India’s Record LNG Buying Meets Record-High Prices

India has spent years bringing more households and businesses onto its gas networks. Now, with domestic production declining, supplying those customers means buying more LNG from a market where prices have tripled in a year. Imports are nevertheless heading for a record this October.India’s LNG supply mix has changed a lot since the US-Iran war began in late February 2026. Qatar previously supplied roughly 45% of India’s 24.9 million tonnes of LNG imports in 2025. Its near-disappearance from the market drove a steep decline in Indian imports during the spring months, only for US cargoes to step in, covering around 1/3 of monthly arrivals through September. The gradual restoration of Gulf flows in September, albeit still vulnerable to security disruptions, broadened India’s options.The recovery in LNG flows has accelerated in October. Around 2.5 million tonnes have already arrived, with full-month imports expected to reach a record 2.8 million tonnes (up 18% year-on-year). Arrivals from Qatar and the UAE are rising by 80% and 30% month-on-month, respectively.Behind this buying is a widening gap between India’s gas demand and its domestic supply. Consumption increased from 60 billion m3 in 2022 to 68.5 billion m3 in 2025. Domestic production, meanwhile, has stagnated at around 34–36 billion m3 annually for the past four years. Aggravating the gas supply gap, 2026 has so far seen a 4% year-over-year decline, as September output fell to 2.73 billion m3 from 2.86 billion m3 a year earlier. Hence the change in the share of domestically produced gas in total gas consumption: while it used to cover 57% of consumption in 2022, the same share fell to 50% in 2025 and just 47% in April–September this year, leaving LNG to fill an increasing proportion of the gap. The resilience of demand is concentrated in two sectors. Fertilizer production accounts for around 29% of India’s gas consumption and city gas distribution (CGD) for another 28.5%, compared with about 10% for power generation and another 10% for refineries and petrochemicals combined. In past 6 months, the majority of consuming sectors have cut gas use by 10–25% amid higher prices and tighter availability, but fertilizer demand has fallen only about 2%, and city gas consumption has risen roughly 20%. Imported LNG has helped sustain both.Fertilizer production, particularly urea, presents a politically protected source of demand. The government has prioritized adequate supplies of urea and diammonium phosphate (DAP), especially in the politically important states of Uttar Pradesh and Punjab ahead of elections expected in February and March 2027. That priority has sustained production even as agricultural demand weakened in the south of the country. Poor rains linked to El Niño and subsequent drought across southern states reduced urea sales, yet the government has been pushing producers for higher output and imports. Domestic urea production rose 4.5% year-on-year in April–September 2026, while sales fell 4%.The production drive was accompanied by pressure on state-owned fertilizer makers to import more LNG, which accounts for 85% of the industry’s total gas consumption. The significance lies less in a dramatic increase in fertilizer-sector LNG use (which hardly changed since last year) than in its resilience: producers have sustained substantial purchases with West Coast India marker at $32-33/MMBtu, compared with $11/MMBtu a year earlier. Government subsidies and policy support have insulated this demand from the price shock.Meanwhile, the clearest source of consumption growth is city gas distribution (CGD). Gas use in the sector rose from 1.38 billion m3 in August 2025 to 1.67 billion m3 in August 2026 (an increase of roughly 20%), supported by wider network coverage and a growing customer base. Disruption to LPG supplies has reinforced the shift toward piped natural gas. The Gulf crisis and closure of the Strait of Hormuz cut India’s LPG imports from 2 million tonnes in February to 1.1 million tonnes in March, prompting restaurants, hotels and some households to switch to piped supplies. LNG has supported India’s city gas expansion, with its share of CGD supply rising to about 45% in recent months from 38% a year earlier, but domestic factors remain the main drivers.The rapid growth in India’s city gas consumption has been buttressed by New Delhi re-orienting domestic gas supply towards CGD needs. The Indian government set a price floor of $4/MMBtu for the next two years, ensuring that the country’s gas producers (ONGC, Oil India) are breaking even, whilst simultaneously introducing a ceiling price of $6.5/MMBtu. This creates a policy split between residential and industrial buyers of gas in India – the state subsidizes a large part (55%) of the former, whilst the latter is largely exposed to global prices. Provided an industrial gas consumer isn’t involved in fertilizer production, the rising cost of LNG imports will be potentially weighing on the profitability of India’s industries.Transport demand is also contributing. Adani Total Gas, one of India’s largest city gas distributors, attributed 91% of its incremental sales volumes this year to growth in compressed natural gas consumption.Policy is set to support further expansion. In August, the government announced a scheme to accelerate active household piped-gas connections through additional allocations of lower-priced domestic gas to distributors. That could encourage more households to connect, but with domestic production stagnant, growing demand will ultimately increase the system’s need for LNG.Power generation presents a further potential call on imported gas. Since the crisis began in March, coal has carried much of the burden of meeting electricity demand. Hydropower output fell 20% year-on-year during the summer months as insufficient monsoon rainfall reduced water availability, while elevated temperatures helped drive an 11% increase in total generation. Coal-fired output rose 12.5% to help close the gap in July-September.That increase has strained fuel supplies. Coal consumption averaged roughly 79 million tonnes a month in July–September, while deliveries (combined volume of domestic supply and imports) fell to 66 million tonnes in August. Reportedly, 95 of India’s 191 coal-fired plants have critically low fuel stocks. Rainfall in coal-producing areas disrupted supplies and slowed railway movements, even as inadequate precipitation elsewhere constrained hydropower. Higher import prices worsened the problem, discouraging overseas purchases and increasing reliance on domestic inventories. Coal imports in September were 12% below their year-ago level.Coal purchases are expected to rise 10% year-on-year in October to 21.3 million tonnes, which could ease the pressure. If shortages persist, however, greater use of gas-fired generating capacity may be needed as a short-term remedy. That would boost power-sector demand for natural gas purchases, already supported by fertilizer policy and expanding city gas networks, leaving India more exposed to expensive LNG. The diversification of LNG suppliers has helped India to overcome gas shortages after the US-Iran crisis began in early spring, but it cannot resolve its growing exposure to global prices. The question is how much of that cost the government, businesses and private consumers can absorb as imports become harder to avoid.By Natalia Katona for Oilprice.comMore Top Reads From Oilprice.comInvestors From 119 Countries Pile Into Dangote’s Record Refinery IPOU.S. Lawmakers Warn Banks Against Trump's Russian Diesel DealIran Eyes $130 Oil While at Least 50 Tankers Sit Stuck in the Gulf