Executive Summary
India is advancing a policy move to strengthen its energy security by mandating all liquefied natural gas (LNG) import terminals to increase their storage capacity by 10%, thereby creating a strategic buffer that can be accessed by the government in the event of supply disruptions or sharp price volatility. The proposal comes amid rising natural gas demand projections, expanding LNG import capacity targets, and a broader shift to reduce dependency on more volatile global fossil fuel markets. This development signals the government’s intention to use LNG infrastructure not only as a supply chain asset but also as a strategic reserve facility.
Policy Context & Rationale
- The Indian government’s requirement for LNG terminals to build an extra 10% storage capacity stems from concerns over external supply shocks and global energy market instability.
- According to data from the International Energy Agency (IEA), India’s natural gas demand is expected to surge by approximately 60% by 2030, which will necessitate a doubling of LNG imports to meet the demand gap created by slower domestic production growth.
- Concurrent efforts are underway to increase India’s LNG import capacity from present levels (approximately 52.7 million tons per year) to around 66.7 million tons per year by 2030.
- The new storage mandate would enable the government to effectively intervene during supply disruptions, stabilise domestic gas markets, and reduce exposure to large-scale price swings in the global LNG market.
Projected Implications for Terminals & Infrastructure
Storage Requirements
- LNG terminals across India will now need to assess their current storage volumes and plan for incremental expansion to cover the additional 10%. This may involve construction of new tanks, increased regasification buffer zones, or repurposing existing capacity.
- Terminals will likely incorporate design changes into their storage infrastructure to ensure faster draw-down capability for government access, while maintaining a balance with commercial operations.
Supply Chain & Operational Dynamics
- With larger buffer storage, LNG terminals will assume a dual role: commercial import/evacuation facilities and strategic reserve nodes.
- The policy could lead to enhanced coordination between import terminal operators and government entities, including the Petroleum and Natural Gas Regulatory Board (PNGRB) and the Ministry of Petroleum & Natural Gas, with regard to draw-down protocols, emergency access, and cost pass-through arrangements.
- The commercial impact on terminal economics will require careful planning: carrying additional storage capacity entails capital expenditure, ongoing maintenance, and potentially lower utilisation if the buffer capacity remains idle until needed.
Strategic Benefits & Challenges
Benefits
- The added storage buffer enhances energy resilience: in the event of geopolitical disruptions, vessel diversions, or spot market price spikes, India will have greater slack in its LNG import infrastructure.
- Strengthening LNG infrastructure complements India’s goal of increasing natural gas’s share in its primary energy mix to around 15% by 2030 by improving security of supply.
- By signalling proactive policy action, India may improve its negotiating leverage with LNG suppliers and financiers, emphasising stability and scale in import infrastructure.
Challenges
- The financial burden: terminal operators will need to fund or allocate costs for the incremental storage capacity; a clear regulatory framework will be required to define cost recovery mechanisms and how the burden is shared between government and operators.
- Utilisation risk: some Indian LNG terminals currently operate at relatively low utilisation rates. For example, analysis from the Institute for Energy Economics and Financial Analysis (IEEFA) indicates that six of the seven major import terminals have been operating below 50% utilisation. Idle buffer capacity may raise concerns about stranded assets or revenue dilution.
- Supply chain and infrastructure integration: the effectiveness of the buffer depends on the entire value chain — LNG shipping, regasification, pipeline evacuation, and downstream distribution all need to function smoothly. Any bottleneck in these links could undermine the value of the buffer.
Outlook & Next Steps
- The next steps will involve formalising the mandate: the government is expected to issue regulatory directives, specify implementation timelines, and determine cost-sharing frameworks for the storage expansion.
- Terminal operators will begin capacity planning, including feasibility studies, engineering upgrades, procurement of additional tanks or modular expansions, and integration with existing assets.
- Market observers will monitor how the policy affects import terminal investment decisions, LNG procurement contracts, storage utilisation, and price dynamics in the domestic gas market.
- Over the medium term, the storage buffer policy will intersect with broader infrastructure build-out — new LNG terminals, expanded pipeline networks, floating storage and regasification units (FSRUs) — as well as demand growth in industrial, power generation, and city gas distribution sectors.
Conclusion
India’s decision to mandate an additional 10% storage capacity at LNG import terminals marks a strategic shift from treating LNG infrastructure purely as commercial assets to recognising their role within the national energy security architecture. By embedding a buffer into the system, the government is preparing for supply shocks and price volatility at a time of rising natural gas demand and growing reliance on LNG.
While the benefits of enhanced resilience are clear, successful implementation will depend on regulatory clarity, cost-effective execution by terminal operators, and seamless integration across the LNG value chain. For stakeholders in India’s gas sector — operators, regulators, investors, and industrial consumers — this policy signals a new operational paradigm in which storage is not just capacity, but strategic contingency.
