MUMBAI: Though the landmark long-term LPG procurement deal with the US is a positive move from a sourcing or supplier diversification point of view, the longer distance and thus the higher freight costs could make it marginally costlier for oil marketing companies in the near term.
The country heavily depends on imports for liquefied petroleum gas (LPG), with inward shipments meeting as much as 55-60% of demand, despite steady domestic production growth. Import dependence for LPG rose to 66% in fiscal 2025 from 51% in fiscal 2017, according to a Crisil report.
“The recent Indo-US agreement, involving importing 2.2 million tonne per annum of LPG, signifies a notable shift in supplier diversification, reducing historical reliance on the Middle Eastern producers. While the strategic advantages of the deal are substantial, landed cost sensitivities linked to freight could shape the economics of oil marketing companies in the near term,” Crisil Ratings said in a note.
However, with a large portion of the source market now moving to the US, it eases concentration risks and expands room for optimisation in the import basket.
As the sourcing mix expands, delivered costs may vary significantly across the routes and origin points, with the Middle East cargoes tracking the Saudi contract price benchmark and US-linked supplies following the Mont-Belvieu based pricing, where freight plays a proportionately larger role.
The Saudi contract price of LPG has been decreasing, reaching its lowest point since August 2023 due to falling global demand. The Mont Belvieu price benchmark, which tends to fluctuate seasonally, has also dropped. This has empowered importers from the Asia-Pacific region, including India, with two competitive pricing options, enabling them to optimize their LPG sourcing.
These developments are transforming our LPG landscape into a more balanced and resilient structure. The US tranche, in particular, is poised to become a stable anchor in the import mix if the arrangement translates into a consistent flow and is renewed or scaled, reinforcing supply assurance and bolstering the country’s long-term energy partnerships.
LPG consumption grew to 31.3 million tonnes in fiscal 2025 from 21.6 mt in fiscal 2017 and is projected to touch 33-34 mt in fiscal 2026, riding on increasing refill intensity with the average household LPG refills for the subsidized scheme rising to 4.5 per household annually in fiscal 2025 from 3.9 cylinders in fiscal 2017, while the regular/non-subsidised refills remain at 6-7 cylinders per household per year across the past five fiscal years.
The share of LPG used for commercial and industrial purposes has risen to 16% in fiscal 2025 from 10% in fiscal 2017, driven by rising adoption in food services, institutional kitchens and small manufacturing clusters.
Domestic LPG production edged up to 12.8 mt in fiscal 2025 from 11.2 mt in fiscal 2017, but this incremental increase in supply has failed to keep pace with the robust growth in national demand. Consequently, the domestic contribution to overall LPG availability has weakened over time. As a result, reliance on imports has remained high at 60–65%, with the import volume increasing to 20.7 mt in fiscal 2025 from 11.1 mt in fiscal 2017. The structural supply gap is likely to persist through fiscal 2026-28, as LPG yield is expected to see only marginal improvement despite new refining capacity additions, the report said.
LPG imports have traditionally been dominated by the Middle East, which accounted for 91-93% of the total import volume (UAE 41%, Qatar 22%, Saudi Arabia 15% and Kuwait 15% in fiscal 2025). This concentration leaves the country exposed to regional supply volatility, including planned maintenance and shipping bottlenecks, which may constrain scheduling flexibility and tighten short-term procurement conditions.