Lack of alternatives, pilferage, pricing gaps strain OMCs' LPG network

A lack of effort to push alternative fuels, weak monitoring, rising demand under PMUY, and a widening gap between retail and market prices are straining India's LPG ecosystem

In a check on the existing rural cooking gas connections in the country done two years ago, oil marketing company officials “replaced” over 44 per cent of liquefied petroleum gas (LPG) hoses, the connecting pipe between the gas cylinder and the stove. It was touted as a national-level exercise, but was essentially meant to uncover gaps between the address the connection was registered at, and where it was really being used.

 

Cooking gas connections are the oft-overlooked underbelly of the marketing network of the three state-run oil marketing companies (OMCs), IOCL, BPCL and HPCL. The current upheaval in the supply chain of LPG due to the Iranian blockade of the Strait of Hormuz just magnified the problem for them.

 

The business is an expensive one on account of both pilferage and high carrying costs. The situation is made worse by the Centre not sharing with states the right to manage the cooking gas distribution business. “No State/UT-wise allocation of funds is done under Prime Minister Ujjwala Yojana (PMUY),” a Parliament reply this month noted. PMUY is the flagship central scheme under which rural India gets 10.56 crore gas connections. The latter are consequently unwilling to stretch their typically-stretched police strength to check pilferage, leaving the monitoring to the OMCs.

 

As per industry data, there are 33.5 crore LPG connections in the country. The numbers have risen despite extensive efforts by the companies to substitute them with piped natural gas. To service the LPG connections,  25,605 distributor outlets operate across the country. Of these, 17,677 (about 69 per cent) are located in rural areas. These are served through 214 LPG bottling plants, data from the OMCs as on March 1, 2026 shows.

 

The problem with the hose, as the inspectors found, is a reflection of the challenge in ensuring cooking gas reaches all homes. The table shows, as per government estimates, that there should be saturation coverage of gas cylinders, but it remains elusive. A major reason for this is the diversion of gas cylinders at the distributor level.

Carrying cost for OMCs

The chasm between the retail prices and the market-determined price is the bane of OMCs, and the key reason for high carrying costs. As on March 31, 2025, IOCL - which has the largest LPG network nationwide at 15 crore connections out of 33.5 crore - incurred a cumulative negative buffer of Rs 19,926 crore “as the retail selling price was less than market-determined price and accordingly, revenue to this extent has not been recognised” (sic).

 

This liability was after the adjustment of a one-time grant of Rs 10,801 crore provided by the ministry of petroleum and natural gas in FY23 against under-recoveries, the latest annual report of the company notes.

 

Consequently, for IOCL, revenues fell by 10.7 per cent from this business in FY25 from FY24, even though its LPG business, including export, registered a growth of 8.60 per cent in that same time period. “Achieving cost competitiveness in LPG operations and aviation fuelling remains a key priority for IndianOil. The Company is undertaking a multi-pronged approach to enhance efficiency in bottling operations,” the OMC noted in its annual report for FY25). For the company, LPG is its third largest line of business - where it commands a market share of 45.23 per cent - after diesel and petrol, accounting for almost 12 per cent of its revenue.

 

This is one of the reasons the companies do not operate long-term contracts to buy LPG. For instance, the OMCs have signed a solitary one-year 'structured contract' to import around 2.2 million metric tonnes per annum (mmtpa) of LPG from the United States (US) Gulf Coast for the contract year 2026, a Parliament reply notes. The rest of the country's requirements have typically met via quick, short-notice purchases, mostly from West Asia.

 

Since 2015, the Centre has tried several measures to improve the business prospects for the delivery of cooking gas. The first of this was the “Give it up” campaign, meant to nudge consumers with more than one cylinder connection to surrender the extra ones. It did pay off, as OMCs reported a nearly one crore drop in connections. The government followed this up in 2015 by prohibiting households that got a piped natural gas from retaining their LPG connections.

 

The headroom created by the returnees was used to create the PMUY to provide LPG supplies in villages. It aimed to provide 5 crore cooking gas connections to women from Below Poverty Line (BPL) households, most of whom use wood- or coal-fired stoves, which are more polluting and pose health risks, besides kerosene stoves. The new connections were issued in the name of an adult woman of the household with an initial financial support of Rs 1,600 per connection. Several studies showed the endeavour created impressive results like cutting down on smoke-related illnesses, besides, of course, being a time saver for the women of the households. Initiatives like a single Deprivation Declaration, replacing the earlier multi-point self-declaration system, has made access faster and more inclusive. By March 2026, there were about 10.56 crore PMUY connections across the country.

Success as a problem

This success, ironically, has created a thicket of problems for IOCL and other OMCs. Without state-level police checks, it has been difficult to track pilferage as the gas cylinders became ubiquitous in villages and peri-urban areas. IOCL has only recently introduced a biometric-linked Delivery Authentication Code (DAC) for LPG delivery security, limited to pilot locations. Similarly, the supply of XtraTej (a differentiated LPG gas for commercial and industrial applications) has picked up speed only in the past two years. Smart notifications and a lease agreement with vendors for tracking software of LPG trucks are all still in the future. Again as of March 31, 2025 a total of 14,020 software patches are yet to be installed in the trucks. Similarly, refill tracking using the services of Common Service Centre-Village Level Entrepreneur, and grievance logging have also gained some traction only of late.

 

To compound the problems, logistical challenges are always around the corner. When there are floods, dealers often have to travel by boats to remote localities to pick up and deliver cylinders.

 

The challenge festers because other than the PMUY and the 'Give it Up' campaign, the plans for alternatives to LPG, unlike those like ethanol for petrol and diesel, has not found much attention within the government.

 

Also, because many of these schemes move out of the parent MoPNG, there is no one at the state level to shepherd them. As a result, targets have been missed for schemes like Sustainable Alternative Towards Affordable Transportation (SATAT) launched in October, 2018 as part of the National BioFuels Policy, to set up 5000 Compressed Biogas (CBG) plants for production of 15 million metric tonnes per annum (mmtpa) by FY24. A Rs 1775-crore prototype bio-refinery plant at Bargarh in Odisha is still floundering. Enablers like assured price for off-take of such gas through long term agreements have not been made a priority despite their inclusion under ‘White Category’ by Central Pollution Control Board, inclusion under Priority Sector Lending by the Reserve Bank of India. What's more, loan products from various banks for financing such projects have not taken off, either, showing that the market hasn't fully developed.  What makes the CBG story so compelling, says said Vishal Khalde, founder and chief executive officer of Blue Planet Biofuels, is that it has already proven to be viable at various levels of implementation, pointing out that decentralised biogas systems have proved to be an effective alternative to LPG in commercial kitchen settings and institutions by producing fuel at the point of consumption. "Additionally, large-scale CBG plants currently produce commercially viable quantities of transportation and industrial grade fuel," he said, adding that while "LPG will play a role in the short term future, it is clear that CBG will ultimately replace all imported fuels in India as long as CBG is properly supported by continued government policies, regulations, and infrastructure."

 

Instead, as dirty fuels like kerosene have been phased out from crackers of companies like IOCL, the attraction for a cleaner fuel like LPG has soared. The government has so far had only plans to increase cooking gas usage through projects like LPG Panchayats to use the fuel on a sustained basis, enrolment camps under Viksit Bharat Sankalp Yatra, facilitation of consumers and their families for Aadhar enrolment, and opening of bank accounts for getting PMUY connections. As more households shift to higher income groups, the pressure on LPG will only rise. 

 

India’s LPG universe

 

• Pradhan Mantri Ujjwala Yojana (PMUY) was launched in May, 2016 with an objective to provide deposit free LPG connection to adult women from poor households

• 10.56 crore connections under PMUY till March 2026

• Total LPG connections > 33 crore

• Impact on IOCL

• IOCL revenues fell by 10.7 per cent from LPG business in FY25 from FY24, even though its volumes registered a growth of 8.60 per cent  

• Cumulative negative buffer (receivable from GOI) of Rs 19,926 crore  as on March 31, 2025