India is moving to establish emergency liquefied natural gas (LNG) reserves by mandating storage expansion at import terminals, with operators allowed to recover costs through higher regasification charges, according to a Business Today report citing people familiar with the discussions. The plan aims to build strategic gas reserves more quickly than government-funded projects, after the disruption to LNG shipments through the Strait of Hormuz during the Iran conflict highlighted the country's exposure to supply disruptions.
LNG Storage Mandate for Terminals
Instead of establishing strategic storage in depleted gas fields — an option considered prohibitively expensive — policymakers are evaluating a plan under which LNG terminal operators would be required to expand storage at their existing import facilities, the report stated. A final decision has not yet been taken, and the extent of additional storage that operators may have to create is still under consideration. The proposal was examined in the past but not pursued because of the substantial costs involved.
Cost Recovery via Higher Regasification Charges
Rather than financing the expansion through government expenditure, the Centre is examining a mechanism that would allow terminal operators to recover their investment by increasing regasification tariffs. These higher charges would then be passed on by gas importers to consumers further along the supply chain. Currently, terminal operators levy regasification charges of around Rs 65-80 per mmBtu for converting imported LNG into natural gas before injecting it into the pipeline network. However, some cautioned that most LNG import terminals in India are already operating well below capacity, and any additional costs imposed on importers could further reduce terminal utilisation and dampen domestic demand for natural gas.
| Current Regasification Charges (Rs per mmBtu) | Proposed Mechanism |
|---|---|
| 65 – 80 | Higher tariffs to cover storage investment |
Strategic Reserves Context
The government has also been encouraging private-sector participation in the development and operation of strategic crude oil reserves as a way to reduce the fiscal burden. Oil Minister Hardeep Singh Puri recently wrote:
"You do not run a country off a few caverns, because energy locked underground earns nothing and costs a great deal to hold."
LPG Reserves Diversification
Separately, India is stepping up efforts to diversify its sources of Liquefied Petroleum Gas (LPG), with the United States emerging as its largest supplier in the months following the outbreak of the Middle East conflict. India relies heavily on the Gulf for LPG imports, and the disruption to shipping through the Strait of Hormuz since March had a far greater impact on cooking gas supplies than on crude oil imports, according to the report. Alongside the US, India has expanded LPG sourcing from countries such as Argentina, Nigeria and Malaysia.
Oil marketing companies are now looking to increase LPG imports from the US beyond the current level of around 2.2 million tonnes a year as part of a broader strategy to diversify supply sources and reduce dependence on the Gulf. In May, the petroleum ministry asked oil marketing companies to prepare a roadmap for creating a strategic LPG reserve capable of meeting 30 days of demand. Increasing imports from the United States, along with expanding procurement from other countries, is expected to be a key part of that roadmap.
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