India is grappling with a significant spike in liquefied natural gas (LNG) import costs, with tender prices reaching $26.4 per million British thermal units (mmBtu) in September. This marks a nearly 50% increase from the $16.8-$18.8 per mmBtu range observed between March and June, according to consultancy Wood Mackenzie.
The sharp rise is primarily attributed to geopolitical tensions in West Asia, which have disrupted gas supplies from key exporters like Qatar and the United Arab Emirates. Furthermore, restrictions on shipping through the critical Strait of Hormuz have exacerbated the supply crunch, driving up procurement costs for India.
India's Response to Supply Challenges
In response to the escalating prices and supply uncertainties, India has strategically prioritized gas allocation. Between March and April, the government redirected supplies to city gas distribution networks, ensuring continuity for households and the transport sector. This prioritization, however, came at the cost of reduced deliveries to vital industrial sectors such as fertilizer plants and refineries.
While protecting priority consumers, this approach has intensified financial pressure on India's energy sector. The higher cost of imported LNG carries broad implications, potentially affecting government fertilizer subsidies, increasing industrial production costs, and impacting the final prices of gas-based services for consumers.
Impact on Fertilizer Production and Industry
Despite the supply disruptions, India has made efforts to maintain domestic fertilizer production. Government subsidies played a crucial role, helping to sustain urea output, which saw daily increases of 12,000-15,000 tonnes. Wood Mackenzie reported record monthly urea production of 25.19 lakh tonnes in May and 25.37 lakh tonnes in June.
However, sustaining this output with more expensive imported gas places a greater financial burden on the government. The consultancy's report did not quantify the precise additional subsidy costs resulting from the latest LNG price surge.
Industrial users and refineries, which faced curtailed gas supplies earlier in the year, are now confronting higher operating costs. Businesses reliant on gas as a fuel or raw material may be forced to reduce consumption, explore alternative fuels, or pass these increased costs onto their customers. Prolonged disruptions could severely challenge energy-intensive industries in managing expenses and maintaining production levels.
Regional Energy Security and Outlook
India is not alone in facing this energy crisis; other South Asian economies like Pakistan and Bangladesh, with their heavy reliance on Gulf LNG supplies, have been even more exposed. The regional price surge has compelled countries to ration gas, seek costly replacement cargoes, and allocate additional funds to mitigate the energy shock.
Wood Mackenzie has revised its forecast for South Asia’s LNG demand, now expecting a decline of approximately 6 million tonnes in 2026, a stark reversal from its earlier projection of 2.7 million tonnes of growth. The ongoing uncertainty surrounding the West Asia conflict means that if supply disruptions persist and replacement cargoes remain expensive, India could face sustained pressure on energy costs, government spending, and industrial activity. The primary challenge remains balancing essential supply maintenance with controlling the escalating cost of energy security.