LPG subsidy norms may change as oil firms lock in US supplies: Report

Domestic LPG prices remain regulated, with the government fixing the retail price at which state-run oil companies sell cooking gas to households

• India may revise LPG subsidy to factor in US prices and higher freight costs.
• State oil firms ink first long-term deal to import 2.2M tonnes of US LPG.
• US LPG imports now account for nearly 10 percent of India's annual LPG imports

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The Centre is evaluating changes to the formula used to calculate subsidies on liquefied petroleum gas (LPG) following recent annual supply agreements signed by state-run oil marketing companies with US exporters, people aware of the discussions told The Economic Times.

Currently, LPG subsidies are computed using the Saudi Contract Price (CP), which serves as the benchmark for supplies from West Asia. However, executives at state-owned oil companies told The Economic Times that the existing framework does not adequately capture the pricing dynamics of LPG imports from the US, particularly the substantially higher freight costs involved in transatlantic shipments. Oil companies are therefore seeking a broader formula that factors in US benchmark prices alongside Saudi CP.

LPG imports from the US become commercially viable for India only when the discount to the Saudi CP is wide enough to offset transportation costs, which are nearly four times higher than those for shipments from Saudi Arabia, industry officials said.

In a significant shift, Indian Oil Corp, Bharat Petroleum Corp Ltd and Hindustan Petroleum Corp Ltd last month entered into a one-year agreement to import around 2.2 million metric tonnes per annum of LPG from the US for the 2026 contract year. As noted by The Economic Times, this volume accounts for nearly 10 percent of India's annual LPG imports. While Indian firms have previously sourced US LPG through spot purchases, this marks the first time they have locked in supplies under a long-term contract.

Domestic LPG prices remain regulated, with the government fixing the retail price at which state-run oil companies sell cooking gas to households. When these companies sell LPG below market-linked costs, the resulting losses are compensated by the government, The Economic Times reported.

The move to reassess the subsidy mechanism reflects evolving sourcing patterns and highlights the need for pricing formulas that better align with India's increasingly diversified LPG import basket.