The ECA and India's Natural Gas Crisis

Source: The Hindu

Introduction 

The Central Government issued the Natural Gas (Supply Regulation) Order, 2026 under the Essential Commodities Act, 1955 

• Purpose: To regulate production, supply and distribution of natural gas amid global supply disruptions 
• Disruptions stem from the ongoing West Asia conflict between the US-Israel coalition and Iran 
• The order was notified by the Ministry of Petroleum and Natural Gas on March 9, 2026.  
• The conflict has affected LNG shipments through the Strait of Hormuz, with suppliers invoking force majeure and diverting gas supplies to priority sectors. 

What is the Essential Commodities Act, 1955?

• The Act allows the Centre to regulate production, supply, distribution and trade of critical goods to ensure availability and prevent hoarding or price spikes.  
• Grants powers to impose stock limits, direct supply, or control distribution during war, natural disasters, or sharp price increases. 
• Traces its origins to 1939, regulated under the Defence of India Act during World War II; the present Act came into force in 1955.  
• The Supreme Court's ruling in Association of Natural Gas v. Union of India held that natural gas and LNG fall within the scope of petroleum products, enabling regulation under the Act.

What Triggered the Order? 

• The Strait of Hormuz is a crucial global energy transit route connecting the Persian Gulf to international markets.  
• Conflict in the region has disrupted LNG shipments; around one-third of India's LNG imports have been affected. 
• Suppliers began invoking force majeure clauses, reducing committed supplies to Indian buyers. 
• The Centre responded by directing diversion of available gas to the economy's priority sectors.

The Four-Tier Priority Framework 

• Priority Sector I — Domestic piped natural gas, CNG for transport, LPG production, and pipeline compressor fuel; to be maintained at 100% of past six-month average consumption. 
• Priority Sector II — Fertiliser plants; to receive 70% of average consumption; units must furnish compliance certification to the Petroleum Planning and Analysis Cell. 
• Priority Sector III — Tea industries and manufacturing consumers on the national gas grid; to receive 80% of average consumption 
• Priority Sector IV — Industrial and commercial consumers under City Gas Distribution networks; to receive 80% of average consumption 
• To fund priority allocations, gas to oil refineries will be curtailed to approximately 65% of their past six-month average, subject to operational feasibility.

The Gas Pooling Mechanism 

• A pooled price will be determined for gas diverted from non-priority to priority sectors 
• Recipient entities must accept the pooled price and cannot challenge force majeure mitigation supplies through litigation 
• The order overrides existing Gas Sale Agreements and other commercial arrangements. 
• Entities directed to comply immediately include: ONGC, Reliance Industries, Oil India Limited, Vedanta, gas marketers, LNG terminal operators and city gas distributors 
• Resale of diverted gas by recipient entities is strictly prohibited.

Additional Measures for LPG 

• All refiners — public and private — directed to channel all propane and butane output exclusively toward LPG production. 
• LPG produced under this directive must be supplied only to the three state-run oil marketing companies: Indian Oil, BPCL, and HPCL. 
• A 25-day inter-booking period for LPG imposed to prevent hoarding 
• Imported LPG to be prioritised for essential non-domestic sectors.

Conclusion 

The invocation of the ECA signals that energy security outweighs normal market arrangements during geopolitical emergencies.The order overrides commercial contracts, imposing a strict priority hierarchy in the national interest.India's natural gas consumption is projected to grow from 187 mmscmd in 2023-24 to 297 mmscmd by 2030 making supply-shock vulnerability a long-term concern.The episode highlights the urgent need for accelerated domestic production and supply-route diversification to reduce dependence on the Strait of Hormuz.