India's Natural Gas Growth Hinges on Infrastructure Investment and Pricing Reforms

India's long-term natural gas growth will depend on expanding LNG import capacity and accelerating investment in transmission and distribution infrastructure, as well as reforms to market design, regulation, and pricing. According to a report by the International Gas Union (IGU), India has significantly expanded regasification terminal capacity but lags behind in midstream infrastructure development.

The country's heavy reliance on Gulf-sourced LPGs and LNG, particularly from Qatar, makes it vulnerable to disruptions such as the Strait of Hormuz crisis. The report notes that even a short-term price shock can upend the economics of imported gas for Indian power producers, industrial, and domestic customers.

The IGU argues that reforms to pricing mechanisms and market access will be essential to support sustained growth in gas demand. It also highlights the need for further liberalization of LNG terminal capacity bookings and system entry charges to enable buyers to respond more effectively to short-term price opportunities.

In order to compete with coal, the report states that new transmission lines underpinned by competitive transport tariffs are needed to provide reliable supply to areas where the gas network is sparse. The IGU also emphasizes that lower wholesale gas prices alone will not be sufficient to drive higher gas consumption; greater investment in infrastructure, commercial contracting, and broader market reforms will be necessary.

The report notes that India's pricing framework has undergone multiple changes over the past decade, shifting from a heavily regulated system to hub-linked pricing in 2015 before being revised again in 2022. The current mechanism moderates prices but keeps domestic gas prices above $7 per million British thermal units, which is higher than what the earlier hub-linked formula would have resulted in.