India's appetite for natural gas is set for a healthy recovery in the next financial year, following a period of near-stagnation. According to a new analysis by credit rating agency ICRA, domestic natural gas consumption is projected to grow by 3-4% year-on-year in FY2027. This rebound comes after a phase of moderation expected in the current fiscal year, FY2026.
Near-Term Slowdown Gives Way to Recovery
The report highlights a temporary dip in demand. For the first seven months of FY2026, India's gas consumption actually declined by 4.5% compared to the same period last year. This contraction was primarily due to reduced offtake from major industrial consumers. Sectors like fertilisers, power generation, and refineries used less gas, pulling down the overall numbers.
Consequently, ICRA expects gas consumption for the entirety of FY2026 to remain largely flat or witness only a low single-digit decline. A key factor behind this subdued trend is stagnant domestic gas production. Any small increases in output are likely to be offset by the natural decline from ageing gas fields, limiting supply.
Key Drivers for FY2027 Growth
The outlook brightens significantly for FY2027. The anticipated growth will be fuelled by two main engines. First, a pickup in industrial offtake is expected as economic activity strengthens. Sectors such as refining and fertilisers are projected to increase their gas usage.
Second, the continued rapid expansion of the City Gas Distribution (CGD) network across the country will remain a steadfast driver of demand. This segment has consistently recorded healthy growth, piping gas to households, vehicles, and commercial establishments, and is set to continue its upward trajectory.
A Supportive Broader Energy Environment
ICRA's report points to a favourable macro environment that should aid this recovery. Globally, crude oil prices are projected to average between $60 and $70 per barrel in FY2027. This range is due to muted global demand growth coinciding with rising supplies. Even at these levels, the profitability of domestic crude oil producers is expected to remain robust, allowing them to maintain their capital expenditure plans.
On the gas front, international LNG prices have softened. Expectations of warmer winters in key consuming regions and comfortable inventory levels have eased prices. Furthermore, significant new LNG export capacity planned globally from 2027 onwards is expected to lead to a moderation in LNG prices. Domestic gas prices in India are also anticipated to soften, tracking the lower trend in crude oil.
In a related positive sign, the consumption of petroleum products in India is also forecast to grow by 1-2% in FY2027, indicating steady overall energy demand.
In summary, after a year of tepid growth, India's natural gas sector is poised to regain its momentum. The combined force of industrial recovery and the relentless spread of city gas networks will power consumption higher, supported by a stable and softer pricing environment for key energy commodities.
