India is scaling back its supply of affordable compressed natural gas (CNG) for vehicles, exacerbating a growing shortage in domestic production. This move, aimed at addressing production challenges, threatens to further deteriorate air quality in cities like New Delhi, which already struggle with severe pollution. The cutbacks have forced retailers such as Indraprastha Gas Ltd. and Mahanagar Gas Ltd. to increasingly rely on higher-cost imports or gas from new domestic fields that are difficult to extract. As a result, both companies have raised CNG prices, a fuel used by millions of vehicles, including cars, buses, taxis, and rickshaws.
New Delhi, already among the world’s most polluted cities, adopted CNG over 20 years ago as a measure to combat worsening air pollution. A landmark Supreme Court ruling mandated the conversion of all public buses to CNG, followed by a ban on non-CNG taxis in the capital region. While CNG is not a perfect “green” solution, it burns cleaner than diesel or gasoline, emitting fewer pollutants linked to smog and offering a slightly lower carbon footprint.
However, as New Delhi experiences some of the worst smog in recorded history, there are growing concerns that the rising cost of CNG might drive consumers away from the fuel. Proponents fear that higher prices, long queues at fueling stations, and a limited range of CNG-powered vehicles could discourage adoption. This could lead some to revert to petrol and diesel, undermining efforts to promote cleaner transportation.
Amit Bhatt, Managing Director for India at the International Council on Clean Transportation, warned that the price hikes could “deter the adoption of CNG vehicles and could even lead to a shift back to diesel and petrol.” This could reverse the progress made in encouraging cleaner, more sustainable transportation options.
CNG vehicles have seen a remarkable surge in popularity among price-sensitive Indian consumers, with sales increasing more than 13-fold between 2019 and the present. Meanwhile, sales of diesel and gasoline vehicles have dropped by 20% and 13%, respectively, according to data from India’s transport ministry.
Anumita Roychowdhury, Executive Director at the Centre for Science and Environment, argued that India needs a more nuanced pricing policy to incentivize cleaner fuels while disincentivizing the use of polluting fuels. “We need differential pricing policy to incentivize cleaner fuels and disincentivize polluting fuels,” she stated.
The ongoing supply constraints are tied to a sharp reduction in domestic production, which has failed to keep pace with rising demand. The country’s gas deliveries to retailers have dropped by as much as 40%, according to company filings. The gas from older domestic fields, which is priced at $6.5 per million British thermal units (mmbtu), is being replaced by more expensive alternatives: new domestic fields at $10 per mmbtu, and imports at $13–14 per mmbtu.
Mahanagar Gas Ltd. has announced it will explore ways to stabilize prices for its customers, but the scarcity has already led to price hikes of over 2% in some regions. Analysts predict that further increases will be necessary to maintain profit margins.
India has long aimed to expand the role of natural gas in its energy mix, with government plans to nearly triple the number of CNG stations across the country by 2030, from around 7,000 to 20,000. However, these ambitions may be jeopardized by the current supply issues.
Sabri Hazarika, an analyst at Emkay Global Financial Services Ltd., pointed out that the reduction in CNG supply contradicts the government’s broader goal. “This move doesn’t align with the government’s target to expand the compressed natural gas station network by 2030,” he said.
The root cause of the crisis lies in India’s limited natural gas production, which has not kept up with the country’s growing energy demand. According to the Ministry of Petroleum and Natural Gas, daily gas production has increased by only 3% over the past decade, while consumption has surged by 30%. This imbalance has been keenly felt by consumers, with the price of CNG in Delhi rising 73% since 2021. In contrast, gasoline prices have only risen by 13%, and diesel has increased by about 20%, narrowing the cost gap between CNG and conventional fuels.
For many, the rising CNG prices are beginning to pinch. Sukhdeep Singh, a taxi driver in New Delhi, expressed concern that without a corresponding increase in passenger fares, higher fuel costs would make it even more difficult for drivers to make a living. “Lower prices have been working in our favor, despite long waiting times at fuel stations. But if our costs jump without any increase in fares, it will make life very difficult for us,” he said.
As India’s energy landscape grapples with these challenges, the future of CNG as a cleaner alternative to diesel and petrol looks increasingly uncertain, leaving both consumers and policymakers to confront the difficult trade-offs in the quest for cleaner urban air.
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