LNG unlikely to displace coal in India’s largest coal-consuming sectors: Report

In the power sector, which accounts for 70% of India’s coal demand, gas and LNG have been squeezed out of the generation mix due to high costs and their inability to compete with cheaper resources like renewables and coal.

Mumbai: Liquefied natural gas (LNG) is unlikely to displace coal in India’s largest coal-consuming sectors, according to a new report by the Institute for Energy Economics and Financial Analysis (IEEFA).

This is despite frequent claims from the global oil and gas industry that LNG serves as a transition fuel from coal to clean energy.

In the power sector, which accounts for 70 per cent of India’s coal demand, gas and LNG have been squeezed out of the generation mix due to high costs and their inability to compete with cheaper resources like renewables and coal.

The share of gas-fired power in India’s electricity mix has fallen to less than 2 per cent in FY2025, from 13 per cent in FY2010.

This is due to limited supplies of domestic gas, along with uncompetitive prices for imported LNG, according to a press statement.

For instance, 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.

“As gas-fired power generation has floundered, renewables now account for 12 per cent of the country’s generation mix, four times more than a decade earlier,” says Sam Reynolds, co-author of the report and IEEFA Asia’s LNG/Gas Research Lead.

“While gas plants currently provide peaking power during periods of high demand, that role may be usurped by rapid growth in battery storage deployments through 2030,” says report co-author Purva Jain, Energy Specialist, Gas and International Advocacy.

The report highlights that in FY2025, 31 gas-fired power plants — with a combined capacity of nearly 8 gigawatts (GW) and representing 32 per cent of the country’s total gas power capacity — did not generate any electricity, rendering them stranded assets. In April 2025, 5.3GW of this 8GW was retired due to inoperability.

Iron and steelmaking is India’s second-largest individual coal-consuming sector. Since FY2016, natural gas demand in this sector has increased only marginally by 0.63 billion cubic meters (bcm), 0.55bcm of which has come from domestically produced gas rather than LNG.

Although the country is the largest producer of direct reduced iron (DRI) in the world — a process which typically uses natural gas — 80 per cent of the country’s DRI fleet uses coal-based rotary kilns due to relatively cheaper fuel.

There may be room for coal-to-gas switching among smaller 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.

Rather than displacing coal, natural gas demand in India is more likely to grow in sectors that do not consume significant amounts of coal, such as city gas, transportation, fertilizers, and others. “However, demand growth in these sectors is also likely to face barriers related to the high costs and volatility of imported LNG, end-user price sensitivities, and the emergence of cheaper, cleaner alternatives” Reynolds notes.