LPG consumption is due to grow, boosted by subsidies as consumers look to make the switch from natural gas, write Rituparna Ghosh and S Dinakar
LPG consumption in India is expected to reach another new high this year, but the market's growth will remain slower than it was prior to the pandemic. This will be in spite of political leaders again using the fuel to win over voters in state and federal elections in 2023 and 2024, respectively.
India's LPG consumption will grow by 1.5-2pc in 2023, according to state-controlled refiner IOC. This is backed up by similar forecasts from Indian companies Crisil, Icra and Antique Broking. Demand rose by 2.9pc to 28.7mn t last year, after increasing by 1.5pc to 27.9mn t in 2021, oil ministry data show. In comparison, it grew by 8.5pc/yr in pre-pandemic 2016-19. LPG imports will also increase this year. India's seaborne arrivals rose by 7pc to 22.2mn t in 2022, Vortexa data show. But the oil ministry pegs total LPG imports at 17.6mn t in 2022, up by only 2pc, while domestic output increased by 5.6pc to 12.9mn t last year.
The country's LPG demand this year is expected to be boosted by subsidies from Rajasthan, after the state's chief minister Ashok Gehlot said it would provide 12 cylinders for 500 rupees each to over 6.8mn low-income users. Upcoming elections in northeast Indian states in March could also be crucial as they have some of the lowest LPG coverage in the country. The federal government may also keep a Rs200 ($2.50) subsidy for a 14.2kg cylinder refill for the 90mn beneficiaries of the PMUY scheme targeting low-income rural homes in place until federal polls in May next year. Yet consumption is expected to grow by about 2pc or lower this year and in the future because nearly the entire country now has access to the fuel, IOC says. The residential sector represents about 90pc of total demand, and industrial and commercial use about 10pc.
Refill rates among poor PMUY users has historically been lower than urban consumers, at about 3/yr compared with 7/yr, respectively. The latter's may shrink this year as piped natural gas (PNG) starts eating into household and industrial use in line with growing grid networks, IOC says. The lower rate among PMUY users, while offering the opportunity for growth, may in fact contract given higher LPG prices since the government removed LPG subsidies in early 2020. The Rs200 PMUY subsidy was a temporary measure and is due to end in March.
Elevated crude prices and high inflation are expected to impact refilling rates in the residential segment in 2023, Mumbai-based consultancy Crisil's director of research Hetal Gandhi says. "Despite an announcement of a Rs200/cylinder subsidy for the BPL [Below Poverty Line] segment, demand from the residential sector has remained tepid," she says.
Retail LPG prices in India rose by more than a fifth in 2022, leading to a 17pc drop in the number of PMUY beneficiaries opting for three or more refills over the 2021-22 year ending in March, Assam state petroleum minister Rameshwar Teli said last month. The average price for a 14.2kg cylinder rose by 21pc on the year to Rs994 in 2022, while a 19kg commercial cylinder rose by 25pc to Rs2,093. The government has kept residential prices stable at Rs1,003 in Delhi since May, while commercial rates were lowered over January-November, and then slightly raised in January 2023 — by Rs25 to Rs1,769, according to IOC.
Diversification
A sharp rise in LNG prices last year also encouraged industrial sector consumers to switch to LPG from natural gas, in particular tile manufacturers in the Morbi region of Gujarat state. About 60pc of these producers switched to LPG, local traders say. Some businesses have invested in infrastructure to enable a switch from PNG to LPG, according to bank Nomura.
But the government plans to cap gas prices, which may encourage companies to turn back to natural gas. The rising demand for compressed natural gas as a road fuel and electric buses may also inhibit any significant increase in autogas consumption, credit rating agency Icra vice-president Prashant Vasisht says.
Other developments this year include the continuing construction of the 2,800km Kandla-Gorakhpur LPG pipeline running from Gujarat on the west coast to Uttar Pradesh in the north of the country. The line, which will be the largest of its type in the world when it opens, is around 70pc complete, project operator IHB chairman Sadashiv Nanaware said at the World LPG Association's LPG Week in Delhi in November last year. IHB is a joint venture between state-run refiners IOC, Hindustan Petroleum and Bharat Petroleum. The project had faced delays last year from challenges related to the Ukraine war. It is expected to come on line in 2024.
LPG trading and shipping company Petredec is due to open a new LPG import terminal in Krishnapatnam, Andhra Pradesh state, on India's east coast. The terminal, which will have 34,000t of LPG storage, is in its commission phase, according to market participants.
