Self-reliance in natural gas: Clearing hurdles in the way

The share of natural gas in India’s energy mix has barely moved, reaching only 6.7 per cent. Achieving a boost will require scaling up indigenous output, lowering import dependence, and establishing a supportive policy and regulatory framework

Delivering the 75th Independence Day (ID) address on 15th August 2021, Prime Minister Narendra Modi vowed to achieve self-reliance in energy production by boosting the gas-based economy. He wished the share of natural gas (NG) in the total energy mix to go up from subsisting at around 6 per cent to 15 per cent by 2030. He reiterated this at India Energy Week (IEW) held on February 11-14, 2025. Presently, the share is a mere 6.7 per cent. The only way to reach the target is to build indigenous production capabilities to the desired scale.

Where do we stand?

According to the Petroleum Planning and Analysis Cell under the Ministry of Petroleum and Natural Gas (MPNG), during the financial year (FY) 2024-25, India’s consumption of NG was 72.293 billion metric standard cubic meters (bmscm) — an increase of 7 per cent over the level during FY 2023-24. However, the import of NG (it is imported in a liquefied form commonly known as LNG) during FY 2024-25 was 36.699 bmscm — an increase of 15.4 per cent.

Taken as a proportion of consumption, imports were 50.8 per cent during FY 2024-25 up from 47.1 per cent during FY 2023-24. In contrast, the country’s production of NG  registered declined by 1 per cent to 36.113 bmscm during FY 2024-25.

The State-owned major Oil and Natural Gas Corporation or ONGC produced 18.736 bmscm of NG during FY 2024-25, which was 3 per cent less than 19.316 bmscm during FY 2023-24. The share of production in consumption of NG during FY 2024-25 was 49.2 per cent down from 52.9 per cent during FY 2023-24. The upshot is: that even to comply with the 6 per cent share, India had to import more than 50 per cent of its NG requirement.

Increasing the share of NG in the total energy mix to 15 per cent would require its consumption to increase from its current annual of 72.293 bmscm to 161.791 bmscm (72.293x15/6.7). The current consumption includes domestic production of 36.113 bmscm. If domestic production stagnates at the current level (in sync with the trend of the last few years) then, to achieve the 15 per cent target, the import of LNG will have to be 125.678 bmscm (161.791-36.113) which works out to about 77 per cent of the consumption.

The above calculation assumes no increase in total energy consumption. But, it is increasing at a rapid pace. The country’s power demand alone is projected to grow at a compound annual rate of 7 per cent during the next five years (according to the Central Electricity Authority). In that scenario, reliance on imports will be even higher. 

How can India increase production?

India has 26 sedimentary basins (SBs) covering an area of 3.4 million sq km that could be searched for hydrocarbon resources. However, only six of the SBs are under commercial exploitation; these too are sub-optimally utilised. Hydrocarbon exploration is a highly capital-intensive and technology-intensive business involving a long gestation period. It is risky, especially when drilling in deep/ultra-deep and high-pressure/high-temperature (D/UD/HP/HT) fields in offshore areas such as the Krishna-Godavari (KG) basin.  

Multinational companies (MNCs) such as ExxonMobil, Chevron, Total etc. which have the technology and resources can be enthused to take long-term bets in the Indian hydrocarbon sector provided the Government offers them an opportunity to earn an attractive return on their investment on a ‘sustained’ basis. This, in turn, requires that their efforts in the discovery and development of NG fields don’t face regulatory hurdles and that they can sell the gas ‘freely’ at a ‘remunerative’ price.

On the regulatory front, Modi — Government has removed many hurdles. In recent years, its major decisions are: releasing 0.69 million sq km of hitherto ‘No go’ area (out of a total of 1.73 million sq km SB area lying offshore) for exploration and production (E&P) activity; granting lease rights over the entire economic life of the allotted fields instead of the extant system of short tenure with extensions; amendments to the Forest (Conservation) Act to enable prompt access to forest areas for exploration of hydrocarbon resources; allowing E&P firms to pick up a block of their choice and give the operator a composite license to search for hydrocarbon in whatever form vis NG, ‘shale gas’, CBM (coal bed methane) etc under the Hydrocarbon Exploration and Licensing.

Policy decisions ease the process

For long, E&P efforts were hamstrung by cumbersome procedures, multiple approvals and bureaucratic red tape. Approvals were needed at every stage. As many as 37 procedures were required to be followed by a firm awarded block under the New Exploration Licensing Policy or NELP (NELP was launched in 1999 and blocks awarded under it till 2016).

Team Modi has substantially liberalised and de-bureaucratised approvals by providing for self-certification of documents and pre-approved clearance of blocks. Under the Oilfields (Regulations and Development) Amendment Bill, 2024 passed by the Parliament on March 12, 2025, the definition of mineral oils has been broadened/expanded to include crude oil, NG, petroleum, condensate, CBM, shale gas and oil, and other varieties (the earlier definition included only petroleum and NG). Besides, the Bill introduces the concept of ‘petroleum lease’ to separate oil and gas exploration projects from mining projects. This will prevent the former from getting hamstrung by delays due to land and environmental clearances germane to the latter. The latest amendments in the ORD Act,

2024 also moot an alternative dispute resolution method within or outside India besides decriminalising violations. 

The MPNG has also proposed joint development of fields where these are found to be inter-connected. This will help avoid disputes like the one seen between ONGC and Reliance Industries Limited (RIL) when the former accused latter of stealing gas from fields given in the KG basin area under NELP. It will also ensure better utilisation of assets and cost savings.   

What about freedom of pricing?   

Of the domestic gas, on around two-thirds of supplies (mostly from so-called ‘legacy fields’ given on nomination to ONGC and OIL and from fields given under NELP), the Centre has full control over ‘to whom’ the supplies will be made and at ‘what price’.

Although, from April 1, 2023, based on the recommendations of the Kirit Parikh committee, this price expressed on a per million British thermal units (Btu) basis is arrived at by taking 10 per cent of the monthly average of the Indian crude basket in the preceding month and notified every month, the price thus calculated is subject to a ceiling of US$ 6.50 per Btu.

Even the pricing of the remaining one-third of domestic NG supplied from the D/UD/HP/HT fields isn’t free from control.

Technically though, the firms can go for competitive bidding to determine the price for such supplies (referred to as a ‘premium’ price), this too is subject to a ceiling linked to the prices of alternate fuels including fuel oil, naphtha, and LNG.

The legacy fields also suffer from high taxes such as an oil industry development (OID) cess of @20 per cent, higher royalty payments and land taxes in Assam and Rajasthan. Andhra Pradesh Pollution Control Board (APPCB) also levies the so-called ‘consent for operation fees’.

Besides, NG is not covered under the Goods and Services Tax (GST) which means E&P companies don’t get credit for taxes paid on inputs leading to higher cost of gas. The Government should de-regulate the price, allow full freedom of marketing and withdraw taxes and duties. 

(The writer is a political analyst. Views are personal)