Govt relaxes curbs on LPG sales to commercial users as West Asia crisis eases

New Delhi: The government on Thursday relaxed restrictions on the sale of liquefied petroleum gas (LPG) to commercial users, amid expectations of a potential US–Iran peace deal that could restore energy flows through the Strait of Hormuz.

The move is expected to bring relief to restaurants, eateries, hotels and other LPG-using industries, as well as pharmaceuticals, petrochemicals and related industries.

Restrictions on bulk LPG supply - typically used by large industries - have been eased to 50% of pre-crisis consumption levels, according to a 25 June letter from oil secretary Neeraj Mittal to chief secretaries of states and Union territories.

"As you are aware, during the period of supply disruptions arising from the West Asia crisis, supplies of commercial packed LPG were curtailed to ensure uninterrupted availability of LPG to domestic consumers. It has now been decided to remove all sectoral restrictions on supply of non-domestic packed LPG and restore it to pre-crisis levels," the letter said.

Halt in March

The government had halted liquefied petroleum gas supplies for commercial use in March as the US–Israeli war with Iran escalated, disrupting fuel shipments through the Strait of Hormuz, which handles about 20% of global traded energy. Thereafter, supplies were gradually restored to around 80% of pre-war levels, with a committee of state-run oil marketing company (OMC) officials deciding allocations based on user requirements.

Restrictions on domestic LPG bookings, however, remain in place. In March, the ministry mandated minimum refill intervals of 25 days in urban areas and 45 days in rural areas. There were no such curbs before the West Asia crisis.

To augment domestic LPG production, the government had also issued orders under the Essential Commodities Act requiring C3-C4 streams to be utilized exclusively for LPG production, diverting them from petrochemical and other downstream uses. In the petroleum and petrochemical sector, C3 and C4 streams refer to specific groups of light hydrocarbon gases separated during oil refining and natural gas processing, which can also be used for LPG production.

In view of the improved domestic LPG production and the projected availability of imported LPG cargoes, the government has also decided to reduce the diversion of C3/C4 streams to LPG pool. The enhanced allocation of C3-C4 streams for non-LPG uses will be implemented while ensuring that the domestic LPG availability remains unaffected and aggregate local LPG production is maintained at not less than 40,000 tonnes per day.

Data needed

The ministry, however, said that all commercial and industrial consumer data must continue to be captured by the oil marketing companies in their databases. A unified database may be maintained by sector across the three OMCs -- Indian Oil Corp Ltd, Bharat Petroleum Corp Ltd, Hindustan Petroleum Corp Ltd.

Further, commercial and bulk customers who have shifted to piped natural gas (PNG) shall remain on PNG, the ministry of petroleum and natural gas (MOPNG) said.

"If other LPG customers can access PNG and can shift to PNG or are in process of shifting to local PNG network, they shall be permanently be transitioned to PNG. OMCs shall ensure that this transition to PNG continues to happen in conjunction with CGD (city gas distribution) entities. A reporting format shall be conveyed to OMCs and CGD entities to submit to MOPNG," the ministry added.

LPG supplies were severely disrupted due to the West Asia conflict and the closure of the Strait of Hormuz. India meets about 65% of its 33-million-tonne annual LPG demand through imports, spending nearly $11 billion. Before the conflict, India sourced about 90% of its LPG imports by volume from West Asia, leaving its supply chain highly concentrated. Within months, however, it pivoted quickly to alternative suppliers. As a result, West Asian supplies to the world’s second-largest LPG importer in June have fallen to less than half the pre-war levels.

Steady increase

India has steadily increased cooking gas purchases from the US, as the government intensifies efforts to diversify imports after the West Asia conflict disrupted supplies and prompted emergency curbs on fuel sales. The US emerged as India’s top LPG supplier in March, selling 435,081 tonnes, as the widening West Asia war disrupted shipping through the crucial Strait of Hormuz and triggered an unprecedented global energy crisis.

Since then, Washington has remained New Delhi’s top LPG supplier, with India often turning to spot purchases of US cargoes, which come at a premium to traditional West Asian supplies.

The ease in restrictions comes amid call for lifting the curbs in petroleum product sales. The government recently capped purchase of diesel at retail fuel pumps to 200 litres per customer in a day.

Recently, the United Petroleum Dealers Association representing petrol pumps across 11 states wrote to the ministry seeking a relaxation in the norm as the restriction may disrupt the supply chain.