IEEFA says LNG unlikely to displace coal in India’s largest coal-consuming sectors

In the power sector, which accounts for 70% of India’s coal demand, gas and LNG have been squeezed out of the generation mix due to high costs and their inability to compete with cheaper resources like renewables and coal. The share of gas-fired power in India’s electricity mix has fallen to less than 2% in FY25, from 13% in FY10.

This is due to limited supplies of domestic gas, along with uncompetitive prices for imported LNG. For instance, average LNG prices in FY24 were roughly nine times the cost of domestically produced coal and more than twice that of coal imported from Indonesia, India’s largest coal supplier.

Sam Reynolds, co-author of the report and IEEFA Asia’s LNG/Gas Research Lead, says:

“As gas-fired power generation has floundered, renewables now account for 12% of the country’s generation mix, four times more than a decade earlier.”

Report co-author, Purva Jain, Energy Specialist, Gas and International Advocacy, says:

“While gas plants currently provide peaking power during periods of high demand, that role may be usurped by rapid growth in battery storage deployments through 2030.”

The report highlights that in FY25, 31 gas-fired power plants – with a combined capacity of nearly 8 gigawatts (GW) and representing 32% of the country’s total gas power capacity – did not generate any electricity, rendering them stranded assets. In April 2025, 5.3 GW of this 8 GW was retired due to inoperability.

Iron and steelmaking is India’s second-largest individual coal-consuming sector. Since FY16, natural gas demand in this sector has increased only marginally by 0.63 billion cubic meters (bcm), 0.55 bcm of which has come from domestically produced gas rather than LNG.

Although the country is the largest producer of direct reduced iron (DRI) in the world – a process which typically uses natural gas – 80% of the country’s DRI fleet uses coal-based rotary kilns due to relatively cheaper fuel.

There may be room for coal-to-gas switching among smaller industries, especially as the country expands its national gas grid. The suitability of LNG will depend on pricing, infrastructure, and the competitiveness of alternative fuels.

Rather than displacing coal, natural gas demand in India is more likely to grow in sectors that do not consume significant amounts of coal, such as city gas, transportation, fertilizers, and others.

Reynolds notes:

“However, demand growth in these sectors is also likely to face barriers related to the high costs and volatility of imported LNG, end-user price sensitivities, and the emergence of cheaper, cleaner alternatives”

For example, the fertilizer sector has accounted for almost all of India’s LNG demand growth since FY16, due to high government subsidies that shield end-users from volatile fuel and production costs.

Jain says:

“In sectors that do not receive large public subsidies or government support, LNG demand growth remains to be seen. In many energy-intensive sectors, like petrochemical production and refineries, demand for gas and LNG have not increased over the past decade.”

Similarly, increasing gas consumption in the transport sector faces several barriers, including stiff competition from electric vehicles.

IEEFA’s analysis indicates that India’s gas-fired power plants, LNG import terminals and natural gas transmission networks struggle with low utilisation rates. Rising dependence on expensive LNG could mean that end-users switch to more affordable alternatives.

Bullish forecasts for India’s LNG demand growth will require a substantial change from trends observed over the past decade. Rather than using LNG when cheaper domestic gas is unavailable, consumers may opt for cheaper alternatives, leading to low utilisation of additional gas infrastructure and exacerbating stranded asset risk.

Read the article online at: https://www.worldcoal.com/coal/12062025/ieefa-says-lng-unlikely-to-displace-coal-in-indias-largest-coal-consuming-sectors/