LPG consumption growth slows to decade-low in saturated market

The saturation of the market and the wider availability of piped gas have contributed to the stagnation in growth.

Indian Oil Corporation’s sales of liquefied petroleum gas (LPG) grew a percent in FY23. Indian Oil, one of the three main suppliers of cooking gas, is not an outlier. Going by the Petroleum Planning and Analysis Cell’s revised estimates, LPG consumption in India in FY23 was expected to have grown by 1.3 percent, the slowest pace in more than a decade.

The saturation of the market and the wider availability of piped gas have contributed to the stagnation in growth. The significant rise in LPG prices over the past two to three years has also dented consumption.

India’s LPG consumption was expected at 28.6 million metric tonnes in FY23, according to the PPAC’s revised estimates. This would be a growth of 1.3 percent from 28.2 million metric tonnes in the previous year. The last time LPG consumption grew at 1.5 percent or lower was in FY09.

The annual LPG consumption growth rate in India has been falling since FY18 and was at 5.7 percent in FY20 before the pandemic and 2.5 percent in FY22. Refining industry executives expect LPG consumption growth to be even lower in the current financial year.

LPG usage is expected to grow at 1 percent, said an executive who did not wish to be identified.

Market saturation

A major reason for slowing LPG consumption growth is market saturation.

“The domestic segment being the major demand centre for LPG… has contributed to slower growth on account of the high penetration levels,” said Sourav Mitra, director–consulting at CRISIL Market Intelligence & Analytics. “The Indian government gave a strong push to LPG penetration since 2015, which saw LPG coverage grow from 56.2 percent in 2015 (148.6 million customers) to 100 percent in 2022 and beyond (313.9 million customers as of April 1, 2023).”

Mitra added he expects a slower growth rate on account of the saturation of markets and city-gas distribution (CGD) expansion.

“CGD and piped gas is also expanding,” said the executive quoted earlier.

CRISIL data shows that the CGD sector has grown to 10.4 million users of piped natural gas (PNG) at the end of 2022 from 3.59 million users in March 2017.

According to PPAC data,  gas consumption under the CGD category was up 11 percent for April 2022-February 2023 on a year-on-year basis, a significantly higher growth in consumption compared to LPG.

“It is expected that CGD will experience exponential growth backed by the proliferation of CGD networks in recent bidding rounds and by support from the government as India tries to build a natural gas-based economy, which is likely to eat into the share of domestic LPG, further slowing growth,” Mitra from CRISIL said.

The significant jump in LPG prices owing to volatility in global prices of propane and butane (components of LPG) has also dissuaded consumers in certain income categories.

“As LPG prices have gone up, demand has fallen. And this will continue until prices start falling. There is plenty of coal here, so there are other options,” said an LPG distributor based in Darbhanga, Bihar.

A 14.2 kg cylinder in New Delhi cost Rs 1,103 in March compared to Rs 714 in January 2020.