Govt may revise LPG subsidy formula as US imports push up costs

The government is planning to change how the liquefied petroleum gas (LPG) subsidies are calculated after India increased its oil imports from the US, according to a report by The Economic Times.

What’s happening?

The move came after state-run oil companies signed year-long LPG supply deals with US exporters last month. The subsidy is currently decided using the Saudi Contract Price, which is the main reference for LPG coming from the Middle East.

 

However, oil companies have highlighted that this method no longer works. The oil companies are seeking to include US LPG prices and the much higher shipping costs from the US.

 

According to the report, LPG from the US is economical for India only when it is sold at a big discount, because shipping it costs almost four times more than bringing LPG from Saudi Arabia.

Why it matters

Last month, Indian Oil, BPCL and HPCL agreed to import about 2.2 million tonnes of LPG from the US for one year starting in 2026. This is nearly 10 per cent of India’s total LPG imports. Earlier, Indian firms bought US LPG only when prices were attractive on the spot market. This is the first time they have signed a long-term contract with the US.

 

The price at which the companies buy the LPG also affects the LPG prices for households. However, the government caps these prices, and if companies suffer losses by selling at lower prices, the centre pays them back. Any change in the subsidy formula could affect how much the government has to spend.

US-India trade

The US has been intensifying pressure on India to cut its oil imports from Russia due to Moscow's invasion of Ukraine. Starting August 27, the Trump administration imposed a 50 per cent tariff on India, including a 25 per cent penalty for buying Russian crude.

 

Even as both countries continue to engage in trade talks, no deal has been reached so far. India, however, has maintained that it would act based on its national interests.

India increased imports from US

In October this year, India sharply increased its crude oil imports from the US, bringing in about 540,000 barrels per day, the highest level since 2022, according to data from Kpler.