India Overhauls Domestic Natural Gas Allocation Amid Import Disruptions
The Indian government has implemented a significant revision to the priority order for allocating domestically produced natural gas, placing LPG production, CNG for transport, and piped cooking gas for households at the very top of the list. This strategic reshuffle comes as disruptions in imported gas supplies intensify due to the widening conflict in West Asia, which has severely impacted maritime traffic through critical shipping routes.
New Priority Framework for Gas Allocation
According to an official gazette notification, the requirements of these essential sectors will now be fully met before any gas is supplied to other areas. Under the revised framework, the allocation priorities are structured as follows:
- First Priority: Domestic piped natural gas for households, CNG for vehicles, and LPG production—including LPG shrinkage requirements—will receive 100% of their past six-month average gas consumption. Gas required for pipeline compressor fuel and other operational needs of the pipeline network will also receive priority allocation.
- Second Priority: The fertilizer sector has been placed second, with at least 70% of its past six-month average gas demand to be met, subject to availability. The notification specifically mandates that this fuel must be used strictly for fertilizer production.
- Third Priority: Gas supply to tea industries, manufacturing units, and other industrial consumers will be maintained at 80% of their past six-month average consumption, depending on operational availability.
- Fourth Priority: City gas distribution (CGD) entities supplying gas to industrial and commercial consumers have been placed at the fourth priority level in the revised allocation order.
Impact of West Asia Conflict on Energy Supplies
The government's decision follows severe supply disruptions triggered by the ongoing conflict in West Asia. Following US-Israeli strikes inside Iran and Tehran's retaliation, maritime traffic through the Strait of Hormuz has sharply declined, while insurance premiums have surged and energy markets have turned volatile. The strait handles approximately one-fifth of global seaborne oil and nearly one-third of LNG shipments, serving as a crucial route for India's imports of LNG and LPG.
The Central Government has assessed that the ongoing conflict in the Middle East has resulted in the disruption of liquefied natural gas (LNG) shipments through the Strait of Hormuz and suppliers have invoked force majeure clauses, the notification stated. With tanker movement slowing dramatically, the government has decided to rework the allocation of domestically available gas to ensure supplies to essential sectors such as household cooking fuel and vehicular transport.
Supply Curtailments and Implementation Measures
To meet these new priorities, gas supplies will be curtailed first to petrochemical facilities such as ONGC Petro additions Ltd, GAIL Pata Petrochemical Complex, Reliance O2C, and other high-pressure high-temperature gas consumers. If further adjustments are necessary, power plants may face subsequent reductions in their gas allocations.
Additionally, oil refining companies have been instructed to absorb part of the LNG supply disruption by reducing gas consumption at refineries to approximately 65% of their past six-month average usage. State-owned GAIL has been specifically tasked with managing the allocation and distribution of natural gas to implement the revised priority order effectively.
Current Gas Production and Consumption Context
Natural gas produced in India currently meets about half of the country's total consumption, which stands at around 191 million standard cubic metres per day. The notification emphasized that the revised allocation was necessary to maintain supplies and ensure equitable distribution of natural gas to priority sectors during this period of international supply chain disruption.
The reshuffle means that domestically produced gas will be strategically diverted toward these priority sectors, while supplies to petrochemical plants, power plants, and other high-priced gas consumers may face significant curtailments. This comprehensive approach aims to stabilize essential energy supplies for Indian households and critical transportation infrastructure during the ongoing global energy market volatility.
