By V Shunmugam, the author is Partner, MCQube, and a commodity markets expert
This month, a surge in panic buying and long queues at LPG distributors surprised Indian households. The root cause is supply disruptions from the West Asia conflict, combined with India’s remarkable clean-cooking success. Over the past decade, policies like the Pradhan Mantri Ujjwala Yojana (PMUY) have connected about 330 million households to LPG. However, our refineries produce less than half of the required LPG, making India heavily reliant on imports. This dependency exposes every gas stove in the country to global supply shocks.
India’s LPG demand has surged due to welfare initiatives. Since its launch in 2016, the PMUY aimed to replace smoky chulhas with cleaner LPG stoves for women in low-income households. By early 2025, there were roughly 32.9 crore active domestic LPG connections, with over 10.3 crore beneficiaries. A decade ago, India used roughly 15 million metric tonnes (MMT) of LPG; now it is 31-32 MMT. Overall, policy has greatly expanded LPG usage, benefitting public health and women’s empowerment, but the demand has exceeded domestic supply capacity.
This surge in demand conflicts with strict supply limitations. Indian refineries are unable to produce enough LPG. Even at maximum capacity, domestic production covers only 40-45% of the demand. Why is the domestic share so low? Because LPG (propane and butane) is a by-product of crude oil and gas processing. Refineries prioritise oil products and petrochemicals, leaving little room to increase LPG output beyond their original design. The government has invoked the Essential Commodities Act to compel refineries to divert all available propane and butane to LPG production. This move raised output by roughly 25%, according to officials, but it still couldn’t fill the supply gap.
Import logistics worsen the issue. About 90% of our LPG imports originate from West Asia, with over 85% passing through the Strait of Hormuz. A brief halt in Hormuz transits in March nearly stopped all new LPG shipments to India. Besides, we have minimal storage capacity. Unlike crude oil, there are no significant government LPG reserves. Once imported, LPG must quickly move through bottling plants and distributors.
Many factors make LPG particularly vulnerable. First, it is primarily a household fuel. Over 330 million homes depend on LPG cylinders for cooking, with many refilling every two-four weeks. This short refill cycle means any disruption quickly douses stoves. In contrast, a month-long supply interruption of petrol or diesel can be mitigated somewhat through stockpiles and filling stations. Second, LPG logistics involve numerous hand-offs: ships to tanks, trucks to bottlers, and distributors to consumers. Each transition introduces a potential point of risk. Third, a non-price shock is driving the current crisis: the main problem is hoarding and uncoordinated distribution. Overall, LPG’s role as a clean-cooking welfare good, distributed in cylinders, makes its security issues fundamentally different from those of oil or natural gas.
Policymakers have implemented emergency measures, ordering refiners to maximise LPG recovery for domestic use. The oil ministry directed both imported and domestic LPG to be sold only to households, banning industrial and export channels, with a 25-day booking limit to prevent hoarding. The government is diversifying sources by securing cargoes from the US and other non-Gulf suppliers and revising contracts to avoid critical routes. Demand-side measures include maintaining free Ujjwala connections, providing RS300 per refill (up to 12 cylinders), and promoting alternatives like piped natural gas (PNG) and electric cooking. City-gas networks are slowly expanding, with some states piloting induction stove and biogas plans.
Many gaps still exist. First, domestic production remains well below required levels. Relying heavily on a limited import source is risky; diplomacy and contracts may prevent immediate crises, but a prolonged disruption, like a long-term Hormuz crisis, would be disastrous. Second, storage capacity is incomplete, and adequate only for short-term disruptions. Third is on-demand substitution: PNG pipelines supply only 4% of households, and electric cooking is not yet widespread. Developing these options will take years, making LPG indispensable for most. Fourth, subsidy policies still promote high usage. While a safety net is necessary, simply subsidising LPG will keep consumption high.
Structural improvements are necessary. First, upgrade and optimise refineries to increase LPG yield. This might involve adding a propane splitter or hydrocracker units tailored for light fuel, while maintaining the new policy of consistently directing all propane and butane to LPG. Second, diversify suppliers and routes. Secure long-term import agreements with Africa, the Americas, and even domestic sources of propane (such as petrochemical off-gas). Invest in additional import terminals, including floating storage, on different coasts so that energy supplies do not depend on a single strait. Third, set up strategic LPG reserves by creating several weeks’ worth of buffer stock funded either by the government or mandated for private dealers. Fourth, promote fuel substitution by accelerating the PNG pipeline rollout—particularly in semi-urban areas—supporting clean biogas in villages, and making electric stoves affordable for urban households with reliable power. These will help reduce LPG demand growth over the medium term. Fifth, enhance efficiency and reduce losses by subsidising state-of-the-art LPG stoves and nozzle covers, enforcing leakproof distribution standards, and cutting waste in bottling plants.
Finally, modernise LPG distribution by introducing digital tracking of cylinder inventories and bookings, optimising inter-state port allocations, and improving rural delivery networks. For example, if each LPG distributor could report stock levels in real-time, shortages could be quickly addressed by reallocating supplies from regions with surplus. Over time, these measures would make LPG distribution as reliable as piped utilities.
Disclaimer: The views expressed are the author’s own and do not reflect the official policy or position of Financial Express.