India’s proposed gas pivot challenged by IEEFA report

What a difference a few years can make. Just before the Covid-19 pandemic shook most of the world, India was set on developing a natural gas-based economy to reduce the country’s reliance on coal and other polluting fossil fuels. News articles from 2018 to early 2020 frequently reported on India’s push to increase gas consumption and infrastructure investment. Indian Prime Minister Narendra Modi, for his part, promulgated the vision to both domestic and international audiences.

Now, however, a recently-released IEEFA report challenges India’s proposed gas pivot. It also exposes the common claim by LNG producers and exporting nations that the fuel can significantly replace coal in India’s power sector.

Despite government aspirations to boost the share of gas in India’s national energy mix (power generation, industry, transport, residential, agriculture) to 15% by 2030, its contribution has actually decreased from 10% in FY2013 to 7% in FY2024. The IEEFA report found that claims about LNG’s coal displacement role in India are largely unsubstantiated due to several factors.

Firstly, India’s LNG import growth is minimal compared to its vast coal demand. Crucially, the power sector accounts for roughly 70% of India’s overall coal consumption. However, high LNG costs and limited domestic gas supplies have squeezed natural gas out of India’s power mix. Gas-fired electricity’s share plummeted from nearly 13% in FY2010 to less than 2% in FY2025.

In FY2025, a substantial portion of gas-fired power capacity (32% or 8GW) remained idle, with 5.3GW retired in April 2025 due to inoperability. India also has no plans to build new gas-power plants until at least 2032. While gas generators see limited use for peak demand, India is increasingly relying on coal flexibility, energy storage, and demand-side management for grid stability.

Secondly, since FY2016, nearly all of India’s LNG demand growth has come from the fertiliser sector, driven by government subsidies. However, the fertiliser sector historically consumes minimal amounts of coal, limiting its potential for coal displacement. Future gas demand for fertiliser production is also not expected to grow significantly, the report added.

Thirdly, the iron and steelmaking sector, India’s second-largest coal user, has seen only marginal gas demand growth since FY2016, predominantly from domestic gas, not LNG. Despite India being the world’s largest producer of direct reduced iron (DRI), 80% of its DRI facilities use cheaper coal-based rotary kilns. Proposed new iron and steel capacity remains dominated by coal-based processes.

Lastly, a broad “miscellaneous” category encompassing various small industries is also a major coal consumer. While there might be some potential for coal-to-gas switching here with expanded gas infrastructure, LNG’s suitability depends on pricing and competitiveness. Over the last decade, LNG demand in these sectors has remained marginal compared to cheaper domestic gas.

The report argued that LNG is not serving as a bridge fuel from coal to clean energy in India’s largest coal-consuming sectors. Bullish forecasts for India’s LNG demand often overlook end-users’ tendency to switch to more affordable alternatives when prices rise, leading to underutilisation of existing gas infrastructure. This analysis, consistent with a similar study on China, suggests that LNG has yet to play a significant role in supporting the clean energy transition in the world’s two largest coal-consuming economies.

The renewables paradox

Furthermore, if gas is being marginalised in India’s energy sector, renewables have expanded. Renewable energy sources like wind and solar have quadrupled their share of the mix, with ambitious expansion plans, the report found.

Reuters reported last week that India had achieved 50% of its installed electricity capacity from non-fossil fuel sources some five years ahead of its 2023 agreement under the Paris Climate Accord. The announcement came as India’s renewable power output rose at its fastest pace since 2022 in the first half of 2025, while coal-fired generation declined nearly 3%.

Fossil fuels, however, continue to dominate India’s actual power generation, accounting for over two-thirds of the output in 2024. Even as overall generation increased, India still plans to expand coal-fired capacity by 80 GW by 2032 to meet rising power demand. India is the world’s third-largest electricity generator and consumer with installed capacity of 484.8 GW as of June 30th, 2025.

During a press interaction on October 16, 2022, Indian Finance Minister Nirmala Sitharaman showed the government’s sentiment towards coal for the power sector. “Coal is going to be back again as gas [is] becoming unaffordable,” she said. “It’s not just India; many countries have gone back. And coal is now going to be back again, because I think gas cannot be afforded. Or it is not available as much as you want.”

Highly insufficient

However, India’s planned coal expansion, despite the renewables surge, is a core reason why non-profit climate watchdog Climate Action Tracker has labelled the government’s climate change mitigation policies as “highly insufficient.”

“Despite achieving substantial progress in installing renewable energy capacity and continuous decline in its tariff, India’s fossil fuel demand remains unchanged. Indeed, coal production and imports reached a record high in the first half of 2024 to meet the rise in seasonal electricity demand brought on by another year of record summer heat,” it said.

The non-profit added that “this could be mitigated with faster rollout of renewables plus storage, both of which are cost-effective compared to fossil fuels in India. Continued expansion of coal-fired power is not aligned with [the] 1.5°C target of [the] Paris Agreement.”

To put it succinctly, the dilemma for India is that its plans to use even more highly-emitting coal for its power sector (even while reducing gas for power production) will offset both its ambitious renewables plans and development. The Climate Action Tracker report added that reliance on coal power continues to be a drag on India’s emissions reductions ambitions. 

Real progress can only come by removing governmental policies that favour domestic coal production and usage, and earmark more funds, including encouraging FDI, for India’s renewables development. Anything short of such a strategy could see the country miss both short-term, and — more disturbingly — long-term decarbonisation goals.

(Writing by Tim Daiss; editing by Sophie Davies)