LNG shock may hit India harder than oil — are industries prepared?

The escalating crisis in West Asia and the closure of  the Strait of Hormuz by Iran's Islamic Revolutionary Guard Corps have massively disrupted the global energy flows and led to doubling the energy prices worldwide. While crude oil markets remain volatile, analysts say liquefied natural gas (LNG) shortages could pose a bigger risk for India’s economy and industries than oil disruptions. Notably, the Indian government’s recent direct conversation with Iranian officials resulted in the passing of a few LNG tankers to Indian shores, which is expected to limit the ongoing gas shortage in the country.

However, reports say that India’s dependence on LNG imports from the Gulf region makes the country particularly exposed to geopolitical shocks in the region.

India’s LNG dependence remains high

India’s natural gas consumption has been rising steadily as the government pushes to increase the share of gas in the country’s energy mix.

According to the International Energy Agency (IEA), India’s gas demand is expected to surge sharply in the coming years as the country expands gas use across industry, transport and power sectors.

“India’s natural gas demand is forecast to increase by nearly 60% by 2030, supported by infrastructure expansion and growing use across industry, transport and power sectors,”the IEA said in its latest India Gas Market Report.  

However, domestic gas production is not keeping pace with demand. As a result, LNG imports have become increasingly important. The IEA noted that LNG imports into India will need to more than double by 2030 to meet rising demand because domestic output growth remains limited. 

India is already one of the world’s largest LNG buyers. In 2024, the country imported about 27 million tonnes of LNG, making it the fourth-largest LNG importer globally.

Heavy reliance on Qatar and the Gulf

Reports show that about 40–45% of India’s LNG imports come from Qatar, with additional volumes sourced from Oman and the UAE.  Most of these shipments must transit through the Strait of Hormuz, a narrow maritime chokepoint connecting the Persian Gulf with the Arabian Sea.

If tanker movements slow or shipping insurance becomes difficult during conflict, LNG cargoes can be delayed or diverted, tightening supplies in importing countries like India. Recent reports indicate that disruptions in the Gulf have already affected LNG shipments from Qatar, forcing Indian buyers to scramble for alternative cargoes from other suppliers. 

Why LNG shortages hurt industries faster

Unlike crude oil, LNG markets are more rigid and less flexible in the short term. Oil can be sourced from multiple suppliers and transported through different routes. LNG, however, relies on specialised liquefaction facilities, LNG carriers and regasification terminals. Contracts are often long term, leaving limited flexibility during supply disruptions.

This means that even small disruptions can quickly affect industrial consumption. Energy analysts say LNG shortages tend to hit industrial consumers first because governments typically prioritise household cooking gas, fertiliser production and power generation.

Sectors most exposed to gas disruptions

Several sectors in India rely heavily on natural gas as fuel or feedstock.

Fertilisers: Natural gas is the primary feedstock for urea production. Any shortage can affect fertiliser output and increase subsidy burdens for the government.

City gas distribution: CNG for vehicles and piped natural gas for households and commercial establishments depend largely on LNG imports.

Ceramics and building materials: Industrial clusters such as Morbi in Gujarat rely heavily on gas-fired furnaces.

Petrochemicals and refining: Gas is used as a feedstock in petrochemical units and refineries.

Power generation: Gas-based power plants require imported LNG to operate at higher capacity.

According to a report by Reuters, India has already begun diverting gas supplies to priority sectors while reducing allocations to industry as LNG shipments face disruptions.

The long-term challenge for India

The current crisis underscores a structural challenge in India’s energy system. Even as the country pushes to increase the share of gas in its energy mix to 15% by 2030, its growing reliance on imported LNG exposes the economy to global supply shocks.

The IEA has warned that the gap between contracted LNG supply and India’s future demand could widen after 2028, potentially leaving the country more exposed to spot market volatility unless additional long-term contracts are secured.