Natural gas loses industrial buyers as liquid fuels turn cheaper

New Delhi: City gas distributors are finding it increasingly difficult to acquire new industrial and commercial customers as natural gas remains costlier than competing liquid fuels.

In the first half of this financial year, new factory connections fell 39% year-on-year, while additions in the commercial segment declined 17%, according to data published by the Petroleum and Natural Gas Regulatory Board. City gas companies added only 555 new industrial customers and 1,599 commercial customers during April-September. Commercial customers include hotels, restaurants, malls and hospitals.

Natural gas lost price attractiveness for industrial users this year as competing fuels such as crude-derived LPG became cheaper. Crude oil prices are down about 17% on average in 2025, keeping liquid fuels competitive, while imported liquefied natural gas (LNG) prices have remained broadly unchanged from last year. This divergence has blunted gas demand growth.

"It's been hard to persuade new customers because the current cost economics favour alternative fuels. They don't want to pay the installation fee for natural gas supply when they know they can't recover it quickly," said an industry executive, who did not wish to be identified.

While natural gas struggles to compete with dirtier fuels (coal) or fuel oil even in normal times, the problem worsens when crude prices fall sharply without a corresponding decline in LNG prices, making LPG more attractive for factories. Some city gas distributors are responding by offering substitutes. Gujarat Gas, a state-run distributor, is expanding into propane distribution to retain customers in Gujarat, where relatively cheaper propane is displacing natural gas. In certain pockets, subsidised wood briquettes-about a third cheaper than gas-are also gaining traction, further eating into gas sales.

As a result, city gas distributors sold 2% less gas to industrial customers during April-September compared with a year earlier, even as sales to commercial customers increased 13%. Industrial users remain the second-largest consumer segment for city gas distributors after CNG. Of the 8,352 million standard cubic metres (mmscm) of gas sold by city gas companies in the first half of the fiscal, 28% went to industrial customers and 62% to CNG, with the rest split between households and commercial users.

Gas consumption by large users such as power plants, refineries, fertiliser makers and steel producers also declined this year. Smaller industries supplied by city gas distributors increasingly switched to propane as prices stayed lower, reinforcing the broader pressure on gas demand.