Any discussion on India’s natural gas market is often centred around supply availability, imports and infrastructure. However, those deliberations increasingly look incomplete as the real shift in the gas market is being driven by the quest for energy transition. With sustainability goals, decarbonisation and policy signals expanding the set of choices available to energy consumers, gas is now forced to compete directly with alternative fuels.
In India, however, choice remains strongly price-led. While climate considerations matter, most consumers still gravitate towards the most economical option available. As a result, natural gas must actively compete to retain its place. It is compared, substituted and, at times, avoided altogether, depending on relative prices, reliability and risk. This has made gas demand more volatile and uncertain.
Growing dependence on LNG has further tied domestic gas economics to global oil and gas price cycles, with buyers balancing long-term contracts against spot purchases as market conditions shift. Consumption decisions today are increasingly driven by short-term price signals rather than fixed, long-term assumptions.
These choices vary by segment. Transport weighs CNG against electric mobility. Industry compares gas with furnace oil, naphtha, etc. Refineries evaluate gas vs naphtha and fuel oil. Power producers assess gas against coal and renewables. Gas now competes across the entire energy system. The key question is whether India’s market design can support consumers who are actively choosing between fuels, managing volatility, and responding to real-time price signals.
LNG dependence is reshaping procurement behaviour: Estimates of India’s natural gas demand for 2030 range between 103 bcm and 130 bcm, with significant upside supported by infrastructure expansion, rising LNG availability, potential price moderation and improving policy alignment. Domestic production, however, continues to meet only about half of current demand, leaving incremental requirements to be met largely through LNG imports. As LNG becomes the marginal source of supply, domestic gas prices are increasingly shaped by international benchmarks.
Recent global price volatility has underscored the need for balanced procurement strategies. Exclusive reliance on long-term contracts can lock buyers into unfavourable pricing, while excessive dependence on spot markets exposes them to short-term shocks. Consequently, short-term price movements now influence consumption decisions far more than in the past. Import-linked benchmarks are evaluated alongside alternative fuel costs, requiring gas to compete on price and reliability rather than being assumed as the default option.
This has made procurement more deliberate and risk-aware. Buyers are increasingly balancing long-term and spot purchases, with long-term contracts typically covering only a core share of demand, often around 60 per cent, while the remainder is managed dynamically. Flexibility has become critical, including the ability to adjust volumes, avoid destination restrictions, and monetise surplus gas.
In this context, gas exchanges such as the Indian Gas Exchange are playing a key role by enabling transparent price discovery and short-notice procurement. The platform offers intraday, day-ahead, daily, weekly, fortnightly and monthly contracts, along with longer-duration products linked to fixed prices or international indices. This range allows buyers to align procurement closely with operational needs, rather than commit to rigid supply arrangements. The exchange also offers 23 trading points, also known as delivery points, in four active gas regions – West, North, East and South – so that consumers can choose the best delivery location after accounting for transmission cost, taxes and price of gas offered by sellers. Exchange currently trades almost 20 per cent of spot volume, averaging at 5.7 million standard cubic metres per day (MSCMD) for H1 2025-26.
India needs faster and non-discriminatory access to pipeline capacity, simpler entry-exit transmission tariffs, a uniform GST framework for natural gas and a virtual trading hub with a single national price reference
Gas-based power plants, operating in grids with rising renewable penetration, increasingly rely on intraday purchases to respond to system requirements. City gas distribution companies use the exchange to access domestic gas at regulated ceiling prices and manage demand volatility through short-tenure contracts instead of locking into excess long-term volumes. Across sectors, procurement is steadily shifting towards a blend of longer-term contracts for base demand and exchange-based purchases for variable requirements.
Structural frictions continue to limit efficiency: Furthermore, for the market to operate at its full potential, several structural challenges must also be addressed. India needs a virtual gas hub that provides a single national reference price instead of multiple point-specific prices. Such a hub would deepen liquidity, enhance transparency, and simplify trading across regions.
An entry-and-exit-based tariff structure is another critical requirement. The current point-to-point transmission pricing system adds complexity and discourages efficient interstate trade. An entry-exit model would simplify transactions and improve pipeline utilisation.
Bringing natural gas under the Goods & Services Tax remains one of the most important pending reforms. It can eliminate tax cascading, reduce transaction costs and improve price comparability across states. Transparency and equal access to pipeline capacity are equally essential. A centralised capacity booking mechanism would ensure fair access and better utilisation of existing infrastructure.
A recent Expert Committee constituted by the Petroleum & Natural Gas Regulatory Board has highlighted these issues and recommended reforms, including entry-exit tariffs, transparent and timely infrastructure access, centralised capacity booking and steps toward building a virtual trading hub. Together, these measures would allow market signals to guide allocation.
Why market design now matters more: As gas demand becomes more volatile and price sensitive, market design will play a decisive role in shaping the sector’s future. Infrastructure expansion alone is not enough; it must be matched by mechanisms that allow buyers and sellers to transact with clarity, confidence, and speed.
Well-designed, rule-based market platforms are central to this transition. Without them, gas will struggle to compete in an energy system where alternatives are increasingly agile and price responsive.
The priorities are clear. India needs faster and non-discriminatory access to pipeline capacity, simpler entry-exit transmission tariffs, a uniform GST framework for natural gas and a virtual trading hub with a single national price reference.
The real test now is whether India can support demand growth through a stable, user-friendly, market-led framework that limits price risk and prevents repeated underutilisation of assets.