Facing supply disruption, govt directs refiners to raise LPG production, halts feedstock supply for petrochemicals

Using its powers under the Essential Commodities Act, 1955, the ministry has directed all refiners to supply LPG to the three state-owned refiners – Indian Oil Corp Ltd, Bharat Petroleum Corp Ltd, Hindustan Petroleum Corp Ltd – which will in turn supply it only to domestic consumers of cooking gas.

The development is significant as India has only about 25 days of LPG stock. Annual demand stands at 33.15 million tonnes, with imports servicing about 75-80% of this. LPG is produced from propane and butane, which are byproducts of crude oil and natural gas processing.

“All oil refining companies operating in India shall maximize and ensure that propane and butane streams produced, recovered, fractionated or otherwise available with them are utilized for production of LPG and make it available to the three public-sector OMCs, IOCL, HPCL and BPCL only," read the order dated 5 March.

An official said on the condition of anonymity, "Further steps will be taken if required, but as of now the situation in terms of LPG supplies to households is comfortable. We are looking to source LPG from anywhere in the world."

India is one of the world’s largest LPG importers and relies heavily on West Asian supplies, mostly from Saudi Arabia, Qatar and UAE, and the current disruption in the region could tighten availability for the country. India's LPG imports in FY25 stood at $12.47 billion. Imports in FY26 had already touched $11.25 billion by January. In FY25. The country produced 12.8 million tonnes of LPG in FY25.

The LPG used in India comprises 60% butane and 40% propane. West Asian exports are butane-heavy and thus better suited for India since their LPG is a byproduct of oil processing. In January, India began receiving its first major contracted volumes of LPG from the US under a new long-term agreement expected to cover roughly 10% of the country’s total LPG imports. Unlike Middle Eastern supplies, these US shipments are propane-heavy, as LPG in the United States is primarily produced as a byproduct of natural gas processing rather than crude oil refining.

According to a report by Crisil Ratings, the majority of the LPG is used for household consumption; only 10% is used in industries. Cooking gas is thus a politically sensitive subject. Under the Pradhan Mantri Ujjwala Yojana (PMUY), the government provides deposit-free LPG connections and cylinders at subsidized rates to adult women from poor households across the country. Downstream industries that use LPG include ceramics. According to the Crisil report, severe disruptions to the availability of these fuels will force the majority of ceramic plants to operate at drastically lower levels or shut down entirely.

US Treasury Secretary Scott Bessent said on Friday that Washington would give Indian refiners a 30-day waiver to purchase Russian oil stranded at sea, offering temporary relief. Taking to X, Bessent said that the stop-gap measure would alleviate pressure caused by Iran’s attempt to hold global energy hostage. Describing India as an essential partner of the US, he said the US also expects New Delhi to ramp up purchases of American oil.

"To enable oil to keep flowing into the global market, the Treasury Department is issuing a temporary 30-day waiver to allow Indian refiners to purchase Russian oil. This deliberately short-term measure will not provide significant financial benefit to the Russian government as it only authorizes transactions involving oil already stranded at sea," he said.

A second official told Mint that while India has maintained its imports of Russian oil, supply volumes have dropped significantly following US sanctions against Rosneft and LUKOIL, two of Russia's largest oil suppliers. Indian refiners are also evaluating the legal risks associated with the US Treasury Department's order to determine if they could face penalties for purchasing crude sourced from sanctioned entities or transported on sanctioned vessels, this official added.

Mint reported earlier that as fresh oil supplies from West Asia dwindled due to the closure of the Strait of Hormuz, Indian refiners were likely to increase their oil imports from Russia. Although imports from Russia dipped following the US sanctions and the announcement of India's interim trade deal with the US, they did not halt completely, with supplies coming from non-sanctioned entities.

In February, Russia supplied 1.04 million barrels of oil per day (bpd) on average, followed by 1 million bpd by Saudi Arabia and 980,000 bpd by Iraq, according to data from global ship tracking firm Kpler. Supplies from Russia have dropped significantly from 1.8 million bpd in November 2025 and 2 million bpd in July 2024. In FY25, Russian supplies to India averaged 1.8 million bpd.

Data from Kpler indicates continued availability of Russian cargoes in the Indian Ocean and Arabian Sea region, including volumes in floating storage. Sumit Ritolia, its lead research analyst, refining & modeling said, "Indian refiners had already been importing around 1 million barrels per day of Russian crude in recent months, meaning the waiver effectively acts as a green signal to lift volumes above this base load, particularly for cargoes currently delayed across key shipping routes."

Crude surged past $88 per barrel on Friday after trading lower at lower levels earlier in the day. At the time of writing, the April contract of the benchmark Brent contract on the Intercontinental Exchange was trading at $88.83, up 3.76% from its previous close. The April contract of West Texas Intermediate on the NYMEX was up 5.97% at $85.90 a barrel.