February 18, 2020

India’s Run-Away LPG Demand Growth Spurring Imports

Stratas Advisors

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India is emerging as one of the world’s largest LPG consumers after the US and China. Statistics indicate India's LPG consumption grew at a CAGR of 7% between 2010 and 2019. Demand growth began to accelerate when the Modi government came into power in 2014. LPG demand grew at about 8% to 10% between 2014 and 2017 and 6.7% and 5.7% in 2018 and 2019.

 

India’s LPG consumption has grown rapidly in recent years as the government launched the “Pradhan Mantri Ujjwala Yojana” program in May 2016 to distribute LPG to 50 million Below Poverty Line (BPL) families. The government plans to increase LPG connections from 50 to 80 million BPL families in rural areas by 2020. The plan will further raise LPG demand to a new level. We estimate India’s LPG consumption will grow at a CAGR of 3% from 0.84 million bpd in 2019 to 1.14 million bpd in 2030.

 

In terms of supply, refineries are key sources of LPG supply in India and there is no significant non-refinery LPG production from oil and gas fields. Despite new refineries being  built in recent years, LPG supplies from refineries have lagged behind demand growth. LPG production grew at a CAGR of 3.2% between 2010 and 2019, compared to demand growth of 7% during the same period. 

 

Growing supply-demand imbalances as a result are spurring strong import growth with India becoming the second largest LPG importer after China in Asia. India’s LPG imports grew at a CAGR of 14% between 2010 and 2019. Total LPG imports have grown from 264 Mbpd in 2014 to 464 Mbpd in 2019.

 

India: LPG Production and Demand                                                                  Unit: Mbpd

 

 

Source: Stratas Advisors

 

India historically relies on LPG imports from Middle East suppliers, particularly Saudi Arabia, Qatar and Kuwait. LPG imports from three countries accounted for 76% of total imports in 2018 and 2019.  India imported small volume of LPG from Iran between 2016 and 2018, but halted its imports in 2019 since the US sanctions were re-imposed. One of the key developments is India is diversifying LPG import sources, particularly from US.

 

India: LPG Imports by Sources                                                                        Unit: Percent

 

Source: Stratas Advisors

India: LPG Imports from US                                                                                              Unit: Mbpd    

Source: Stratas Advisors

India is emerging as a key destination for US LPG exports in recent years with total LPG exports growing from zero in 2015 to 110 Mbpd at the end of 2019, highlighting that US LPG is rapidly penetrating into one of the largest oil markets in the Asia-Pacific region. LPG imports from the US are expected to grow strongly in the long term in light of dwindling imports from Iran, Malaysia and Singapore. Nonetheless, the Middle East will remain a key source of supplies for imports. Given the robust demand outlook, India’s reliance on Middle East LPG will increase further despite growing imports from the US. Overall, India presents short-term and long-term opportunities for LPG traders and exporters given its significant latent demand and supply shortages in a country where millions of households still do not have access to LPG.  


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