Category: 3. Business

One of the global oil and gas industry’s favourite selling points for liquefied natural gas (LNG) is that it can help countries replace coal and support the transition to renewable energy. 

As the world’s second-largest coal-consuming country, India is often cited by pro-LNG lobby groups and project developers as a case in point. Woodside Energy Group, for example, recently declared that its newly approved LNG export facility in the United States would help reduce India’s coal demand.

However, claims about the potential for imported LNG to replace coal in India ignore economic realities. Imported LNG has historically been unable to compete with cheaper alternatives such as coal and renewables, despite government targets to expand gas usage. As a result, India’s existing gas infrastructure, including LNG import terminals, pipelines and power plants, remains heavily underutilised. 

With little economic rationale, imported LNG is unlikely to serve as a “bridge fuel” in India’s energy transition, and therefore cannot be touted as a climate solution. Instead, evidence clearly shows that cheaper, cleaner technologies threaten the role of both coal and LNG in India’s long-term energy future. 

India’s largest Coal-consuming Sectors: Power and Steel

Coal is the predominant fuel in India’s energy mix, providing more than half of the country’s energy needs. Although the government has set a target for gas to rise to a 15% share by 2030, its share has fallen from 11% in FY2011 to just over 7% today. 

Claims that LNG—which is natural gas frozen to a liquid state for shipping—can reduce coal consumption in India imply that rising demand for gas coincides with a falling demand for coal. However, a recent report from the Institute for Energy Economics and Financial Analysis (IEEFA) found the opposite was occurring in India’s largest coal-consuming sectors. 

In the power sector, for example, which accounts for 70% of the country’s coal demand, gas has been almost entirely squeezed out of the generation mix due to uncompetitive prices. The generation share of natural gas has fallen from nearly 13% in FY2010 to less than 2% in FY2025 while the share of coal has remained relatively steady.

Renewable energy, meanwhile, has quadrupled to 12% of the power mix since FY2016, mitigating fossil fuel demand growth in the power sector. According to official power plans, no new gas-fired power capacity will be completed by at least 2032. During that time, the government aims to reach 596 gigawatts (GW) of renewable energy capacity, up from 220GW as of March 2025.

The decline of gas in India’s power mix has resulted in stranded assets – a point that pro-LNG lobby groups such as the Asia Natural Gas and Energy Association often choose to ignore. In India, 31 gas-fired power plants, with a combined capacity of 8GW, did not generate a single unit of electricity in FY2025. IEEFA has estimated the value of these stranded assets to be Rs650 billion (US$8.2 billion). In April 2025, 5.3GW of these non-operating gas units were retired altogether.

Beyond power, iron and steelmaking in India consume the second-largest share of coal. Here, too, LNG has done little to replace coal. Over the past decade, gas demand in the sector has risen by just 0.63 billion cubic metres (Bcm), of which just 0.08Bcm has come from imported LNG, and the rest from gas produced domestically. 

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

Why has gas struggled to replace coal in these sectors? One key reason is price. Average LNG prices in FY2024 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. Moreover, LNG prices are prone to extreme volatility from geopolitical disruptions. Recent tensions in the Middle East and the potential closure of the Strait of Hormuz could cause India’s LNG prices to spike suddenly.

LNG Demand by Miscellaneous Industries 

Miscellaneous industries – ceramic, glass, metal and pharmaceutical sectors and other small industries – are emerging as major consumers of both coal and gas. An increase in coal and gas consumption between FY2016 and FY2024 by these industries has been driven by imported coal and domestic gas, respectively. 

Total gas demand among miscellaneous industries increased by 7.69Bcm between FY2016 and FY2024. Of that increase, however, LNG demand growth was just 0.22 Bcm while the remainder was for domestically produced gas. 

Notably, the average price of imported coal in FY2024 at US$6 per million British thermal units (MMBtu), slightly less than the domestic gas price of US$6.5/MMBtu. LNG prices, meanwhile, average over USD11/MMBtu. So, while there may be room for coal-to-gas switching among small to medium 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.

What about Other Sectors?

Rather than replacing coal, LNG in India has grown primarily in sectors that consume very little coal. The fertiliser sector, for example, has accounted for almost all of India’s LNG demand growth since FY2016. This growth can be attributed to large fiscal subsidies that protect consumers from high and volatile energy input costs. In response to the global gas price spike in 2022, the government spent US$30.5 billion on fertiliser subsidies in FY2023. With the subsequent easing of gas prices, the fertiliser subsidy has been reduced to US$19.5billion for FY2026. 

However, the growth of LNG demand in sectors that do not receive large government subsidies remains to be seen. Since FY2016, LNG demand has hardly grown at all in energy-intensive sectors, including refineries, petrochemicals and power generation. 

In several sectors, including city gas distribution, overall gas demand has grown significantly over the past decade. However, most of this demand growth has been met by cheaper, domestically produced gas rather than imported LNG. LNG is typically more expensive due to liquefaction, shipping and regasification costs. 

Limited Domestic Gas Production and Increasing Alternatives 

Given that India’s domestic gas production is declining, many analytical groups simply expect imported LNG to fill in the gap. However, end users in India have repeatedly demonstrated a tendency to reduce gas demand altogether, and switch to more affordable alternatives when prices rise, leading to an underutilisation of existing infrastructure. For example, consumption of alternative industrial fuels such as furnace oil, low sulphur-heavy stock (LSHS), petroleum coke and liquefied petroleum gas spiked in FY2023 when coal and LNG prices skyrocketed in the global market.

Due partly to unaffordable prices, the country’s LNG infrastructure—including import terminals, pipelines, and power plants— assets have historically suffered from underutilisation. Of the country’s seven LNG import terminals operating in FY2025, six operated at below 50%. IEEFA estimates that the capacity-weighted average utilisation of India’s major gas pipelines is 41%, while the country’s fleet of gas-fired power plants operated below 10% from November 2024 to March 2025.

Moreover, rapid increases in cleaner, more affordable alternatives to gas pose a major challenge to India’s LNG demand growth. In the power sector, for example, gas-based power has been unable to compete with renewable energy. The story is similar for the transport sector, where the growth of electric vehicle sales over the last eight- years has surpassed compressed natural gas (CNG) vehicle sales by 123%.

In sum, imported LNG has been unable to replace coal in India’s energy mix. Instead, the evidence points to a conclusion that the LNG industry refuses to acknowledge: economics are driving the energy transition in India and other emerging markets. LNG simply cannot compete.

This article was first published in PSU Watch. 

TOKYO (Kyodo) — Tokyo stocks ended mixed Friday, as buying of exporter shares on a weaker yen was offset by a tumble of market heavyweight Fast Retailing on concern about lower profitability at its domestic Uniqlo operations.

The 225-issue Nikkei Stock Average ended down 76.68 points, or 0.19 percent, from Thursday at 39,569.68. The broader Topix index finished 10.90 points, or 0.39 percent, higher at 2,823.24.

On the top-tier Prime Market, gainers were led by marine transportation, and pulp and paper issues, while electric power and gas, and nonferrous metal shares were the main decliners.

The U.S. dollar briefly strengthened to the lower 147 yen range in Tokyo, as speculation about Federal Reserve interest rate cuts receded due to possible higher inflation after President Donald Trump said he will impose a 35 percent tariff on imports from Canada on Aug. 1, dealers said.

At 5 p.m., the dollar fetched 146.85-87 yen compared with 146.18-28 yen in New York and 146.26-28 yen in Tokyo at 5 p.m. Thursday.

The euro was quoted at $1.1689-1691 and 171.66-70 yen against $1.1696-1706 and 170.95-171.05 yen in New York and $1.1733-1734 and 171.61-65 yen in Tokyo late Thursday afternoon.

The yield on the benchmark 10-year Japanese government bond ended at 1.500 percent, up 0.010 percentage point from Thursday’s close, as the debt was sold following a rise in U.S. Treasury yields.

Stocks were supported by export-oriented auto issues on a weaker yen, while heavyweight chip shares tracked gains by their U.S. counterparts following the release of lower-than-expected U.S. weekly jobless claims.

However, the benchmark Nikkei was dragged down by the sell-off of Fast Retailing after the Uniqlo clothing chain operator released earnings the previous day.

Fast Retailing plunged 6.9 percent to 43,500 yen after reporting that the gross profit margin of its Japanese Uniqlo business from March to May dropped from a year earlier, although its net profit for the nine-month period through May increased 8.4 percent.

“As a decline in profit margin becomes a very negative factor in corporate earnings, investors reacted nervously,” said Masahiro Yamaguchi, head of investment research at SMBC Trust Bank.