India’s Rising LNG Imports: What is Driving Demand Amid Falling Domestic Production?

India ranks as the third-largest greenhouse gas (GHG) emitter globally, with the transportation sector being the primary contributor to its emissions. The capital city serves as a clear example of the environmental havoc caused by petrol- and diesel-powered vehicles. A report by The Energy and Resources Institute reveals that the transportation sector accounts for 47 per cent of GHG emissions in the city. Additionally, the power sector is another significant contributor, responsible for 8 per cent of the total emissions, according to the same report.

The use of natural gas has proven to be a decent sustainable alternative. It may not be completely green but it has the potential to reduce GHG emissions significantly. A mix of indigenous production and import of liquefied natural gas (LNG) has been feeding the demand in various sectors for years. However, domestic production of natural gas seems to have been slowing down with majority of the supply coming from imports.

The month of October recorded an increase of 10.8 per cent in total import of LNG to 2,941 million standard cubic meters (MMSCM) compared to corresponding month of previous year. Meanwhile, domestic production of LNG fell by 1.6 per cent year on year (YoY) to 3,111 MMSCM, according to provisional data released by Petroleum Planning & Analysis Cell (PPAC) recently.

India’s LNG import bill has witnessed a sharp rise over the past few years. The import in FY24, almost doubled from FY14 levels while domestic production has almost been stagnant. Daily gas production has only increased about 5 per cent in a decade. Natural gas production in September was 2936 MMSCM, 8.4 per cent lower than government's target for the month, according to government data.

In the first quarter of FY25, up to 49 per cent of India’s gas demand was met through imports. Moreover, India ranked as the fourth-largest importer of LNG globally in 2023, with projection for further growth in its imports over the next decade.

The Demand Spike

The demand for natural gas from city gas distributors (CGD), refineries and petrochemical industry has jumped. CGD consumption increased by 7 per cent YoY to 1,261 MMSCM on the back of government programmes aiming to increase the number of gas stations as well as compressed natural gas (CNG) vehicles. Government has set a target of scaling up the number of these stations to 18,000 by 2032. The plan is also to convert about one-third of heavy truck fleet, amounting to 7mn approximately to CNG-run trucks in five to seven years from the current 645 such trucks.

Refineries consumed 523 MMSCM of natural gas in October, increasing by 5.9 per cent YoY. Petrochemical industry demand, on the other hand, rose by 11 per cent to 209 MMSCM.

Due to the rising temperatures, the demand for power increased substantially this year leading to an eventual increase in the demand for LNG-enabled power generation. Its share in the total power generation almost doubled in the first quarter compared with the same quarter last year.

Moreover, the delayed winter contributed to increase in power demand in the month of November, rising around 4 per cent YoY to 124.5bn units from 119.65bn units last November.

Overall, in April–October duration, the consumption was 42,654 MMSCM, increasing from 39,476 MMSCM in the corresponding period last year.

Major Suppliers of LNG

The majority of India’s natural gas imports come from Qatar, accounting for 54 per cent of the total LNG imports in FY23. Government-owned largest LNG importer Petronet LNG has a long term contract with Qatar under which the country supplied 8.5mn tonnes per annum.

United Arab Emirates (UAE) is another big supplier of LNG for India. State-owned Gas Authority of India (Gail) signed a 10-year deal with Abu Dhabi National Oil Company (ADNOC) to purchase 0.52mn tonnes per annum starting from 2026. Indian Oil Corporation also signed a pact with ADNOC to deliver 1mn tonnes of LNG every year for 15 years.

Last year, the United States overtook UAE as India’s second largest LNG supplier. Other suppliers to India are Nigeria, Japan and Oman.

Natural gas has become an increasingly popular option for electricity generation in many countries due to the fact that it emits less carbon dioxide and other pollutants than coal. 26.7 per cent of electricity generation in the US—world's largest natural gas supplier—happens using natural gas.

Back in India, the growth in rising demand has to be supported by a gradual increase in offshore and onshore gas production to avoid the rising import bill.