In today’s Finshots, we tell you why natural gas prices are on the rise and what it means for India.

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The Story

Every day before you start to get work done you rely on something essential without even realising it. It powered the cab you took to work, heated the water in your shower, lit the stove in your kitchen and even helped grow the vegetables on your plate.

We’re talking about natural gas.

And we’re talking about it because it’s about to get pricier. From this month (April 2025) the government has tweaked natural gas’ price calculation, marking the first hike in two years. To understand why, let’s take it from the top.

Look, natural gas is mostly methane (CH4). It burns cleaner than other fossil fuels and is incredibly versatile. It’s used in transportation, cooking gas, to power industries like ceramics and steel and making fertilisers essential to Indian agriculture. But despite this, it only accounts for 6% of India’s total energy consumption. And India wants to triple this share to 15% by 2030. But since we’re not there yet, we import about 50% of our gas, mostly as liquefied natural gas (LNG). And that’s where things get tricky. Importing LNG means we’re constantly at the mercy of global price shocks.

Take 2020, for example. ONGC, India’s biggest gas producer back then, was selling natural gas at $2.39 per MMBTU even though it cost them $3.70 to extract it. Basically, they were bleeding money on every unit they sold. And other gas producers were in the same boat.

Sidebar: MMBTU stands for “million British Thermal Units”. It’s just a fancy way of measuring energy content. You’ll see this unit a lot when anyone talks about gas prices.

The reason was simple. Regulation. You see, domestic gas prices weren’t market driven but were based on a formula averaging global prices from the US, Canada, the UK and Russia. Every six months, the government would average those prices, do the math and set a new rate. So when global prices crashed during the pandemic, the formula dragged Indian prices down too. For context, in October 2020, domestic gas was priced at just $1.79 per MMBTU.

Then came the bounce back. As economies reopened, gas demand surged. And when Russia invaded Ukraine in 2022, prices spiralled. Europe scrambled to replace Russian gas, turning to LNG. And just like that, spot LNG prices in Asia went through the roof, touching $70 per mmBtu at one point. And again, India, increasingly dependent on imports, was caught in the crossfire. Thanks to the pricing formula which either passed on high prices to consumers or made it unviable for producers to sustain.

That’s when the government called in the Dr. Kirit Parikh panel to fix it. And the new formula, introduced in April 2023, simplified things. Domestic gas would now be priced at 10% of the Indian crude oil basket, instead of being benchmarked to distant gas surplus countries. There was a floor price of $4 to protect producers and a cap of $6.50 to shield consumers. From April 2025, the cap could rise 4% annually until gas prices are fully deregulated in 2027. It was a Goldilocks solution ― not too high, not too low. ONGC and Oil India finally stopped losing money. City gas distributors like GAIL, IGL and MGL got price stability. And consumers were shielded from global volatility.

And now, we’re seeing the next step in action. The government has raised the cap for the first time in two years ― from $6.50 to $6.75 per MMBTU, exactly as scheduled. And while a 4% hike may not sound like much, it adds up.

How?

Well, upstream producers like ONGC benefit as they earn more per unit. But city gas distributors, who supply CNG (compressed natural gas) and PNG (piped natural gas), may have to pass on the higher costs. Industrial users will see bigger bills. Fertiliser companies will demand more subsidies. And the government will have to make room for it in an already tight budget.

But this hike isn’t happening in isolation. Global gas prices are rising again too. And there’s a bunch of things that are driving the rise.

For one, there’s extreme weather. Droughts in China, heatwaves in Europe and cold snaps in the US either spike demand (more heating or cooling) or cripple supply of hydro or wind power. And when renewables fall short, guess what fills the gap? Yup, natural gas.

Then there’s the surge in LNG exports from major producers like the US, Qatar and Australia. Sure, increased LNG exports may seem like a good thing as it boosts global supply. But it actually tightens the spot market where gas is bought and sold for immediate delivery. Countries with long term contracts (fixed-price deals for a set period) benefit from stable prices. However, countries like India, which rely partly on spot market purchases, face higher and more volatile prices since the demand for LNG keeps the market thin and competitive.

And finally, there’s currency depreciation. India pays for LNG in dollars. With the dollar hovering around ₹85, even stable dollar prices translate to higher costs in rupee terms. Basically, a weak currency makes everything imported more expensive. That’s why many gas marketing companies are calling for pricing domestic gas in rupees instead of dollars.

Put all of these together and these challenges make India’s natural gas ambitions a tightrope walk. Domestic prices aren’t always in sync with global trends, causing trouble for producers and the government alike.

So, what’s the way out, you ask?

Well, for starters, India is trying to hedge its bets. We’re boosting domestic production. Oil marketing companies are expanding their natural gas businesses. Companies are signing long term LNG contracts to avoid volatile spot markets. We’re building more LNG terminals, pipelines and city gas networks to expand access. And we’re also exploring alternatives like ethanol blended fuel, electric vehicles and even green hydrogen.

But the road ahead is long. India’s gas output has been mostly flat for years while demand keeps rising. The International Energy Agency (IEA) estimates that India’s natural gas demand will rise 60% by 2030. And limited domestic production means that by the end of this decade, LNG imports will need to more than double to 65 billion cubic metres (bcm) annually to keep up. To top it off, expanding infrastructure is capital intensive and comes with regulated price swings.

So even in the best case, we can’t become self sufficient anytime soon.

That said, India can learn from other countries. Japan, the world’s second largest LNG importer, for example, is moving towards pooling supplies and enabling cargo swaps with South Korea and Italy to bring more flexibility in prices, instead of rigid long-term deals. Brazil has scaled up ethanol-powered vehicles. Europe is diversifying LNG exports as well as increasing its renewable energy investments. And the US is now the world’s top gas producer with massive shale gas exploration technology.

While it’s true that India can’t replicate all of these models, we can still move faster on the basics — boosting domestic supply, refining pricing mechanisms and investing in smarter infrastructure.

Because the bottom line is that India desperately wants gas to power its clean energy future. But gas itself is getting pricier, messier and more unpredictable. So yeah, the real challenge isn’t just using more of it, it’s managing it better.

And this little 4% hike in April? Maybe it’s a reminder that the age of cheap, predictable gas might be behind us.

Until then…

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