Surging city gas prices are causing households to switch to LPG, a fuel that has shown consistent demand growth in the country
The rising cost of city gas in India is causing many to turn to cheaper LPG, supporting demand growth for LPG as consumption of other fuels falters.
The price of city gas has surged in India as an indirect result of the Ukraine war, more than doubling in April-September after rising by 40pc in October-March. This has weighed on consumption, which fell by 10pc on the year to 5.2bn m³ in August, and by 4pc to 26.3bn m³ in the first half of the 2022-23 fiscal year over April-August, oil ministry data show. City gas demand represented about 22pc of the total in August, behindthe fertilizer sector with the largest share at 34pc.
LPG has become increasingly discounted to natural gas in India after the government stepped in to keep LPG retail prices stable prior to the state elections earlier this year, while allowing gas prices to continue rising. City gas prices have increased by about 70pc over the past year, whereas LPG prices have risen by only 28pc in the past 24 months at the same time as LPG import prices have climbed by 303pc, Indian oil minister Hardeep Puri said last month.
Gas supplier Mahanagar Gas, which supplies 1.8mn households in Mumbai, raised rates to 52.50 rupees/m³ (65¢/m³) in August, up by 75pc from July 2021, while retail LPG prices have risen by about a fifth during the same period. The firm lowered the city gas rate to Rs48.50/m³ in September but then raised it back to Rs52.50/m³ this month as a result of domestic gas prices climbing to $8/mn Btu and imported LNG values exceeding $40/mn Btu.
Cheaper LPG compared with gas is causing some households that have not surrendered their LPG connections to switch fuel, state-controlled refiner IOC says. City gas use in the country is falling, while LPG consumption is rising. India's LPG demand increased by about 5pc on the year and the month to 2.49mn t in September — also 9pc and 15pc higher than the same month in 2020 and 2019, respectively — IOC data show. It is the only fuel to show consistent demand growth in India despite the rate slowing in recent months.
Domestic LPG consumption has also found support from the government's decision to reinstate subsidies of Rs200/14.2 kg cylinders for low-income beneficiaries of the PMUY scheme from June until 31 March 2023. The move coincides with an upcoming election in prime minister Narendra Modi's home state of Gujarat. The subsidy will cost Delhi as much as Rs400bn, including losses from the last fiscal year, the Institute for Energy Economics and Financial Analysis (IEEFA) estimates. The subsidy will also further reduce city gas' price competitiveness in the country, IEEFA analyst Purva Jain says.
The average cost for urban residential consumers at the current rates of Rs1,052/14.2kg LPG cylinder and Rs52.5/m³ for pipeline gas is calculated at Rs694/month for LPG and Rs684/month for gas, Jain says. India imports nearly half of its gas needs as LNG. Domestic gas rates are rising because the government has pegged them to a basket of international gas prices.
