Liquefied petroleum gas has played a crucial role in India’s energy transition, especially as a clean cooking fuel for households. However, the sector faces mounting financial challenges due to rising import dependence, volatile global prices, and government policies on subsidies. India’s LPG industry is facing a crisis triggered by financial strains on oil marketing companies, and global price volatility.
India’s oil marketing companies—Indian Oil Corporation (IOC), Bharat Petroleum Corporation (BPCL), and Hindustan Petroleum Corporation (HPCL)—are grappling with massive under-recoveries on LPG sales. With an estimated loss of Rs 40,000 crore in FY 2024, these state-run refiners face intense financial pressure. Although the Union Budget 2025-26 did not allocate funds for LPG subsidies, reports indicate that the government is considering a one-time compensation of Rs 18,000–25,000 crore to ease their burden. However, this amount will still fall short of covering total losses.
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Under-recoveries on liquefied petroleum gas stood at Rs 29,000 crore between April and December 2023. Industry analysts predict that this level will persist in FY 2025. The financial stress is further exacerbated by the fact that OMCs are already committed to capital expenditures exceeding Rs 65,000 crore for FY 2025-26. Without adequate government support, the sustainability of liquefied petroleum gas subsidies remains in question, potentially impacting consumers.
Import dependence and price volatility
India imports 67% of its liquefied petroleum gas needs, with over 97% of these imports sourced from Gulf nations, particularly the United Arab Emirates, Qatar, Kuwait, and Saudi Arabia. The pricing of these imports is pegged to Saudi Arabia’s contract price (CP), making India highly vulnerable to fluctuations in global LPG prices. In February 2024, CP for propane and butane saw a rise of 7% and 4%, respectively, reaching $650 per tonne and $635 per tonne. Such volatility creates financial uncertainty for both OMCs and the government.
To address this challenge, India is attempting to diversify its liquefied petroleum gas supply sources. BPCL recently signed an annual contract with Norway’s Equinor to procure 550,000 tonnes of propane and butane, marking a shift away from complete reliance on Gulf suppliers. While the US is a significant supplier, high freight costs pose a major challenge to increasing imports from America. With India’s LPG consumption projected to grow 4.8% annually, import dependence is expected to rise further, making it imperative for India to develop a more resilient supply chain.
To address funding gaps in LPG and fertiliser subsidies, the government has introduced the Oil Industry Development Fund (OIDF). With an outlay of Rs 17,700 crore for FY 2025 and Rs 19,300 crore for FY 2026, the fund will be financed through collections from the existing oil cess. This move aims to stabilise LPG subsidy financing and insulate it from fiscal uncertainties. Industry experts view the OIDF as a strategic intervention that could enhance financial predictability in the oil sector while ensuring continued affordability for consumers.
Trends and challenges in global LPG market
The global liquefied petroleum gas market is undergoing significant shifts, shaped by energy transition policies, technological advancements, and evolving demand patterns. Demand for LPG is expected to rise in developing nations across Asia, Africa, and Latin America, primarily for household cooking, heating, and industrial applications. Many governments are actively promoting LPG as a cleaner alternative to biomass and coal, particularly in rural areas, to reduce air pollution and improve energy access.
In contrast, developed nations are reducing reliance on fossil fuels in pursuit of net-zero carbon targets. European countries are shifting towards electrification, which may slow liquefied petroleum gas demand growth in those regions. The petrochemical sector remains a major driver of LPG consumption, as propane and butane are critical feedstocks for plastics and chemicals. The US, China and India are expanding their petrochemical production, leading to increased LPG demand in these regions.
On the supply side, the United States continues to be a dominant liquefied petroleum gas exporter, largely due to its extensive shale gas production. However, geopolitical factors and environmental regulations could impact future output. Meanwhile, Qatar and Saudi Arabia continue to play a major role in global LPG trade. The expansion of LNG infrastructure worldwide may also pose competition to LPG in industrial and residential sectors.
As the world shifts toward renewable energy, BioLPG, a renewable alternative derived from sustainable sources, is gaining interest, especially in Europe. Increased investment in synthetic and green fuels could eventually create competition for traditional LPG. Infrastructure and logistics improvements are also becoming a priority, with increased investment in LPG storage, transport, and distribution networks, particularly in Asia and Africa. Innovations in shipping and terminal operations are improving global supply chain efficiency, making LPG distribution more reliable.
According to market research, the global LPG market is expected to reach $252.8 billion by 2030, growing at a CAGR of 7.1%. The rise in urbanisation, supportive government policies, and concerns over carbon emissions are key factors driving this growth. However, challenges remain, including fluctuating crude oil prices and infrastructure limitations in developing economies.
Future of India’s LPG industry
The future of India’s LPG industry hinges on several critical factors. Government subsidy policies will be essential in ensuring uninterrupted liquefied petroleum gas supply at affordable prices, as delays in compensation to OMCs can strain their finances. Diversification of liquefied petroleum gas will import sources is another pressing need, as reducing dependence on Saudi CP pricing enhance supply security and mitigate financial risks. Investment in domestic production could further help reduce import dependence and create more stability in pricing.
Exploring renewable LPG alternatives such as BioLPG and synthetic fuels will be key to aligning India’s LPG industry with global decarbonisation trends. Additionally, strengthening storage and distribution infrastructure will help enhance supply chain efficiency, reduce costs, and ensure that LPG reaches even the most remote regions in India.
India’s liquefied petroleum gas industry stands at a crossroads, facing financial challenges, increasing import dependence, and shifting global market dynamics. While government interventions such as the OIDF provide temporary relief, a long-term strategy involving diversification, infrastructure development, and exploration of renewable alternatives is essential. As the global energy transition unfolds, India must face these challenges to ensure a sustainable, affordable, and secure liquefied petroleum gas supply for its growing population.