MC Explains: Have cooking gas prices moved with global energy price trends?

ALSO READ: Banish those thoughts of LPG subsidy ending in the near term

The international LPG price softened since then to settle at $599 per tonne as of January 2022. (See chart) The PPAC is yet to update the February 2023 data.

Hikes in domestic retail prices

Juxtapose this with retail sale prices of domestic LPG in India. A 14.2 kg cylinder sold at Rs 714 in January 2020, fell to Rs 581 in May 2020, and has been largely on the rise ever since. It touched Rs 1,053 in July 2022, and after eight months, prices were hiked in March to Rs 1,103.

Volatility, subsidy and lag effect

There is still a catch. For the period from January 2020 to January 2023, India’s domestic LPG prices increased by 47 percent, while international LPG FOB prices changed 3 percent.

However, this does not account for international FOB price going up to $952 per tonne in April 2022, rising 64 percent from January 2020, and then falling.

Further, India’s domestic LPG price graph has two lull periods – no price changes during July 2022-February 2023 and October 2021-February 2022.

Additionally, India’s more than 60 percent dependence on LPG imports exposes domestic LPG prices to currency volatility. The rupee was at 71.31 per dollar in January 2020, and it was 81.9 per dollar in January, as per PPAC data.

“The formula to calculate LPG cost in India includes many components, other than international prices – like supply chain costs and distribution costs,” said Deepak Mahurkar, partner, leader - oil and gas, at PwC India. “While LPG global prices are an important part, end prices include more costs. Not always can oil companies recover all costs. The government also subsidises the needy.”

Also, oil marketing companies Bharat Petroleum, Hindustan Petroleum and Indian Oil were compensated with a grant of Rs 22,000 crore to cover losses due to lack of price hikes.

Back to course

Analysts expect OMCs won’t need to play catch-up with older under-recoveries.

“I do not expect any spillage from past under-recoveries for OMCs on the LPG side,” said Varatharajan Sivasankaran, senior vice president with Antique Stock Broking. Under-recoveries refer to losses due to the mismatch in LPG costs and the retail selling price.

Future cooking gas prices will depend on Saudi CP volatility.

“There may be an internal mandate to not hike prices for more than Rs 50 in a single instance. Saudi CP was up significantly in February, so that was partially passed on in March. One can expect another hike in April to make up for the full rise in Saudi prices seen in February. However, Saudi CP also softened in the current month, and it can fall further as summer approaches,” said Sabri Hazarika, a research analyst with Emkay Global, referring to the Rs 50 hike in domestic LPG prices starting March 1.

Hazarika also does not see previous under-recoveries affecting prices.

“I expect the mismatch to even out in the next three to four months anyways even if further retail price hikes are not taken. There may be some under-recoveries in LPG, but it is not as substantial as in the past,” he said.

If Saudi CP doesn’t decline further, another price hike may be on the anvil.

“LPG prices may need to be hiked again in April if Saudi CP doesn’t fall further. Saudi CP was up 30 percent in February, but down 9 percent in March, making them volatile,” Sivasankaran said.