India has seen a significant surge in domestic LPG consumption over the past decade, with the consumer base doubling to around 33 crore as of April 1, 2025. However, this has led to an intriguing paradox. On the one hand, higher LPG consumption resulted in greater imports, given India’s limited domestic consumption, and on the other hand, this is also impacting margins of oil marketing companies. Just hiking consumer prices cannot fix the problem. The question then is how can consumer interest and OMC concerns be addressed?
CareEdge Ratings stated that a combination of recent price hikes, a softening of international LPG procurement costs, increased US imports, and additional government support, including subsidy provisions, excise duty collections, and the recent hike in retail LPG price, is expected to ease financial pressure and restore profitability for OMCs in FY26.
Sharp consumption rise increases dependence on imports
About 90 per cent of LPG consumption is attributed to household cooking in India, according to CareEdge Ratings. This is largely driven by rural penetration under government schemes like Pradhan Mantri Ujjwala Yojana (PMUY). Eligible PMUY beneficiaries receive a subsidy of Rs 300 per cylinder under the Direct Benefit Transfer scheme, applicable for up to 12 refills per year. In comparison, industrial, commercial, and automotive account for remaining 10 per cent,
This sharp rise in the LPG consumer base has led to an interesting turn of events. Lower LPG production by Indian crude oil refiners has increasingly led to greater reliance on imported LPG. This has grown significantly, with imports meeting nearly 60 per cent of the country’s LPG needs in FY25 compared to around 46 per cent a decade ago.
Rising LPG imports: Who foots the bill?
With consumption growing and LPG prices tightly regulated, Oil Marketing Companies (OMCs) continued to absorb losses. This slashed their combined profits to just Rs 35,000 crore in FY25 from Rs 85,000 crore in FY24.
While the dependency of LPG imports increased to nearly 60 per cent in FY25 from 46 per cent in FY16 on the back of consumption outpacing production, there are expectations of increasing domestic product.
Currently, 90 per cent of the LPG import demand is being met by Middle Eastern countries, including the UAE, Qatar, and Saudi Arabia. Moving ahead, Indian crude oil refining capacity is anticipated to rise by 20 per cent over the next 4-5 years. However, the report maintained, it will still be lower than the domestic requirement, resulting in continued import dependency for LPG.
LPG procurement cost
Pricing however, remains a key concern in the face of rising imports. In good news for Indian companies, the international crude oil prices fell sharply. “The sharp decline in crude oil price is attributable to the planned increase in production by OPEC+, coupled with concerns about demand due to a likely slowdown arising from the global tariff war,” added Richa Bagaria, Associate Director, CareEdge Ratings,.
As the procurement cost of LPG is linked to the international LPG benchmark, specifically the Saudi Contract Price, this decline in prices augurs well for the companies. However, because China has shifted its LPG sourcing from the US to the Middle East, demand pressure has kept the Saudi benchmark price steady.
As a result, India moved towards the US for its LPG imports, which proved to be beneficial in the sense that the country moved away from higher prices of the Middle East and also is balancing its trade surplus with the US – a requisite for trade talks with Donald Trump led administration.
Any good news for OMCs?
The Ministry of Petroleum and Natural Gas (MoPNG), GoI, hiked the retail LPG price by Rs 50/ cylinder, effective April 8. Before this, the last price hike was implemented in March 2023. After this the prices were reduced by Rs 200 per cylinder in August 2023 and by another Rs 100 per cylinder in March 2024.
The above factors, including the April price hike, are expected to further reduce the LPG under-recoveries in the coming quarters.
CareEdge Ratings maintained that OMCs faced significant under-recoveries in LPG to the extent of around Rs 220/ 14.2 kg cylinder in FY25, as the higher LPG sourcing cost could not be passed on to the consumers, “Furthermore, anticipated reduction in LPG sourcing cost going forward on the back of decline in crude oil prices as well as higher sourcing of LPG from US is expected to further reduce the LPG under-recoveries in the coming quarters such that aggregate under-recoveries of Indian OMCs could decline by around 45 per cent in FY26 YoY.”