India’s energy transition: India’s energy debate is often framed around capacity: how much coal, oil, gas, or renewable power the economy will need as growth accelerates. That framing misses the real problem. The issue is not supply alone, but exposure. With demand rising steadily, India remains vulnerable to global price shocks and geopolitical disruptions because of its dependence on imported fuels. Managing that vulnerability, without slowing growth or diluting climate commitments, is now the central challenge of energy policy.
This is why a recent suggestion by the Petroleum and Natural Gas Regulatory Board (PNGRB) deserves closer scrutiny. The regulator estimates that replacing just 10% of diesel consumption with liquefied natural gas (LNG) in transport could save nearly $1 billion annually. The claim is modest and deliberately so. It does not promise transformation. It proposes a targeted reduction in cost, emissions, and import exposure—an approach that is increasingly relevant in a world where energy shocks have become structural rather than episodic.
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Import dependence remains the core macroeconomic risk
India is the world’s third-largest energy consumer, but also among the most import-dependent. More than 85% of crude oil demand and around half of natural gas consumption are met through imports. The macroeconomic consequences are well known. Every spike in Brent crude feeds into retail inflation, worsens the current account balance, and complicates fiscal and monetary management.
The Reserve Bank of India has repeatedly flagged energy prices as a source of volatility that weakens monetary policy transmission. The finance ministry, meanwhile, has relied on frequent adjustments to fuel excise duties to soften shocks for consumers, often at the cost of fiscal predictability. Energy insecurity is not an abstract risk; it is embedded in inflation outcomes and balance-of-payments arithmetic.
A skewed energy mix limits policy flexibility
Coal continues to dominate India’s primary energy consumption, accounting for more than half of the total. Oil follows, driven largely by transport and industry. Natural gas remains stuck at around 6–7% of the mix, far below the government’s stated aspiration of 15% by 2030.
Renewables have expanded rapidly in installed capacity terms, with solar and wind capacity now exceeding 180 GW. But their contribution to total energy consumed remains constrained by intermittency, grid limitations, and the absence of large-scale storage. Nuclear power, while capable of providing clean baseload electricity, faces high capital costs and unresolved political resistance. The result is an energy configuration that has supported growth, but at rising environmental and external costs.
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Why LNG in transport makes economic sense
The PNGRB’s focus on LNG for heavy transport fits squarely into this context. Trucks, buses, mining vehicles, and long-haul freight account for a disproportionate share of diesel consumption and local air pollution. Even a partial switch to LNG can lower operating costs, reduce particulate emissions, and marginally ease the oil import bill.
International experience suggests this is feasible. China and parts of Europe have developed LNG trucking corridors by aligning vehicle standards, refuelling infrastructure, and long-term fuel contracts. For India, the regulator estimates that LNG consumption in transport could rise to about six million tonnes annually by the end of the decade, from a negligible base today.
The tax system quietly undermines fuel switching
What the proposal confronts immediately, however, is India’s tax architecture. Fuel choices in India are shaped as much by taxation as by technology or climate logic. Diesel remains competitive not only because of efficiency, but because of central excise structures and state-level VAT. LNG pricing, by contrast, is affected by import duties, regasification charges, pipeline tariffs, and state taxes that vary widely.
The exclusion of natural gas from the GST framework further distorts comparisons. Without tax harmonisation, LNG struggles to compete even when it is cleaner and, at the margin, cheaper. Any serious attempt to encourage fuel switching in transport will therefore require fiscal coordination between the Centre and states, not just regulatory encouragement or infrastructure spending.
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Infrastructure and adoption constraints cannot be wished away
There is also a sequencing problem. LNG refuelling stations are sparse and unevenly distributed, concentrated near ports and select highways. Cryogenic storage capacity, tanker availability, and last-mile distribution remain limited. Building national LNG trucking corridors will require time, capital, and coordination that the current proposal does not fully address.
Adoption barriers are equally real. LNG trucks cost more upfront than diesel vehicles. Domestic manufacturing of LNG engines and components remains limited. Fleet operators—many of them small, debt-constrained logistics firms—are naturally risk-averse. China’s experience with LNG trucking benefited from state-backed credit, policy mandates, and large fleet operators. India’s fragmented transport sector operates under very different constraints.
Gas as a bridge, not a detour
Gas itself is not risk-free. India imports most of its LNG, leaving it exposed to global gas markets that have become more volatile since the Ukraine war. Long-term contracts offer price stability but reduce flexibility. Without clear emissions standards or carbon pricing, there is also a risk that gas simply adds another layer to the energy mix rather than replacing dirtier fuels decisively.
Even so, incremental shifts matter. International energy agencies have consistently argued that large emerging economies will need diversified energy portfolios rather than single solutions. Renewables will anchor future electricity supply, but they must be backed by storage, grid upgrades, and flexible generation. Gas can play that balancing role in the medium term, provided it is clearly positioned as a bridge rather than a destination.
Storage remains the weakest link in the transition
India’s renewable achievements are substantial but uneven. Auction tariffs have fallen sharply and installed capacity has surged. Yet delayed payments by distribution companies, curtailment risks, and the absence of large-scale storage are beginning to distort incentives. Recent tenders for nearly 40 GW of solar capacity have gone unawarded, reflecting developer concerns over storage and offtake risk.
Without storage, low-cost daytime solar cannot meet evening peak demand, forcing continued reliance on coal-based power. Treating storage as optional rather than core infrastructure risks making the energy transition inefficient and uneven.
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Choosing resilience over headline targets
Looking ahead, India’s economy is expected to roughly double over the next decade. Energy demand will rise even with efficiency gains. Electrification of mobility will accelerate, but heavy transport and industry will still need dense fuels. Hydrogen holds promise for steel and fertilisers, but costs remain high and timelines uncertain. Nuclear power could deliver clean baseload electricity, but scaling it up would require political consensus and institutional reform.
The policy priority should be resilience. Reducing exposure to any single imported fuel matters as much as expanding capacity. Climate commitments must be met by prioritising emissions reductions per rupee spent, not by chasing headline targets. Pricing, taxation, and regulation across coal, oil, gas, and renewables need coherence, reflecting environmental and security costs transparently rather than through ad hoc subsidies.
Seen in this light, the LNG-for-diesel proposal is neither a breakthrough nor a distraction. It is a pragmatic step that acknowledges constraints while delivering measurable gains. Combined with storage-backed renewables, cleaner public transport, efficiency standards, and gradual electrification, such measures may not transform India’s energy system overnight. But together, they can reduce vulnerability and bend the trajectory toward greater stability.