LNG industry faces setback: Liquefied Natural Gas (LNG) has emerged as a critical component in India’s strategy to meet its rising energy demand. As the world’s third-largest energy consumer, India has been steadily ramping up gas-based electricity generation, pushing up utilisation rates at LNG terminals compared to the last two years.
But the government has now delivered an unexpected jolt to the sector. After operating in a largely deregulated space for nearly two decades, LNG players are now subject to stringent transparency norms issued by the Petroleum and Natural Gas Regulatory Board (PNGRB) on May 14.
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The 23-page notification lays down detailed rules for the development of LNG import terminals. Operators must now disclose sensitive commercial data—including regasification tariffs, trucking charges, and gas throughput commitments. The move represents a significant departure from past policy, which treated the sector more like software than infrastructure: open, agile, and relatively unregulated.
Pushback by LNG industry
Leading public and private sector firms have reacted with visible discomfort. Executives from Petronet LNG, Shell, Adani-Total, Indian Oil, and Hindustan Petroleum argue that the business was functioning efficiently and that market forces—not regulatory intervention—should guide the expansion of LNG infrastructure. Their concerns are not without basis. Unlike city gas distribution, LNG is no longer a fledgling sector; imposing cumbersome regulations on a mature industry, they argue, may do more harm than good.
For these companies, the new compliance requirements translate into additional costs and project delays—an unwelcome development in a year when India’s LNG imports have already started to shrink.
According to oil ministry data, LNG imports in FY25 surged 15% year-on-year to 27.7 million tonnes. But in Q4, volumes fell 3% to 6.4 mt. Petronet LNG’s flagship terminal at Dahej, Gujarat, processed 14% less gas, mainly due to elevated global prices. Most other Indian terminals are underutilised, running at just 30–40% of capacity. Only Dahej and Shell’s Hazira terminal are exceptions.
A sector at crossroads
India currently has eight LNG terminals with a combined capacity of 53 mtpa. Major expansion plans are underway, including a 5 mtpa addition at Dahej by September and a new greenfield facility in Gopalpur on the east coast. But now, new and ongoing projects face delays amid regulatory uncertainty, global trade disruptions, inflation, and labour shortages.
The timing of PNGRB’s notification couldn’t be worse for India’s $15 billion LNG ecosystem. Industry insiders warn that mandatory registration and disclosure may be the precursor to deeper intervention—including potential control over regasification tariffs. For an industry used to charting its own path, this represents an unwelcome pivot.
The regulator, however, defends its move as essential for encouraging competition and avoiding wasteful investment. It insists that oversight will bring transparency and market discipline. Even without immediate legal amendments, new entrants must now seek approval and furnish bank guarantees—raising entry barriers and chilling investor sentiment.
Strategic fuel, uncertain future
LNG plays a pivotal role in India’s energy transition. As a “bridge fuel,” it supports the shift away from coal and oil while helping integrate intermittent renewables like solar and wind. Today, LNG accounts for nearly half of India’s natural gas consumption. The government plans to increase the share of gas in the energy mix from 6% to 15% by 2030.
But rising global prices have made spot-market LNG unaffordable for many Asian buyers. In late 2024, both India and China pulled back on opportunistic purchases, disrupting U.S. LNG flows to Asia. As global dynamics shift, the trajectory of LNG demand in Asia will hinge on the growth paths of its two largest emerging economies.
India, which made up 6.36% of the global LNG market in 2023, remains far behind China (19.12%), Japan (16.47%), and South Korea (11.43%). Nevertheless, its demand potential is vast—if supported by the right policies.
Finding the middle path
While natural gas is often hailed as a cleaner alternative to coal and oil, its environmental record is more nuanced. Methane—the principal component of natural gas—is a potent greenhouse gas, capable of trapping far more heat than carbon dioxide over shorter periods. While LNG does help cut sulphur and particulate emissions, unchecked methane leaks can undercut its climate benefits. India must couple its gas strategy with robust emission monitoring systems to align with global climate goals.
The future of India’s LNG sector rests on a delicate balancing act. The PNGRB’s push for oversight stems from a legitimate desire to promote transparency and prevent rent-seeking. But the industry’s fears about regulatory overreach, added costs, and project delays are equally valid.
At a time when energy security, climate goals, and economic ambitions intersect, India cannot afford policy missteps that chill private investment. The need of the hour is a calibrated regulatory approach—one that ensures transparency without stifling innovation or deterring capital. LNG remains vital to India’s future. Getting the regulatory framework right is just as important as securing the fuel itself.