Attractive prices as politicians attempt to woo voters in the run-up to elections should support increased LPG use, writes Rituparna Ghosh
LPG consumption in India is on course to increase but only moderately this year after inching up in 2023. The country's general election in the second quarter is expected to lead to lower retail prices, boosting demand, but growth will be tempered by the residential market approaching saturation and the difficulty in getting low-income users to maintain purchases.
LPG cylinder prices for poorer households under the government's PMUY scheme have nearly halved in states where local elections took place in late 2023, including Madhya Pradesh and Rajasthan. The price of a 14.2kg cylinder in these states for PMUY users stands at around 450-500 rupees ($5.40-6.00), compared with a flat rate of Rs903 in Delhi, once local incentives and the federal government's Rs300 temporary subsidy is included. These low prices are likely to occur across the country in the run-up to the general election some time in April-May, according to market participants. This should lift sales to low-income users, who typically purchase less LPG than more affluent urban consumers.
Indian credit rating agency ICRA has forecast the country's LPG demand to increase by about 3pc in 2024. Consumption rose by 1.2pc on the year to 29.1mn t in 2023, having risen by 2.8pc to 28.7mn t in 2022, oil ministry data show, as higher LPG retail prices weighed on demand. More attractive pricing to coincide with the election should support higher use this year, as will the number of households on the LPG market growing by 2pc to 319mn in 2023 — up by 115pc since 2015, when the PMUY scheme was launched.
The government aims to add 7.5mn homes to the PMUY scheme by 2025-26 — potentially its final leg — at a cost of around Rs16.5bn, supported by its "housing for all" plans. And government think-tank Niti Aayog is about to embark on a review of India's main subsidy schemes, including the PMUY, to rationalise expenditure and prevent subsidy "leakage" by ensuring the benefits are reaching eligible people.
But it remains to be seen whether election-induced price cuts will stay after the votes are counted. India's demand rose to 2.63mn t in December, a record high. But retail prices had been on an upward trajectory since the previous election in 2019, and despite the PMUY scheme extending to nearly 96mn homes by 2022-23, around 11.8mn of these bought no LPG, largely because of rising prices.
Imports on a steeper trajectory
India's LPG imports rose modestly last year but outpaced demand, climbing by 3pc to 18mn t, oil ministry data show. This is because of production plateauing at 12mn-13mn t/yr over the past few years in line with flat refining capacity — where all of India's domestically produced LPG comes from.
India's residential sector represents about 90pc of demand, and industrial and commercial use about 10pc, with household LPG usually a butane-heavy blend. This makes the country more reliant on butane-heavy Mideast Gulf exports. Yet propane imports represented the largest share of LPG arrivals last year, increasing by 11pc to 9.7mn t in 2023, Vortexa data show. This sharp increase is linked to growing industrial sector demand in place of costlier natural gas, imported as LNG, in particular for the tile manufacturing sector in Gujarat's Morbi region.
"India's LPG imports have been increasing owing to higher propane use and greater market coverage thanks to the PMUY scheme," ICRA senior vice-president Prashant Vashisht says. Forecasting LPG output is hard as refinery product slates vary depending on crude type, but the reliance on LPG is expected to grow, he says.
Another major development to look out for this year will be the commissioning of the 2,800km Kandla-Gorakhpur LPG pipeline from Gujarat to Uttar Pradesh. The project's status is unknown owing to delays. Indian refiner IOC is also due to start up an import terminal in Kochi, Kerala, which will be able to store 15,400t of LPG.
