India has responded by prioritising supplies to city gas distribution networks while cutting deliveries to fertiliser plants, refineries and industrial users during March and April. The approach helped protect supplies for priority consumers, but the higher cost of imported gas has increased pressure on the energy sector.
The price rise could have implications for fertiliser subsidies, industrial production costs and the price of gas-based services. However, the final impact on consumers will depend on how the higher procurement costs are absorbed by companies and the government.
Fertiliser production and subsidies
India has sought to maintain fertiliser production despite the supply disruption. Government subsidies helped sustain output, with daily urea production rising by 12,000-15,000 tonnes. Monthly production reached record levels of 25.19 lakh tonnes in May and 25.37 lakh tonnes in June, according to Wood Mackenzie.
However, maintaining production when imported gas becomes more expensive can increase the financial burden on the government. The report does not quantify the additional subsidy cost arising from the latest LNG price increase.
Industry faces higher costs
Industrial users and refineries were among the sectors whose gas supplies were curtailed in March and April. Higher LNG prices could add to operating costs for businesses that rely on gas as a fuel or raw material.
Companies may respond by reducing consumption, switching to alternative fuels where possible or passing some of the additional costs on to customers. Prolonged disruption could make it harder for energy-intensive industries to manage costs and maintain production.
Regional supply risks remain high
India has faced the crisis alongside other South Asian economies, but Pakistan and Bangladesh have been more exposed because of their heavy dependence on Gulf LNG supplies. The resulting price surge has forced countries across the region to ration gas, seek replacement cargoes and allocate additional funds to manage the energy shock.
Wood Mackenzie expects South Asia’s LNG demand to decline by around 6 million tonnes in 2026, reversing its earlier forecast of 2.7 million tonnes of growth.
The duration of the Middle East conflict remains uncertain. If supply disruptions continue and replacement cargoes remain expensive, India could face further pressure on energy costs, government spending and industrial activity. The challenge will be to maintain essential supplies without allowing the cost of energy security to rise unchecked.
(With PTI inputs)