Every year with the arrival of winter season LPG consumption picks up. In addition to the spike in demand for heating during winters, continued gas shortage as well as LNG challenges have been factors in LPG filling some gap. In comparison to the other energy sources like natural indigenous gas, oil and LNG, LPG has a miniscule share of about 1.5 percent in total energy supply, the fuel along with kerosene, coal, firewood and biomass fulfils the needs of the poor, which is a significant consumer base. LPG has seen its share in total energy supplies increase from a little over one percent to 1.5 percent, and in FY21 the fuel witnessed a growth of around 25 percent year-on-year.
As the illustration shows, production of LPG by local refiners has remained constant in general over the last decade, while LPG from fields has seen rising share. But due to demand exceeding production, consumption is met with imports primarily form gulf countries Barring FY20, LPG production by local E&P sector has been growing as highlighted in their annual reports too where the revenue stream of domestic oil and gas E&P companies is now accommodating a larger portion of LPG sales.
However, the sector’s key challenge has been a rift between local producers (that include the gas fields as well as refiners) and the government for allegedly favoring imports overs local production with the waiving of regulatory duty on imported LPG as well as lower GST on imported LPG.
Much more important is the price of LPG, which is generally called a poor man’s fuel. The recent commodity up cycle can also be seen in spiking prices for LPG. LPG prices per 11.8 kg cylinder notified for December has increased by 54 percent year-on-year. The December prices were actually down after a long upward streak since May 2021. Part of the fluctuation in price has been due to government policy. LPG was a deregulated product - up until the LPG Policy 2016 when the previous government decided to regulate LPG prices. However, the current government earlier this year decided to switch the LPG back to deregulated market, which is still to come through. The government has also taken the decision to allow use of LPG in the auto sector to share the burden with conventional auto fuels. Critics however are of the view that deregulation will not be able to bring the much needed price respite in the fuel.