Without even realising it, you depend on something necessary every day before you begin to complete your task. It helped grow the veggies on your plate, heated the water in your shower, lit the stove in your kitchen and even powered the cab you rode to work.

We are discussing natural gas.

We’re discussing it since it will get more expensive. The government changed how natural gas prices are calculated starting this month (April 2025), which is the first increase in two years. Let’s start at the top to understand why.

You see, methane (CH4) makes up the majority of natural gas. It is extremely flexible and burns cleaner than other fossil fuels. It powers industries like steel and ceramics, is used in transportation, produces cooking gas, and creates fertilisers that are vital to Indian agriculture. Nevertheless, it barely makes up 6% of India’s overall energy usage. By 2030, India hopes to triple this percentage to 15%. However, because we haven’t arrived yet, we import almost half of our gas, primarily in the form of LNG. The situation becomes complex at that point. We are continuously vulnerable to fluctuations in world prices because we import LNG.

For instance, in 2020. Even though it cost them $3.70 to extract natural gas, ONGC, the largest gas producer in India at the time, was selling it for $2.39 per MMBTU. They were essentially losing money on each item they sold. And the situation was the same for other gas producers.

Sidebar: “million British Thermal Units” is what MMBTU stands for. It’s merely an elegant method of determining energy content. This unit is frequently used when discussing petrol pricing.

The explanation was straightforward. Control. You see, domestic petrol prices were determined by a formula that averaged international prices from the US, Canada, the UK and Russia rather than being determined by the market. The government would calculate a new rate every six months by averaging such prices. Thus, the formula pulled Indian prices down as worldwide prices plummeted during the pandemic. For comparison, the price of domestic petrol was only $1.79 per MMBtu in October 2020.

Then came the recovery. Demand for petrol increased when economies reopened. Additionally, prices skyrocketed in 2022 after Russia invaded Ukraine. Europe rushed to switch to LNG to replace Russian gas. The spot price of LNG in Asia suddenly skyrocketed, reaching $70 per MMBtu at one time. And once more, India got caught in the crossfire due to its growing reliance on imports. Because of the pricing mechanism, which either made it impossible for manufacturers to make ends meet or passed on excessive prices to consumers.

To fix it, the government then summoned the Dr. Kirit Parikh panel. Additionally, the new formula made things simpler when it was adopted in April 2023. Instead of being benchmarked to faraway gas surplus countries, domestic gas prices will now be set at 10% of the Indian crude oil basket. To protect producers, there was a $4 floor price, and to protect consumers, there was a $6.50 ceiling. The cap may increase by 4% a year starting in April 2025 and continue until 2027, when petrol prices are completely deregulated. It was the ideal solution—neither too high nor too low. At last, ONGC and Oil India ceased to lose money. Price stability was granted to city gas distributors such as GAIL, IGL, and MGL. Additionally, consumers were protected against worldwide fluctuations.

The following phase is now being demonstrated. As planned, the government increased the cap from $6.50 to $6.75 per MMBTU for the first time in two years. Furthermore, even though a 4% increase might not seem like much, it adds up.

How?

Well, because they make more money per unit, upstream producers like ONGC profit. However, the increased expenses could have to be passed on by city gas distributors, who provide compressed natural gas (CNG) and piped natural gas (PNG). Bills for industrial users will be higher. More subsidies will be demanded by fertiliser industries. Additionally, the government’s already limited budget will need to be adjusted to accommodate it.

However, this walk isn’t taking place alone. The cost of petrol is also increasing globally. Additionally, a number of factors are contributing to the increase.

The first is the severe weather. Heat waves in Europe, cold snaps in the US, and droughts in China can increase demand (more heating or cooling) or severely impair the supply of wind or hydropower. And guess what steps in to fill the void left by renewables? Natural gas, indeed.

Next is the increase in LNG shipments from major producers, including Australia, Qatar, and the United States. Indeed, since this increases the world’s supply, more LNG exports seem like a positive development. However, the spot market, where petrol is bought and sold for immediate delivery, becomes more competitive. Stable pricing benefits nations with long-term contracts or fixed-price agreements for a predetermined duration. However, because demand for LNG keeps the market competitive and tight, nations like India, which rely partly on spot market imports, face higher and more erratic pricing.

Lastly, there is the depreciation of currency. India pays for LNG in US dollars. Even constant dollar prices lead to higher rupee costs because the dollar currently trades at about ₹85. Essentially, everything imported costs more when the currency is weak. For this reason, many petrol marketing firms are advocating for setting domestic petrol prices in rupees instead of dollars.

When combined, these obstacles create a precarious situation for India’s aspirations regarding natural gas. Both the government and producers encounter challenges when domestic pricing does not always align with international patterns.

So, you ask, what’s the way out?

India is attempting to hedge its bets, to start. We’re increasing output at home. Natural gas corporations are growing their oil marketing operations. Long-term LNG contracts are being signed by businesses to steer clear of the erratic spot markets. To increase access, we are constructing additional LNG terminals, pipelines, and municipal gas networks. Additionally, we’re looking into alternatives like green hydrogen, electric cars, and blended ethanol fuel.

However, there remains a long road ahead. While demand continues to rise, India’s gas output has remained mostly unchanged for years. By 2030, India’s demand for natural gas is expected to increase by 60%, according to the International Energy Agency (IEA). Additionally, due to restricted domestic production, LNG imports will need to more than quadruple to 65 billion cubic meters (bcm) per year by the end of this decade to stay up. Furthermore, growing infrastructure requires a lot of resources and has controlled price fluctuations.

Thus, even under ideal circumstances, we will not be able to achieve self-sufficiency very soon.

Nevertheless, India can get knowledge from other nations. For instance, Japan, the second-largest LNG importer in the world, is shifting away from strict long-term agreements and towards pooling supply and facilitating cargo swaps with South Korea and Italy to bring about greater price flexibility. Brazil has increased the number of cars that run on ethanol. Europe is investing more in renewable energy and diversifying its LNG exports. And because of advanced shale gas exploration techniques, the United States is currently the world’s largest producer of gas.

Although India is unable to duplicate all of these methods, we can nevertheless advance more quickly on the fundamentals, such as increasing domestic supply, improving pricing strategies, and making investments in more intelligent infrastructure.

The fact is that India is in dire need of petrol to fuel its clean energy future. However, petrol is becoming more expensive, messy, and unreliable. In other words, controlling it better rather than simply using more of it is the true challenge.

And this slight increase of 4% in April? Perhaps it serves as a reminder that the days of inexpensive, reliable petrol may be coming to an end.