In a bid to make natural gas cheaper and boost adoption, India’s gas regulator has proposed regulating the regasification charges for liquefied natural gas (LNG) and also bringing the fuel under the goods and services tax (GST), citing low utilization and weak financial viability at most terminals.
In a paper on ‘regasification, listed gas marketing and CGD entities’, published on its website on 24 December, the Petroleum and Natural Gas Regulatory Board (PNGRB) said high and unregulated infrastructure costs, coupled with state-level taxes, are keeping gas prices elevated despite large investments in regasification capacity. Implementation of the PNGRB’s proposals would require statutory changes.
Though the PNGRB regulates the gas transmission grid and its tariffs, it does not have the regulatory oversight over the regasification terminals and its charges. The proposal comes days after the regulator lowered the tariff slabs for gas transportation, thereby making compressed natural gas (CNG) and city gas distribution (CGD) prices cheaper.
Noting that the regulator is vested with power primarily to fix tariffs for natural gas pipelines, the report said: “However, other remaining major part of delivered cost of gas i.e. gas prices, regasification charges (including truck loading charges) are currently not in PNGRB’s regulatory oversight. There is a need for statutory provisions and administrative oversight over these functions across the gas value chain. Besides this there is another major component of cost i.e. taxation (VAT/GST on several components/custom duty, etc).”
Regasification charges, charges by regasification terminals, currently account for 5-6% of the delivered gas cost to consumers and they are not regulated. Major infrastructure costs for delivery of natural gas to various consuming sectors consists of natural gas pipeline tariffs, re-gasification charges of LNG along with CGD infrastructure costs for gas consumption in the CGD sector.
India started importing LNG in 2004 with the first regasification terminal getting commissioned in 2004 in Gujarat. After 2013, terminals have come up in other states also, but the report notes that they are largely concentrated in Gujarat.
As of November 2024, India had an operational LNG regasification capacity of around 47.7 million metric tonne per annum with a total investment of ₹37,000 crore, according to the PNGRB report.
For FY24, the average capacity utilization of the regasification terminals was around 51%, including Dahej which was around 95%. Barring Dahej, the other terminals’ capacity utilization varied from 15% to 45% during the period, averaging 25%.
“It may be inferred that based on these utilization levels most of the LNG regasification terminals may not be able to even financially break-even for a long time,” the regulator said.
It noted that only a few LNG regasification terminals had been designed in a way that they could further expand on need basis to even double their existing regasification capacity, and mooted the need for a mechanism to share the benefits of such an expansion with customers through lowered regasification charges.
The major players in India’s LNG regasification terminal space are Petronet, Shell, Indian Oil, and Adani Total Gas.
On the need to bring natural gas under the goods and services tax (GST), the regulator said that non-inclusion of natural gas under the indirect tax regime has resulted in state governments levying high rates of value-added tax and the lack of input credit benefit for the gas firms.
“It is important to note that, over and above the 14% excise duty, there is an additional state VAT. In contrast, auto-LPG, which is a carbon intensive and less-safer fuel, attracts GST at only 18%,” PNGRB said. “Mainly because of this anomaly, particularly in southern India, CNG is not gaining traction vis a vis auto LPG.”
Union minister for petroleum and natural gas Hardeep Singh Puri had in January this year said there is an increasing consensus on bringing natural gas under the GST regime. However, states, including Gujarat and Andhra Pradesh, have in the past raised concern over any such move, as it may impact their revenues.
If implemented, the proposals are expected to bring down the cost of natural gas in the country, thereby boosting the adoption of cleaner fuel as India’s gas consumption has not increased as anticipated. Gas is considered a cleaner fuel than coal or crude oil products.
“Efforts to lower the regasification cost and bring the fuel under GST, would reduce the overall cost of natural gas and the expenses for the common people. In India, the regasification charges are around 70 cents per mmBtu (metric million British thermal units), while that in Japan, a major gas-based economy is about 50 cents per mmBtu,” said Senior vice-president and co-group head of corporate ratings at ICRA Ltd.
Recently, the PNGRB simplified the transportation tariffs under its ‘One Nation, One Grid, One Tariff’ vision and reduced the number of tariff zones from three to two—up to 300 km and beyond 300 km—aiming to lower regional disparities and align natural gas pricing with competitive fuels such as liquefied petroleum gas (LPG), or cooking gas, and petrol.
India’s natural gas consumption has weakened so far in FY26 after having seen a strong demand in FY25. In April-November, India consumed about 46,239 million standard cubic metres (mmscm) of natural gas, 6.7% lower from a year ago. In FY25, consumption was 6% up at 71,314 mmscm on strong power sector demand.
A Crisil report released on Friday said lower power sector offtake amid seasonal swings in LNG prices and planned maintenance shutdowns at refining and fertilizer units curtailed demand. “Gas consumption saw a pronounced decline in summer as an early onset of southwest monsoon reduced demand for cooling. That compares with a rise to 203 mmscmd in the summer of last fiscal amid policy driven rise in dispatches of gas-based power plants,” it said.
The Crisil report, however, noted that the city gas distribution, which accounts for about 23% of overall gas consumption, has remained resilient. Its consumption was up 7% year-on-year in October, while over the past three years, PNG and CNG consumption had grown at 8% and 20%, respectively.
In line with its green ambitions, India aims to increase the share of natural gas in the energy basket to 15% by the end of the decade from the current level of about 6.2%.
