Greenvissage explains, Why Natural Gas just got pricier?
Every morning, before your first coffee, natural gas is already hard at work — heating your shower, powering your kitchen stove, and even helping grow the food on your plate. And as invisible as it seems, this everyday fuel is now at the centre of a quiet but crucial shift in India’s energy policy. From April 2025, the Indian government has increased the cap on domestic natural gas prices for the first time in two years — from USD 6.50 to USD 6.75 per MMBTU (Million British Thermal Units). A modest 4% hike, sure. But dig deeper, and it signals a much bigger transformation in how India manages its energy future. To understand this, we need to rewind.
For years, India’s domestic gas prices weren’t market-driven. Instead, they were determined by a complex formula averaging prices in gas-surplus nations like the US, Canada, Russia, and the UK. While this shielded Indian consumers from high prices in the short term, it also forced domestic producers like ONGC to sell gas below cost. In 2020, ONGC was selling gas at USD 2.39 per MMBTU while spending USD 3.70 to extract it — a losing game. When global prices spiked in the wake of Russia’s invasion of Ukraine in 2022, this pricing model created chaos. Consumers felt the heat of imported gas volatility, while producers struggled to invest and expand. In response, the government accepted a new pricing mechanism proposed by the Kirit Parikh committee in 2023: link domestic gas to crude oil instead of global gas markets. This formula came with a floor of USD 4 and a cap of USD 6.50, later designed to rise 4% annually from April 2025 until full deregulation in 2027. And now, that first annual cap revision is here.
Let’s be clear — this isn’t just a technical tweak. It has real ripple effects. Upstream producers like ONGC and Oil India will finally breathe easier, earning more per unit and stabilizing their books — a necessary step to unlock new domestic investments. City gas distributors like GAIL, MGL, and IGL may face higher input costs, which could be passed on to consumers using piped or compressed gas. Industrial users, particularly in ceramics, glass, and fertilizers, will face cost pressure. Fertiliser manufacturers are already lobbying for increased subsidies to offset the rise. And of course, the government will have to balance these growing demands within an already stretched fiscal budget.
This domestic price hike comes at a time when global gas prices are climbing again. Why? A mix of weather shocks, geopolitics, and currency pressure. Extreme weather across China, Europe, and the US disrupts renewable energy supplies, forcing countries to fall back on gas. Heatwaves spike air-conditioning demand; droughts weaken hydroelectric output. Gas fills the gap. The world’s major exporters — the US, Qatar, and Australia — are increasing LNG exports. That sounds good in theory, but it also tightens the spot market where India buys a portion of its gas. More demand, thinner supply, more volatility. With the dollar at around INR 85, even stable dollar-denominated prices translate into higher landed costs. Energy imports become costlier just because the rupee weakens.
India wants to increase natural gas’s share in its energy mix from the current 6% to 15% by 2030. That’s ambitious — and expensive. To reduce its exposure to spot markets, India is actively hedging. GAIL has floated tenders to acquire up to a 26% stake in a US LNG project, coupled with a 15-year import deal. The government is reportedly also considering scrapping import taxes on US LNG to bring down costs. At home, plans are afoot to convert one-third of India’s heavy-duty trucks to LNG in five to seven years, slashing diesel consumption. More pipelines, more LNG terminals, and a more expansive city gas network are all underway. But this infrastructure rollout is capital-intensive, and long gestation periods make it vulnerable to price shocks and policy uncertainty. Countries like Japan are pioneering flexible supply pooling and cargo swaps, enabling smoother pricing and greater energy security. Brazil is scaling ethanol-powered vehicles. Europe is doubling down on renewables and diversifying LNG sources. The US leads in shale exploration and is now the world’s top gas producer. India doesn’t have to replicate every model — but it must move faster on the basics: more domestic output, smarter pricing, and better logistics.
References:
- Forbes – Why Natural Gas Prices Are Surging: Weather, Supply And Global Demand
- The Indian Express – India’s reliance on imported natural gas rises to 46% during the April-February period
- Economic Times – Buyers of natural gas call for pricing domestic gas in rupee
- IEA – India’s natural gas demand set for 60% rise by 2030, supported by upcoming global LNG supply wave
- Image by Freepik
