 10% in both 2023 and 2024, signaling a turning point for the sector. The city gas distribution (CGD) segment, including CNG for transport and piped gas for households, is expected to drive growth.
Key projections by 2030:
- CNG stations and household gas connections to nearly double.
- Gas use in manufacturing and oil refining to rise significantly.
- Domestic production to increase by 8%, reaching just under 38 bcm.
- LNG imports to more than double, reaching 65 bcm per year.
Challenges and the Need for Policy Support
While India’s gas market is set for expansion, the IEA warns of potential risks if policy measures are not implemented in time. Key concerns include:
- Import dependence: Domestic gas supply will not meet rising demand, requiring long-term LNG procurement strategies.
- Infrastructure bottlenecks: Pipeline expansion and city gas network growth must keep pace.
- Price competitiveness: Tax incentives for natural gas in transport and industry could make it more viable compared to coal and oil.
IEA suggests aligning import duties on gas with crude oil, lowering GST on CNG vehicles, and providing incentives for bio-CNG and hydrogen projects.
India’s gas market is at an inflection point, and strategic policy interventions are crucial to unlocking its full potential. By liberalizing pricing, unbundling infrastructure, and supporting LNG imports, India can strengthen energy security, attract investments, and accelerate its transition to a cleaner energy future.
