THIS ARTICLE IS WRITTEN BY MR. AJAY MARCHANDA, DIRECTOR (ENERGY AND INFRASTRUCTURE), ALAYA LEGAL
The energy sector forms the backbone of industrial growth in any economy. Energy availability and economic development are closely interconnected, with reliable energy supply serving as a critical driver of industrialization, infrastructure development and overall economic progress.
Like many developing nations, India remains heavily dependent on coal, crude oil and natural gas to satisfy its domestic and commercial energy requirements. However, limited domestic availability of these resources has resulted in significant reliance on imports.
Given India’s historical practice of providing energy subsidies to consumers, the cost of imported energy resources often creates concerns relating to affordability, availability and fiscal sustainability. Additionally, the environmental impact associated with coal and oil consumption has encouraged policymakers to promote the vision of a natural gas-based economy.
Globally, natural gas is increasingly being recognized as a preferred energy source due to its four key advantages:
- Abundance
- Availability
- Affordability
- Acceptability
Compared to coal and liquid fuels, natural gas offers a significantly cleaner environmental footprint, making it an important component of the global energy transition.
CHALLENGES IN BUILDING A GAS-BASED ECONOMY
Gas Demand
India commenced Liquefied Natural Gas (LNG) imports in 2004. Prior to that, industries largely depended upon domestically produced natural gas, which was allocated by the Government primarily to the power and fertilizer sectors because these sectors benefited from fuel subsidies.
Other industrial sectors received comparatively limited access to natural gas supplies. Even after LNG imports began, government allocation policies continued to prioritize the power and fertilizer sectors. However, these sectors often remained reluctant to enter into long-term commitments for Regasified Liquefied Natural Gas (RLNG).
Unsold RLNG volumes were subsequently marketed by Oil Marketing Companies (OMCs) to industries operating in other sectors. As RLNG availability improved, demand began emerging from a broader range of industrial consumers and the City Gas Distribution (CGD) sector.
With domestic production remaining constrained, India will increasingly need LNG imports to satisfy growing demand for natural gas.
Gas Infrastructure
Although several LNG import terminals have been commissioned in recent years, including facilities along India’s eastern coastline, the country’s gas transportation infrastructure remains limited.
Historically, natural gas pipeline networks have been concentrated primarily in northwestern regions of India, restricting access to natural gas in several parts of the country.
Since its establishment in 2006, the Petroleum and Natural Gas Regulatory Board (PNGRB) has been working towards development of a National Natural Gas Pipeline Grid.
While substantial progress has been achieved, significant investment and expansion remain necessary to ensure that natural gas becomes accessible to domestic and commercial consumers across all regions of India.
Affordability
Indian consumers, both residential and commercial, remain highly price sensitive. The existence of subsidies for alternative fuels often creates challenges when attempting to transition consumers from conventional fuels to natural gas.
For example, subsidized LPG pricing can reduce the attractiveness of switching households to Piped Natural Gas (PNG).
Since the domestic supply deficit is increasingly being addressed through imported LNG, it becomes important for both industries and households to gradually accept market-driven pricing mechanisms.
Government initiatives encouraging financially capable consumers to voluntarily surrender LPG subsidies have created opportunities for PNG expansion into residential markets.
Increasing Domestic Production
Domestic natural gas production in India remains significantly below current and projected demand levels.
Existing production forecasts provide limited assurance regarding substantial future supply increases from conventional resources.
To enhance energy security and reduce dependence on imports, India must actively pursue development of non-conventional gas resources, including:
- Shale Gas
- Coal Bed Methane (CBM)
- Gas Hydrates
- Other Unconventional Hydrocarbon Resources
Successful exploration and commercialization of these resources could significantly strengthen domestic gas availability.
Taxation
Natural gas currently remains outside the scope of the Goods and Services Tax (GST) framework.
As a result, individual states continue to impose separate taxes on natural gas, creating variations in pricing and increasing transaction complexity.
Multiple layers of state taxation often affect free movement of gas across state boundaries and increase delivered costs for consumers.
To support development of a national gas market, there is a need for:
- Uniform taxation policies.
- Inclusion of natural gas within GST.
- Facilitation of bidirectional gas movement and pipeline swaps without multiple taxation events.
THE WAY FORWARD
The Government of India has already undertaken several initiatives aimed at transforming the country into a gas-based economy. These include expansion of LNG infrastructure, development of pipeline networks, promotion of City Gas Distribution systems and encouragement of natural gas consumption across sectors.
However, successful realization of this vision will depend upon:
- Accelerated development of gas infrastructure projects.
- Expansion of pipeline connectivity across the country.
- Increased exploration and production of domestic gas resources.
- Consumer-friendly taxation reforms.
- Market-oriented pricing mechanisms.
- Greater adoption of natural gas by industrial and residential consumers.
India’s transition toward a gas-based economy has the potential to improve energy security, reduce environmental impact and support sustainable economic growth. Achieving this objective will require coordinated efforts in infrastructure development, policy reform, domestic production enhancement and market liberalization.
