India’s LNG strategy has protected city gas users from the worst effects of the disruption to Middle Eastern supplies, but the response has also exposed the difficult trade-offs behind urban energy security. By diverting gas away from fertiliser plants, refineries and industrial users, the country kept city gas distribution unaffected while accepting higher prices, reduced demand and greater pressure on public finances, according to consultancy Wood Mackenzie.
The disruption has changed the outlook for South Asia’s gas markets. Regional LNG demand, earlier projected to increase by 2.7 million tonnes, or 7 per cent, in 2026, is now expected to decline by about 6 million tonnes, Wood Mackenzie said. The consultancy attributed the reversal to the closure of the Strait of Hormuz and the disruption of LNG shipments from Qatar and the United Arab Emirates.
That shift matters to cities because gas is not only an industrial fuel. In India, city gas distribution networks supply compressed natural gas for transport and piped natural gas for homes and commercial establishments. Keeping those users supplied protects a visible part of urban life: vehicle fleets, households, restaurants and businesses that have moved towards gas-based energy. But the continuity of that service depends on decisions made elsewhere in the energy system, including which sectors receive scarce supplies and who absorbs the additional cost.
India’s response, as described by Wood Mackenzie, was a tiered demand-management strategy. City gas distribution was shielded while deliveries to fertiliser plants, refineries and industrial users were reduced in March and April. This was not an elimination of the supply shock. It was a prioritisation mechanism that placed different sectors in different positions when imported gas became more expensive and less certain.
The arrangement also depended on government support. Wood Mackenzie said subsidies helped sustain fertiliser production, with daily urea output rising by 12,000 to 15,000 tonnes. Monthly production reached 25.19 lakh tonnes in May and 25.37 lakh tonnes in June, according to the consultancy. These figures show how energy security can be maintained in one part of the economy by transferring costs to another part, including the public budget.
The price shock was substantial. LNG tender award prices ranged from USD 16.8 to USD 18.8 per million British thermal units between March and June before rising to USD 26.4 per mm Btu in September. Demand for LNG tenders remained robust during the period, Wood Mackenzie said. This combination—strong demand alongside sharply higher prices—suggests that protecting supplies for priority users does not make the underlying market stress disappear.
For urban consumers, the immediate benefit of uninterrupted city gas is easy to see. A sudden reduction in gas availability could affect public and private transport operating on compressed natural gas, household cooking arrangements and commercial users that rely on piped supply. The supplied assessment does not quantify the impact on individual Indian consumers or report changes in city gas tariffs. It does, however, establish that the protection of these users occurred alongside a reduction of about 1.5 million tonnes in India’s LNG demand.
That reduction is a sign of demand destruction rather than a simple efficiency gain. Wood Mackenzie said the regional supply shock cut gas demand by more than 3 million tonnes in Bangladesh and about 1.5 million tonnes each in India and Pakistan. Governments responded through rationing, fuel switching, tariff increases and additional budget allocations. These measures can preserve essential services in the short term, but they also reveal the limits of systems that depend on imported fuel without sufficient flexibility in sourcing, pricing or infrastructure.
India was less exposed than Pakistan and Bangladesh because its supply system could allocate gas across sectors. Wood Mackenzie said Pakistan obtained 99 per cent of its LNG imports from Qatar in 2025, while more than 70 per cent of Bangladesh’s LNG imports came from Qatar. Nearly 90 per cent of Qatari and UAE LNG shipments transiting the Strait of Hormuz in 2025 were destined for Asia, leaving regional markets highly exposed to interruptions along the route.
The comparison is important because energy resilience is not determined only by the volume of imported gas. It also depends on the number of suppliers, the structure of contracts, the ability to enter the spot market, domestic production, regasification capacity and the fiscal capacity to subsidise higher prices. Wood Mackenzie’s assessment indicates that countries with diversified supply sources and multiple pricing mechanisms were better positioned during the disruption.
Pakistan’s experience illustrates the consequences of having fewer options. Wood Mackenzie said LNG supplies bound for Pakistan were reduced by as much as 0.4 million tonnes per month between March and November 2026. The country responded by curtailing demand, switching fuels and releasing previously withheld domestic gas. These measures resulted in more than 2.5 million tonnes of gas demand destruction, according to the consultancy.
Pakistan returned to the spot LNG market in April after a two-year absence, but high prices limited its ability to secure replacement cargoes. It also remained liable for daily floating storage and regasification unit, or FSRU, take-or-pay charges whether or not LNG cargoes arrived. Wood Mackenzie cut its forecast for Pakistan’s LNG demand to 3.7 million tonnes in 2027 from 6.6 million tonnes in 2025. The consultancy expects committed LNG volumes to exceed demand through 2030, while uncontracted volumes are projected to account for more than 90 per cent by the early 2030s.
Bangladesh faced a different constraint. Its ability to increase domestic gas production was limited, and it lacked diversified import options. Gas shortages led to prolonged power outages and greater reliance on coal. State-owned Petrobangla bought spot LNG cargoes from Gunvor and Vitol for March delivery at USD 23-28 per mm Btu. Between March and June, Bangladesh paid an average of more than USD 18 per mm Btu for spot LNG, adding to pressure on government subsidies, Wood Mackenzie said.
The regional experience highlights an institutional problem for urban energy planning. City gas networks are often evaluated through the reliability of the final service: whether buses run, homes receive fuel and businesses can operate. Yet that reliability may depend on upstream choices involving fertiliser production, power generation, industrial allocation and government subsidies. A network can appear stable to consumers while the state is absorbing higher costs or another sector is being rationed.
This creates a governance challenge. Authorities must decide which users receive priority during a supply emergency, how higher import costs are distributed, and whether subsidies protect consumers, producers or strategic industries. They must also manage the consequences of fuel switching. Wood Mackenzie said Bangladesh’s gas shortages increased reliance on coal, demonstrating how an LNG disruption can affect not only energy affordability but also the composition of the regional power mix.
The crisis also complicates the longer-term case for gas. Wood Mackenzie expects affordable LNG to be necessary to support global demand growth of 60 per cent through 2040, with South and Southeast Asia central to that expansion. At the same time, the consultancy warned that current supply disruption could be followed by a risk of oversupply. For buyers and sellers, this creates a difficult mismatch between immediate scarcity and longer-term uncertainty.
For India, the central lesson is not simply that city gas users were protected. It is that the protection required a system capable of shifting supply between sectors and using public support to manage the consequences. That is a relative strength, but it is not the same as insulation from global energy markets. Higher tender prices and lower demand show that the disruption still reached the domestic economy.
The evidence supplied by Wood Mackenzie confirms three features of the current regional market: South Asian LNG demand is highly exposed to shipping routes through the Gulf, governments can preserve priority urban services by reallocating supply, and the fiscal cost of doing so can rise quickly. What remains uncertain is how long the disruption will last and how demand, contracts and infrastructure will adjust. Those developments will determine whether the present response becomes a temporary emergency measure or a lasting change in South Asia’s energy planning.
