Gulf shipping crisis forces India to rethink gas as a transition fuel

India’s exposure to Gulf shipping disruptions is testing a central assumption in its energy transition: whether imported gas, much of it coming in from a volatile Middle East, can reliably aid India in its decarbonization goals. For years, liquefied natural gas (LNG) and liquefied petroleum gas (LPG) were billed as cleaner alternatives to coal that would not compromise the country's energy security.

That narrative is now facing a reality check. “It’s highly unlikely for these fuels to become central to India’s climate transition,” Anubha Aggarwal, India analyst at the Center for Research on Energy and Clean Air, tells EnterpriseAM. “LNG is seen as a transition fuel for industry in a limited way,” largely due to high costs and heavy import dependence, she noted. While LPG is critical for domestic and commercial cooking, its industrial applications remain narrow, she added.

Gas was never the bridge

India’s LPG consumption took a 16% hit in April amid shipping bottlenecks, squeezing small and medium enterprises, particularly in the hospitality sector. But any pivot away from gas is likely a stopgap, Anubha notes. Sectors operationally wired for gas or LPG cannot easily revert to coal, even under prolonged supply stress.

Gas accounts for a small fraction — 6.4% of India’s energy mix — and price constraints will keep it that way. “India has no plans to build new gas-based power plants,” Anubha says, pointing instead to battery storage and grid modernisation as the preferred pathway. Even within the power sector, roughly 10 GW of gas-based capacity is deployed for peak demand balancing, not baseload generation.

Policy response opts for two parallel tracks

During the war, India managed to partially de-risk from Gulf chokepoints without overhauling its fuel mix. Before the conflict, Qatar supplied 40% of India’s LNG, followed by Oman (16%) and the UAE (13%). While the war severely dented overall Gulf imports, shipments from Oman climbed to 30%, insulated by its bypass of the Strait of Hormuz. Between February and April, India doubled sourcing from Nigeria and Angola while locking in additional supplies from the US, Australia, Mauritania, and Indonesia.

The import bill demands gasification

A domestic substitute? Coal gasification — long lingering on India’s policy agenda — is gaining renewed urgency, targeting the utilization of 100 mn tons of coal by 2030, according to Anubha. However, gasification remains commercially challenging: It is capital-intensive, and India is still testing whether indigenous technologies can efficiently process the country’s coal with high ash content.

IN CONTEXT- Last week, India approved a INR 375 bn (USD 3.9 bn) scheme to scale up coal gasification in a clear directive to reduce dependence on imported fuels. The plant will gasify 75 mn tons of coal annually, backed by state support covering up to 20% of capital costs.

Why it matters: Coal gasification aims to reduce India’s INR 2.7 tn (USD 28.8 bn) import bill for energy feedstocks, industrial chemicals, and agricultural inputs by converting domestic coal into syngas. This can then be used to locally produce critical inputs like hydrogen, ammonia, urea, liquid fuels, and other chemicals.

India is already building past gas

Rather than derailing climate targets, Gulf volatility could accelerate India’s shift toward direct electrification, Anubha argues. “If India continues its current rate of renewable capacity addition, alongside grid modernization and battery storage, it will deliver the biggest gains in emissions reduction.”

For India-MENA energy ties, that raises a question. “It’s over-reliance on fossil fuels that has led to this crisis,” Anubha notes, highlighting that countries with higher renewable penetration are better insulated from price shocks. If resilience is the goal, she cautions against doubling down on fossil interdependence.

What's next? “It's very unlikely that the nature of consumption will shift to other fossil fuels in any substantial way. We expect things to go back to the way they were once the ongoing fuel crisis is over,” she explains.