From March 1, the price of cooking gas increased by Rs 50 per cylinder in India.
A 14.2 kg domestic gas cylinder in Delhi now costs Rs 1,103, against Rs 1,053 earlier, a rise of 4.75 percent. The price increase came eight months after domestic liquefied petroleum gas (LPG) prices were previously changed. Why the hike? MC Explains.
In February, Kalanidhi Veerasawamy, a member of the Lok Sabha, asked the oil ministry why LPG prices in India are rising. The ministry attributed the increase over the years to India’s dependence on imports for LPG and the average Saudi contract prices (CP).
How are retail prices for cooking gas decided in India?
What the consumer pays for a 14.2 kg domestic LPG cylinder comprises three components – LPG price, dealer’s commission and taxes. Unlike retail prices of petrol and diesel in India, where taxes account for the bulk of the price, for domestic cooking gas, almost 90 percent of the cylinder price is the cost of LPG. Commission and taxes account for 11 percent of a cylinder’s retail price.
How is the LPG price calculated?
LPG price is calculated on the basis of an import parity price formula. Due to India’s huge dependence on imports for LPG, prices are based on international FOB prices (Freight on Board).
According to data from the Petroleum Planning and Analysis Cell, international FOB prices for LPG were at $650 a tonne in December and at $ 599 per tonne in January. PPAC’s February data is yet to be updated, the ministry, however, said the average Saudi CP has risen to US$ 710 per tonne till February 2023.
But US, Europe gas prices have softened…..
Natural gas prices in the US and Europe softened recently, helped by a milder-than-expected winter. However, LPG trades at a discount to Brent crude oil prices. Further, the Middle East is India’s largest LPG supplier and India’s LPG price formula is dependent on Saudi’s propane and butane prices, which have been hiked.
LPG is made of two components – 40 percent propane and 60 percent butane.
Why are Saudi propane and butane prices up?
The average Saudi CP on which domestic LPG prices are based increased from $454 per tonne in FY20 to $693 per tonne in FY22. During FY23, the average Saudi CP rose to $710 per tonne, as of February 2023, the ministry said last month.
Analysts said improved demand from Asian markets may have allowed room for the price hike. Propane is also a petrochemicals feedstock and higher demand for petrochemicals from Asia may have led to the price hike.
What is India’s import dependence for LPG?
More than 60 percent of India’s LPG needs are met through imports. India imported 8.7 million tonnes of LPG in April-September 2022 out of its total consumption of 13.8 million tonnes.
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