Govt raises CBG price by 40%: Who will pay the premium for green gas?
For India, one of the world's most price-sensitive markets for natural gas, the government's new $2.5 billion National Circular Bioenergy Scheme — known as GOBARdhan, or "dung wealth" — may entail consumers paying twice their average affordability for the fuel.
GOBARdhan, which aims to extract methane or natural gas from agricultural and municipal waste through price incentives, capital subsidies and mandatory blending, may have set a price bar so high that while it encourages investment in compressed biogas (CBG), it may end up pinching city gas utilities, motorists and households, according to government data and senior industry sources.
The geopolitical benefits of the scheme are tremendous, explained Gaurav Kedia, chairman, Indian Biogas Association: In one stroke, the scheme addresses the egregious problem of waste while enhancing the country’s energy security by reducing a 50 per cent dependence on imported liquefied natural gas (LNG). "In solar, you put electrons in a grid. Here you put molecules in a pipeline."
But the question arises: Who pays the premium for CBG — a purified, renewable form of biogas made from organic waste like crop residue, cattle dung, and food waste? Microbes break down this waste and the gas extracted is cleaned to remove carbon dioxide and impurities, then compressed into a green fuel, and dispatched via pipelines.
The government has set the price of CBG for the first time — a strategy borrowed from the ethanol pricing policy where the government sets the price — 40 per cent more than current levels. (Prior to this policy, state oil companies used to offer a rate to CBG producers.) The new CBG price is also 60 per cent higher than the average price of 2025-26 LNG imports, according to calculations based on government data and oil ministry data.
The math is simple. GOBARdhan has introduced a stable administered CBG price of ₹2,110 ($22.2) per million British thermal units (MMBTU), compared to the current rate of ₹1,478 ($15.6) per MMBTU, according to the Indian Biogas Association. In addition, ₹2/MMBTU is given for compression in pipelines and ₹8/MMBTU is given for compression in cascades/cylinders. Just as with ethanol pricing, the government has not published details on how CBG is priced or the frequency of adjusting rates, industry officials said.
Petronet LNG CEO Akshay Kumar Singh has time and again said on earnings calls that India is a "very price-sensitive gas market", and for volumes to gain, the molecules must be priced below $10 per million British thermal units (MMBtu). Indian Gas Exchange’s benchmark price index, GIXI, for July 2026 averaged ₹1,837/$19.17 per MMBtu, up 80 per cent on the year.
The new CBG price is equivalent to current rates of imported LNG, which has nearly doubled from pre-war levels to over $20 per MMBtu because the war in West Asia disrupted over half of the world’s oil and gas supplies, sending fuel rates higher. However, LNG prices are likely to moderate next year to $10-$12 levels when new supplies enter the market, leaving imported LNG at least $10 per MMBtu cheaper than CBG.
The new GOBARdhan policy hopes to correct the inadequacies in India’s first SATAT (Sustainable Alternative Towards Affordable Transportation) programme, which when introduced in October 2018 proposed setting up 5,000 CBG plants by 2023, targeting production of 15 million tonnes of CBG from those plants. But CBG producers complained that state oil companies, while assuring offtake, paid low prices. As a result, only around 200 CBG plants, set up under SATAT, with a capacity of 0.4 million tonnes a year, are operational today, generating around 100,000 tonnes of the fuel annually, according to government data.
"Under SATAT, oil companies offered CBG producers a price that was at a discount to conventional gas. We were penalised — if CNG costs ₹100 a kg, we were getting ₹75," Kedia said. "Renewables should not be penalised. They should get a premium when benchmarked against fossil fuels." The new scheme offers producers around ₹100 a kg, excluding transport and other charges.
If all of India’s waste were processed today, it could yield as much as 60 million tonnes of LNG annually, according to the IBA. That is more than the 25 million tonnes that India imported in 2025.
"While SATAT created the market, GOBARdhan aims to create an integrated, bankable CBG ecosystem," said former GAIL chairman Sandeep Kumar Gupta on LinkedIn. "SATAT’s key insight was that an assured offtake opportunity alone does not make a project bankable."
India imports around half of its natural gas, which cost $13.4 billion in financial year 2025-26. This number will surge because of rising demand for the fuel and a decline in domestic supplies. Gas production for July declined to 92.4 million cubic metres a day (MMcm/d) (-3 per cent YoY, -1 per cent MoM) — of this, gas production for state-run explorers ONGC and Oil India combined averaged 58.9 MMcm/d (flat YoY, +1.0 per cent MoM), while production from private companies (mainly Reliance Industries’s Krishna Godavari basin field production) was poor at 33.5 MMcm/d (-9 per cent YoY, -5 per cent MoM).
CGDs Worried
GOBARdhan involves a total outlay of ₹237.31 billion to transform agricultural residue, cattle dung, press mud, municipal organic waste and other biomass resources into CBG and organic manure, implemented for a decade through FY 2035-36. CBG production targets under the new scheme have been trimmed to 4 million tonnes, a fourth of SATAT goals but still ten times the current capacity.
But the so-called premium on biogas under the new scheme has already made city gas utilities nervous, an industry official said. Mandatory blending targets apply only to CNG and piped natural gas (PNG) supplies to households, excluding other gas users like refineries and industries. The obligation trajectory is 3 per cent blending of CBG with fossil fuel gas in financial year 2026-27, 4 per cent in financial year 2027-28 and 5 per cent from financial year 2028-29. But CGDs may not be able to pass on the entire CBG sourcing costs to customers, industry officials fear, just as it is with imported LNG.
The latest quarterly results of Indraprastha Gas, India’s biggest city gas utility, reflect the pressure of high gas procurement costs on CGDs. Indraprastha Gas had a sharp margin contraction in the April-June quarter due to imported gas costs, said Maulik Patel, analyst at brokerage Equirus Securities. EBITDA (earnings before interest, tax and depreciation) contracted by 31 per cent on the quarter and 45 per cent year-on-year due to a surge in imported LNG costs. The margin contraction reflected an inability to fully pass through the sharp increase in sourcing costs, Patel said.
CGD officials met oil ministry officials this month and told the government that the burden of high prices must now be shared by other gas consumers such as refineries, industries and chemical plants.
- Natural gas--CH4 or methane, used as fuel in vehicles, kitchens or factories.
- Conventional natural gas--produced onshore or from the high seas.
- Unconventional gas--extracted from coal seams or shale rock.
- Compressed biogas (CBG)--a purified, renewable form of biogas made from organic waste like crop residue, cattle dung, and food waste.
- Compressed natural gas (CNG)--conventional, unconventional or biogas—or imported LNG.
- Liquefied natural gas (LNG)--natural gas, cooled, liquefied and shipped in cryogenic tankers.
- Liquefied petroleum gas (LPG)--propane (C3H8) or butane (C4H10) used as fuel.