US LPG supplies to India crash on UAE inroads, premiums near record | Economy & Policy News

The US accounted for 16 per cent of India’s LPG imports to date in September, down from over half last month, data showed.

The United Arab Emirates (UAE) has replaced the US as India’s highest supplier at 212,000 bpd this month, a threefold jump from August levels. This comes as state-owned oil company Adnoc shipped cargoes both via the Strait of Hormuz and by ship-to-ship transfer operations in Omani waters, refining sources said and data from maritime intelligence agency Kpler showed. 

The US accounted for a record 72 per cent of India’s LPG imports in July from as low as 13 per cent in February.

The slump in US volumes comes even as India and the US are in the final stages of concluding a bilateral trade agreement where the US is insisting on higher Indian imports of US energy.

But two senior refining sources said that while supply security is important, so are the economics and logistics for the LPG trade.

Supplies from West Asia reach India in days compared to weeks for US shipments, orders for which are placed months in advance, the officials said. 

Most of India’s LPG is used to run Indian kitchens — so price and availability is key, the officials said. In pre-war February, Saudi Arabia was the third biggest supplier of LPG to India behind the UAE and Qatar, with West Asia shipments totalling 87 per cent of India’s imports, according to calculations based on data from maritime intelligence agency Kpler. The US supplied around 12 per cent.

While supplies of LPG are easing, a rebound in prices is creating concerns for refiners.

Premiums on delivered LPG supplies to India have rebounded to a near record $450/tonne after hostilities intensified around the Bab el Mandeb strait in West Asia. This forced the government to discontinue supplies of propane in Morbi, the country’s biggest hub for ceramic tiles, according to refining sources and global LPG industry publication Argus data.

A rapid rebound in international prices of propane and butane (blended in equal proportions by Indian oil marketing companies or OMCs to supply customers) threatens to boost under-recoveries to record levels.

Industries in Morbi, which switch between propane and liquified natural gas (LNG) are particularly affected as “supplies of LPG are challenging,” according to a Mumbai-based analyst who closely tracks Morbi’s fuel supplies.

Imported spot LNG is trading at an unaffordable $28-$30 per million British thermal units on a delivered basis while LPG supplies are scarce because the OMCs prioritise households, the analyst said.

In August, Morbi units used gas and LPG in equal proportion at 4.4 million cubic metres a day, according to a Mumbai-based brokerage report.

Disruption to fuel supplies had led to closure of several of the 800 units at Morbi after the US and Israel attacked Iran on February 28. This disrupted over a fifth of the world’s oil and LNG supplies.

Premiums on LPG, which are calculated over contract prices offered by Saudi Arabia (called Saudi Arabian CP), jumped sixfold this week from $80 per tonne levels in June during the US-Iran peace deal.

Premiums have in fact doubled from early September, senior refining sources told Business Standard. OMCs imported LPG from Kuwait for early September at $200/tonne premiums over Saudi Arabian contract prices, according to Argus.

Moreover, Saudi Arabian contract prices for butane and propane have increased by 8-10 per cent to $660 and $625 per tonne, respectively, for September from July, according to a Saudi Aramco document. Saudi CP is a global benchmark used to price LPG in most countries, excluding the US.

State OMCs are already weighed down by as much as ₹61,000 crore in under recoveries of LPG, or selling LPG below market levels, according to OMC data.

The under recoveries had softened to ₹200 per 14.2 Kg cylinder in August, said Prashant Vasisht, senior vice-president and co-group head of ratings agency ICRA, a US Moody’s affiliate.

Under recoveries per cylinder were as high as ₹680 in April and May, Vasisht said, citing statements by the heads of Bharat Petroleum and Hindustan Petroleum.