India gas growth hinges on infrastructure and pricing reforms – IGU

Over the longer term, the outlook could improve if the Gulf crisis eases. A wave of new LNG export capacity expected through the remainder of the decade could leave global markets well supplied, putting downward pressure on prices. Permanent demand destruction elsewhere in Asia could further depress Asian benchmark LNG prices.

Capitalising on lower prices requires enabling buyers to respond more effectively to short-term LNG price opportunities, the report said. That means further liberalising terminal capacity bookings and system entry charges, which could help address historically low utilisation rates at import terminals.

Gas will struggle to compete with coal unless transmission infrastructure expands significantly. "If gas is going to compete more effectively with coal, new transmission lines – underpinned by competitive transport tariffs – will be needed to provide reliable supply to the north, east and centre of the country where the gas network exists but is sparse," the report said.

Lower wholesale gas prices alone will not be sufficient. The report argues that meaningful investment is unlikely without fundamental reform of wholesale gas pricing. India's pricing framework has shifted from a heavily regulated system to hub-linked pricing in 2015, then revised in 2022 to link domestic prices to oil. While the latest mechanism moderated prices after the global energy shock, domestic gas prices have remained above $7 per million British thermal units, the analysis notes.

The report says some supply risks can be mitigated through a more diversified import portfolio. Resolution of shipping disruptions through the Strait of Hormuz is expected to trigger a rapid correction in gas prices. Combined with weaker demand elsewhere in Asia, lower LNG prices could create an opportunity for India to accelerate gas adoption, provided domestic infrastructure bottlenecks and market constraints are addressed.