Govt mulls revamp of LPG subsidy formula after state-run firms sign US supply contracts

New Delhi: The government is weighing a revamp of the liquefied petroleum gas (LPG) subsidy formula after state-run oil companies signed annual supply contracts with US exporters last month, according to people familiar with the matter.

At present, the subsidy is calculated using the Saudi Contract Price (CP), the benchmark for LPG supplies from West Asia. However, state-run oil companies are now pushing for the formula to also reflect US benchmark prices and the significantly higher freight costs involved in transatlantic shipments, company executives said.

LPG sourced from the US is economical for India only when the price discount to the Saudi CP is large enough to offset freight costs, which are nearly four times those for shipments from Saudi Arabia.


Last month, Indian Oil Corp, Bharat Petroleum Corp Ltd and Hindustan Petroleum Corp Ltd signed a one-year contract to import about 2.2 million metric tonnes per annum (MMTPA) of LPG from the US for the 2026 contract year. This represents close to 10% of India's annual LPG imports. While Indian companies have previously purchased US LPG on the spot market, this marked their first term contract for supplies from the country.

The government controls the price at which state-run companies sell LPG to households. When companies incur losses by selling below market rates, they are compensated by the government.