Material Insights · Understanding the Material World

Conventional oil and gas production and Natural gas

Most of the world's gas comes from conventional fields, either gas reservoirs or as associated gas produced alongside oil. Associated gas ties gas supply to oil drilling, and where there is no pipeline or market it is flared: 167 bcm in 2025. In India the link is written into policy, with domestic gas from old fields priced at 10% of the crude basket within a floor and cap.

Conventional oil and gas production (energy) and Natural gas (energy): 5 relationships.

How they are linked

1. Main source of gas

Physical flow · Strong · Conventional oil and gas production → Natural gas

Gas wells on land and offshore drain porous rock reservoirs that release gas under their own pressure, and these supply most of the world's gas outside shale.

  • 75% share of natural gas energy flowing through conventional production in the site's data
  • 6.8% a year observed post-peak decline of conventional gas fields
  • about 9% a year average fall in gas output if all upstream investment stopped

Conventional fields decline more slowly than shale, but the IEA finds nearly 90% of upstream oil and gas spending since 2019 has gone to offsetting declines rather than meeting growth. New conventional projects have taken almost 20 years on average from licence to first production, so supply responds slowly to gas prices.

Sources: Material Insights (Energy Institute, IEA data); IEA

2. Associated gas

Joint production · Medium · Oil output → associated gas

Oil reservoirs contain dissolved gas that comes up with the crude, so oil drilling produces gas whether or not the gas is wanted.

  • 14% marketed associated gas share of world gas production, 2025
  • 167 bcm gas flared worldwide in 2025, up from 157 bcm in 2024
  • about 28% flared volume relative to marketed associated gas, 2025

The flared gas was worth an estimated USD 54 billion in 2025, and nine countries accounted for 83% of it. Flaring persists where fields are remote or gas infrastructure is missing, which is why associated gas supply depends on pipelines and processing as much as on geology.

Sources: Gas Exporting Countries Forum; Down To Earth (World Bank Global Gas Flaring Tracker 2026); World Bank

3. Gas used in the field

Physical flow · Weak · Natural gas → Conventional oil and gas production

Producers use part of the gas they lift to run field operations and reinject some to maintain reservoir pressure and recover more oil.

Reinjection and enhanced oil recovery are one of five routes for associated gas, alongside sales, field use, flaring and venting or leaks. Reinjection maintains reservoir pressure, raises oil recovery and can be an alternative to flaring.

Sources: Gas Exporting Countries Forum

4. Price link: co-product

Cost and price · Moderate · Both ways

Many oil fields also produce gas and gas fields yield condensate, and many long-term gas contracts are indexed to oil.

  • 0.15 monthly change correlation, European gas and oil
  • 0.60 12-month change correlation
  • 0.37 fitted elasticity

Spot gas follows its own supply and demand month to month, as in 2022 and 2026, but oil-indexed contracts pull the two together over a year. The link is weakest where gas trades at hubs; oil indexation is most common in long-term LNG contracts in Asia.

Sources: Material Insights (World Bank, FRED, IMF data)

5. India prices domestic gas off crude

Policy · High in India · Crude price → India's domestic gas price

India sets the price of gas from older nominated fields by formula, and since 2023 that formula has been tied to crude rather than to foreign gas hubs.

  • 10% of the monthly Indian crude basket, the APM gas price formula from 2023
  • USD 4 to 6.5/MMBtu floor and ceiling on that price
  • 20% premium allowed for new wells in ONGC and OIL fields

The cap keeps gas cheaper for city gas, fertiliser and power users when crude is high, but it also limits what producers earn from old fields, which is why new wells get a premium. The 2023 formula replaced a benchmark built from gas prices in surplus countries such as the United States, Russia and Canada.

Sources: Enerdata

For investors

Key learnings

  1. Associated gas makes part of gas supply a by-product of oil drilling, so oil price cycles can raise or cut gas output regardless of gas prices.
  2. Conventional field decline and long project lead times mean gas supply cannot respond quickly to price spikes, which sustains high prices after shocks.
  3. In India, upstream gas earnings from old fields follow crude only up to a cap of USD 6.5/MMBtu, which binds once the Indian basket passes about USD 65 a barrel, so ONGC and OIL gain little from crude above that.

What to track

  • Global gas flaring volumes by country: Falling flaring signals new gas capture and more marketable supply (Annual · World Bank Global Gas Flaring Tracker)
  • India APM gas price: Shows whether the crude-linked price is at its floor, cap or in between (Monthly · PPAC)
  • Oil-indexed LNG contract slopes: Steeper slopes tie Asian gas costs more tightly to crude (Quarterly · industry reports, company disclosures)

For policymakers

Key learnings

  1. Flared gas, 167 bcm in 2025, is lost supply as well as emissions, so capture projects add gas for importers and cut methane at the same time.
  2. India's crude-linked gas price shields consumers but weakens producer incentives on old fields, a trade-off the new-well premium tries to balance.
  3. Because most upstream spending only offsets decline, gas security rests on sustained investment in existing fields, not only new discoveries.

What to track

  • Domestic gas production in India: Falling output from old fields raises LNG import needs (Monthly · PPAC)
  • Flaring intensity per barrel of oil: Shows whether producer countries are capturing associated gas (Annual · World Bank)

India

India prices gas from its older fields at 10% of the Indian crude basket within USD 4 to 6.5/MMBtu, so its domestic gas price is set by oil and policy rather than by gas markets.

Sources

  1. Energy flows, Material Insights, Material Insights (Energy Institute, IEA data)
  2. The implications of oil and gas field decline rates: Executive summary, IEA (2025)
  3. Associated gas as a driver of greater economic value and emissions reduction, Gas Exporting Countries Forum (2026)
  4. Nine countries responsible for 83% of global gas flaring in 2025, says World Bank report, Down To Earth (World Bank Global Gas Flaring Tracker 2026) (2026)
  5. Price correlation, Material Insights, Material Insights (World Bank, FRED, IMF data)
  6. India revises gas pricing formula and caps CNG prices, Enerdata (2023)
  7. 2026 Global Gas Flaring Tracker Report, World Bank (2026)