Unlocking the Potential for a Gas-Based Economy in India

POLICY BRIEF

17 June, 2026 | Industrial Sustainability

Sabarish Elango and Hemant Mallya

Suggested citation: Elango, Sabarish and Hemant Mallya. 2026. Unlocking the Potential for a Gas-Based Economy in India. New Delhi: Council on Energy, Environment and Water.

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Overview

India is among the world’s fastest-growing major economies. Over the past two decades, total primary energy demand has more than doubled, driven by rising population, income, and consumption. Coal and oil together account for over 80 per cent of this supply, while natural gas contributes only approximately 5 per cent, well below the government’s target of a 15 per cent share in the primary energy mix by 2030. Closing this gap requires addressing both the supply and demand sides of India’s gas economy.

A key challenge on the supply side is stagnating domestic production. India consumed a record 68 billion cubic metres (bcm) of gas in 2023–24, of which 47 per cent was imported as liquefied natural gas (LNG), with Qatar supplying 40–50 per cent of import volumes. This concentration exposes consumers to volatile global prices, geopolitical issues and resulting supply chain risks. At the same time, the complex taxation structure for natural gas, which sits outside the goods and services tax (GST) regime, leads to higher delivered prices and reduces the competitiveness of gas relative to other fuels across sectors.

Despite these challenges, significant untapped demand potential exists across several sectors. The city gas distribution (CGD) network, driven by compressed natural gas (CNG) in transport, has been growing at 8.7 per cent per year. The steel sector presents a major decarbonisation opportunity, as switching to gas-based routes could substantially reduce India’s steel emission intensity while offering a ready pathway for switching to green hydrogen-based clean steel production. Liquefied natural gas also offers a medium-term solution for cutting diesel demand heavy-duty freight, which accounts for over 40 per cent of road transport emissions. Small and medium enterprises transitioning from furnace oil, naphtha, and LPG represent a further growth segment.

This brief recommends a two-pronged approach. The first track focuses on rationalising domestic policy and price structures, including bringing natural gas under GST, reforming pipeline access and tariff mechanisms, and strengthening gas market trading. The second track focuses on securing and diversifying the supply base through government-to-government cooperation, long-term contracts with new partner countries, and investments in supply chain infrastructure. Together, these 11 recommendations provide a practical roadmap for India to realise the economic, energy security, and decarbonisation benefits of a more gas-intensive economy.

Key highlights

Natural gas accounts for only approximately 5 per cent of India’s primary energy mix, against the government’s target of 15 per cent by 2030. Modelling suggests this target is unlikely to be achieved at the current rate of growth under the present policy environment.
India consumed 68 bcm of natural gas in 2023–24, of which 47 per cent was imported as LNG. Qatar supplies 40–50 per cent of annual import volumes, creating supply chain concentration risk. Since December 2024, India has signed approximately 11 million tonnes per annum (Mtpa) of new long-term LNG contracts, 8 Mtpa of which are with Qatar.
The steel sector could absorb over 5 bcm per year of natural gas if priced at USD 8 per million British thermal units (MBtu). Gas-based steel has 30–60 per cent lower carbon dioxide (CO₂) emissions than coal-based steel, offering a competitive advantage as the European Union’s Carbon Border Adjustment Mechanism (CBAM) tightens import requirements.
Over 25 GW of gas-based power capacity exists in India, but plants operated at only 14.9 per cent capacity utilisation in 2023–24. Inflexible pipeline access rules are a key barrier; reforms to allow 24/7 interruptible capacity bookings would enable gas plants to better serve peak-load and grid-balancing needs.
The CGD network is growing rapidly, with demand expanding at a compound annual growth rate of 8.7 per cent. LNG also offers a medium-term decarbonisation pathway for heavy-duty freight, which accounts for over 40 per cent of road transport CO₂ emissions and is projected to exceed 50 per cent by 2045.
Only approximately 2 per cent of India’s gas demand is traded through the Indian Gas Exchange (IGX). Expanding exchange-based trading and allowing LNG imports to be traded on the IGX would improve price discovery and market transparency.
Turquoise hydrogen, produced from natural gas via methane pyrolysis, reduces lifecycle CO₂ by approximately 84 per cent compared with grey hydrogen, with solid carbon particles as a saleable by-product. Pilot projects can establish its viability as a near-term bridge to green hydrogen.
The 11 recommendations span two tracks: rationalising domestic policy (recalibrating the 15 per cent gas penetration target; including natural gas under GST; reforming pipeline tariff and access mechanisms; strengthening exchange-based trading; developing methane control protocols; and investing in turquoise hydrogen pilots); and securing supply (diversifying LNG import sources; consolidating demand signals; strengthening government-to-government cooperation; investing in supply chain infrastructure; and leveraging gas-based exports under the CBAM framework).

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Sabarish Elango

Programme Lead

[email protected]

"India’s 15 per cent gas penetration target was always ambitious, but the barriers are policy-made, not structural. Bringing natural gas under GST, reforming pipeline access, and consolidating demand signals can collectively move India closer to a gas-based economy that is both cleaner and more energy-secure."

Executive summary

As one of the world’s fastest-growing major economies, India has witnessed a doubling of its total primary energy demand over the past two decades. This demand has been met predominantly by coal and oil, which together account for over 80 per cent of the country’s energy supply (IEA 2025). Although natural gas consumption has also doubled during this period, its share in the total primary energy mix remains relatively low at about 5 per cent as of 2022 (IEA 2025). The Government of India (GoI) initially set a target of increasing the share of natural gas to 15 per cent by 2030, consistent with India’s revised Nationally Determined Contributions (NDCs) and its commitment to achieving net-zero emissions by 2070. Achieving this growth, which could result in gas consumption tripling by 2040, will necessitate increasing gas penetration in sectors traditionally reliant on oil and coal, such as road transport, steel manufacturing, and other industries.

However, several barriers hinder the adoption of natural gas. Stagnating domestic production has increased India’s reliance on imports, exposing consumers to volatile global prices, with domestic output at approximately 36 bcm per year against total demand of 68 bcm in 2023–24, generating an import burden of USD 13.4 billion (PPAC 2025). Regulatory ambiguities, particularly regarding marketing and infrastructure exclusivity for city gas distribution (CGD) networks, and the incompatibility between the value-added tax (VAT) and goods and services tax (GST) regimes, create cascading tax burdens that raise end-consumer prices. The recent conflict in West Asia has also exposed India’s strategic vulnerabilities, with its current LNG import basket 60 per cent dependent on affected trade routes (Department of Commerce 2025).

Despite these challenges, significant opportunities exist to increase demand. The CGD sector, driven largely by the use of compressed natural gas (CNG) in transport, represents a key growth segment. The steel industry, which aims to double its production capacity, presents a substantial decarbonisation opportunity through gasbased production that cuts emissions by up to 60 per cent and offers a straightforward pathway towards green hydrogen–based clean steel production (Elango et al. 2023; Nduagu et al. 2022; Yadav et al. 2021). Liquefied natural gas (LNG) can also serve as a medium-term solution for heavy-duty freight, cutting diesel demand while offering lower emissions intensity (Mohan et al. 2025). In the power sector, currently underutilised gasbased power plants can play a crucial role in managing grid intermittency as renewable energy capacity expands under India’s Panchamrit targets.

To unlock the full potential of natural gas, this brief recommends a two-pronged approach. First, rationalise domestic policies and price structures by streamlining taxation, removing regulatory ambiguities, and fostering free-market principles, such as open access to gas sourcing and transmission infrastructure. Second, negotiate for favourable import contracts by aggregating demand at the national level and engaging directly with governments and trading partners to ensure better price discovery and reliable, diversified supply. The key findings and recommendations for this strategy are as follows:

Recalibrate the national gas penetration target. Natural gas accounts for approximately 5 per cent of India's primary energy mix, well below the 15 per cent target for 2030; modelling suggests this gap is unlikely to close (IEA 2025; Das et al. 2025). Achieving this target is challenging under current conditions. Instead, the government can establish complementary sector-specific targets for priority sectors, such as steel and road freight, where gas can play an essential role in the transition.
Diversify and hedge import sources. India's LNG imports are concentrated, with Qatar supplying 40– 50 per cent of annual import volumes (Department of Commerce 2026). India should pursue long-term contracts with Canada, Mozambique, Argentina and Australia, the United Arab Emirates (UAE) and the United States of America (USA). Significant additional LNG export capacity is expected to come online in these countries by 2030. Securing new contracts during this phase could improve demand visibility for exporters and lower prices for India.
Consolidate demand for natural gas. The steel sector alone could absorb over 5 bcm per year if priced at USD 8/MBtu (Ministry of Steel 2024), but without aggregated demand signals, India lacks leverage for new import contract negotiations. A central entity, such as the Solar Energy Corporation of India (SECI), can consolidate gas demand potential across sectors (such as steel and transport) and provide clear volume and price visibility for bulk procurement and contract negotiations.
Strengthen government-to-government (G2G) cooperation and investments in supply chains. While India recently signed long-term LNG contracts are corporate agreements, vulnerable to political transitions in partner countries. G2G cooperation can provide greater contractual stability by reducing risks associated with political transitions and by offering financial guarantees. This approach encourages partner countries to invest across the entire natural gas supply chain, thereby enhancing reliability and resilience to global political disruptions, such as the Russia–Ukraine conflict.
Include natural gas under GST. This will eliminate cascading taxes and significantly reduce delivered gas prices for consumers. Natural gas currently contributes a minor share of VAT or sales tax revenues for most states, with exceptions such as Gujarat and Maharashtra, where gas adoption is significantly higher than average. In 2023–24, only INR 15,633 crore out of over INR 250,000 crore of total sales tax/VAT payments by central public sector enterprises to all states were sales payments on crude oil and natural gas (Ministry of Petroleum and Natural Gas 2025). It is critical that states reach a consensus on GST rates for natural gas to improve fiscal efficiency ahead of further growth in gas demand.
Reform infrastructure access and tariff mechanisms. Pipeline capacity booking remains operator-specific and the point-to-point tariff structure restricts cross-regional gas flows and third-party access. An independent system operator should be established to provide more transparent and non-discriminatory access to transmission capacity. Tariff mechanisms should also be gradually transitioned from point-to-point tariffs to an entry– exit tariff system to allow greater flexibility in gas sourcing.
Align pipeline access code with gas-based power requirements. Over 25 GW of gas-based power capacity recorded only 14.9 per cent utilisation in 2023–24 (CEA 2025), partly due to pipeline rules that restrict flexible capacity bookings. The code should allow 24/7, interruptible capacity bookings, enabling gas power plants to book or release gas capacity on demand and respond more quickly to power demand peaks. This would also improve the economics of gas power plants and enhance their role in managing variability in renewable power generation.
Strengthen natural gas market trading through exchanges. Only approximately 2 per cent of India's gas demand is traded through the Indian Gas Exchange (IGX). Trading natural gas on an exchange, such as the IGX, can enable efficient price discovery, a role that could be strengthened by allowing LNG imported at the terminals to be traded directly on the exchange. Greater participation would also establish the Gas Index of India (GIXI) as a credible national price index, reducing India’s reliance on volatile global benchmarks for future contracts. Achieving this will require regulators to amend marketing exclusivity rules for CGD networks and revise LNG terminal access rules to allow independent consumers to procure gas from the spot market and trade it domestically.
Develop or adapt methane control protocols to ensure methane emissions are maintained below a minimal threshold. Methane, a greenhouse gas significantly more potent than carbon dioxide (CO₂), is released through leaks and incomplete flaring in the natural gas supply chain, thereby compromising its environmental advantage over coal. The US EPA estimates that 60 per cent of natural gas supplychain methane emissions occur during production alone, with further losses in transmission and distribution (US EPA n.d.). A suitable government agency, such as the Ministry of Petroleum and Natural Gas (MoPNG), the Petroleum and Natural Gas Regulatory Board (PNGRB), or the Central Pollution Control Board (CPCB), should lead this initiative.
Support pilot projects for turquoise hydrogen production. Turquoise hydrogen from methane pyrolysis reduces lifecycle CO₂ by approximately 84 per cent versus grey hydrogen, with carbon byproducts offering additional revenue (Prabhu et al. 2023). Pilot plants can be deployed to assess the viability of this technology in supporting India’s clean hydrogen ambitions.
Leverage natural gas to access new markets or increase share by making gas-based product exports more competitive over exports from other countries to regions like the EU due to the Carbon Border Adjustment Mechanism (CBAM). Gas-based steel, for example, has 30–60 per cent lower CO₂ emissions than coal-based steel (Elango et al. 2023; Nduagu et al. 2022; Yadav et al. 2021). It would therefore not be subject to taxes under CBAM, making it potentially more competitive despite higher production costs.

FAQs

What share of India’s energy mix does natural gas currently account for?

Natural gas accounts for approximately 5 per cent of India’s total primary energy mix, against the government’s target of raising this to 15 per cent by 2030. Coal and oil together account for over 80 per cent of supply. Modelling by the International Energy Agency and CEEW suggests the 15 per cent target is unlikely to be achieved at the current rate of growth under the existing policy environment, making structural reforms essential.
Why is India so dependent on LNG imports and what are the risks?

India’s domestic gas production has largely stagnated at approximately 36 bcm per year, while demand reached 68 bcm in 2023–24, meaning nearly half of consumption must be met through LNG imports. The concentration of these imports is a significant vulnerability: Qatar supplies 40–50 per cent of annual import volumes. This dependence exposes consumers to global price volatility and geopolitical supply risks, and limits India’s leverage in contract negotiations.
Why is natural gas important for India’s industrial decarbonisation?

Natural gas offers a lower-carbon alternative to coal in several hard-to-abate industries. In steel, switching from coal-based to gas-based production routes can reduce emission intensity by 30–60 per cent, which is significant as India’s steel sector emits 2.36 tonnes of CO₂ per tonne of crude steel, well above the global average of 1.91. In small and medium enterprises, gas displaces more polluting liquid fuels such as furnace oil and naphtha. As the EU’s CBAM raises the cost of carbon-intensive imports, Indian industries using gas-based processes could gain a competitive export advantage.
Why is natural gas not currently under the GST regime in India?

Natural gas was excluded from the goods and services tax (GST) framework at its introduction in 2017 due to fiscal concerns at the state level, as several states, including Gujarat and Maharashtra, collect significant revenues from value added tax (VAT) and sales tax on gas. This exclusion means that gas consumers cannot claim input tax credits on the taxes they pay, effectively creating a cascading tax burden that raises delivered prices and makes gas less competitive relative to other fuels. Bringing natural gas under GST is one of the most impactful single reforms available to the government.
What is the role of natural gas in India’s power sector?

India has over 25 GW of installed gas-based power capacity, but these plants operated at only 14.9 per cent capacity utilisation in 2023–24. The primary reason is the high cost of gas relative to coal for baseload generation. However, gas-based plants have a critical role in peak-load and grid-balancing applications: they can ramp output up and down far faster than coal plants, making them well suited to complement the growing share of intermittent renewable energy on the grid. Inflexible pipeline access rules that restrict round-the-clock capacity bookings are a key barrier to unlocking this potential.
How can natural gas support the decarbonisation of heavy-duty freight transport in India?

Heavy-duty freight transport accounts for over 40 per cent of CO₂ emissions from India’s road transport sector, a share projected to exceed 50 per cent by 2045. LNG-powered trucks emit significantly less particulate matter and NOx than diesel equivalents, and have a lower carbon footprint per tonne-km. In the medium term, before battery electric or hydrogen fuel cell trucks reach commercial viability for long-haul freight, LNG offers a practical and available decarbonisation pathway. Regulatory clarity around LNG refuelling station development has improved following amendments by the Petroleum and Natural Gas Regulatory Board (PNGRB).
What is turquoise hydrogen and why is it relevant to India’s gas sector?

Turquoise hydrogen is produced from natural gas using methane pyrolysis, a process that splits methane into hydrogen and solid carbon particles rather than CO₂. Compared with grey hydrogen (produced from natural gas with no carbon capture), turquoise hydrogen reduces lifecycle CO₂ by approximately 84 per cent. The solid carbon by-product can be sold as a feedstock for carbon black, batteries, or construction materials, providing an additional revenue stream. Turquoise hydrogen offers India a near-term bridge between the current dominance of grey hydrogen and the longer-term ambition of green hydrogen from renewable energy.
What reforms are needed to improve natural gas pipeline access in India?

India’s gas pipeline network spans over 25,000 km of long-distance transmission pipelines, with an additional 10,000 km under construction. However, capacity booking is operator-specific and the point-to-point tariff structure restricts cross-regional gas flows and third-party access. These rigidities limit competition and raise costs for consumers. Key reforms include establishing an independent system operator to provide transparent and non-discriminatory access, introducing unified zone-based tariffs to encourage cross-regional trade, and updating the access code to allow flexible, 24-hour interruptible capacity bookings for gas-based power plants.