Indian oil companies have cut their LPG losses to negligible after raising prices for the domestic cylinder by more than Rs 100 in over three months.
Retailers on June 7 hiked prices by Rs 50 a cylinder for domestic consumers, the eighth hike since July 2021. A 14.2 kg LPG cylinder now costs Rs 1,053 in Delhi compared with Rs 834 a year ago.
The companies revise prices of LPG cylinders at the start of every month, in line with global crude. This contrasts with an increase in losses in auto fuel, petrol and diesel, to over Rs 6 and Rs 13 a litre, respectively, largely due to consistent price freeze.
The government has “smartly” increased retail price of LPG cylinder at regular intervals, said Avishek Datta, oil and gas analyst at Prabhudas Lilladher. At the current market price of $800 a tonne of LPG, the under recoveries are negligible, he said.
“Indian refiners don't produce much of LPG and it is only the upstream companies like ONGC, GAIL (India) Ltd., and Oil India Ltd., who sell LPG at import parity prices, hence their earnings won't be impacted,” Datta said.
India is dependent on imports to meet its LPG needs. As of May 2022, the country imported around 62% of the total LPG consumed compared to 12% in 2001.
LPG consumption in May 2022 was 2.2 million metric tonnes against 2.16 MMT a year ago. The imports were at 1.38 million tonnes, 62.72% of the total consumption, according to data by the Petroleum Planning and Analysis Cell.
Swarnendu Bhushan, senior group vice president, oil and gas at Motilal Oswal Financial Services, said as the crude oil prices decline and oil refiners increase their capacities, LPG prices are expected to decline as well. “With planned capacity increase by Indian Oil and HPCL in the next couple of years, India's dependence on LPG imports will fall substantially, which will also reduce the LPG prices.”
Datta said The demand for LPG is “inelastic in India and only rising piped gas connections will substitute LPG”. “Accordingly, the government has aggressive targets for city gas distributors to increase piped gas connection.”
In May, Finance Minister Nirmala Sitharaman had announced a Rs 200-per-cylinder subsidy for more than 8 crore Ujjwala scheme beneficiaries for 12 times in a year to help ease some of their burden.
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