Iran war: India instructs oil refiners to maximise LPG output due to supply disruptions from West Asia

India has instructed oil refiners to maximise the production of liquefied petroleum gas (LPG) following supply disruptions from West Asia. The government has ordered domestic producers to prioritise LPG output using available propane and butane resources.

India is the world’s second-largest importer of LPG, and consumed 33.15 million metric tonnes of the fuel last year. Imports account for about two-thirds of demand, with West Asia supplying 85 to 90 per cent, leaving India vulnerable to regional interruptions.

All oil refiners have been instructed to maximise and ensure that propane and butane available with them are utilised for LPG production. Producers are also directed to make LPG, propane, and butane available to state refiners Indian Oil Corporation, Hindustan Petroleum Corporation, and Bharat Petroleum Corporation for household distribution. There are about 332 million active LPG consumers in India.

The mandatory diversion of propane and butane for LPG will reduce production of alkylates, a gasoline blending component. Reliance Industries Ltd exported about four alkylate cargoes per month last year, according to LSEG data.

Refiners are further instructed not to divert propane and butane for petrochemical production, limiting feedstock for companies manufacturing petrochemical products. A trade source noted that diverting propane and butane for LPG production will hurt margins for petrochemical companies that make products such as polypropylene and alkylates, as these fetch better prices than LPG.

LPG SHORTAGE

India is facing supply cuts of LNG after Qatar stopped production due to military attacks on its facilities and the closure of the Strait of Hormuz, a key energy shipping route. Qatar supplies nearly half of India’s LNG imports, and the disruption has led to supply cuts of up to 40 per cent for industrial users and city gas distribution companies. This shortage is affecting sectors including city gas, fertilisers, and power generation.

The crisis began when QatarEnergy announced it had ceased LNG production following attacks on its Ras Laffan and Mesaieed industrial facilities. The closure of the Strait of Hormuz, through which about 54 per cent of India’s LNG and half of its crude oil imports pass, has further restricted vessel movement and deliveries.

Petronet LNG Ltd, India’s largest LNG importer, has been unable to send ships to collect Qatari cargoes due to safety concerns in the Strait. The company issued a force majeure notice to QatarEnergy for its LNG tankers Disha, Raahi, and Aseem. Petronet and other importers have informed their downstream customers, including GAIL, Indian Oil Corporation, and Bharat Petroleum Corporation, about expected supply reductions.

City gas distributors have expressed concern over the shortage. The Association of CGD Entities (ACE) wrote to GAIL highlighting that reduced low-priced gas and halted spot supplies could significantly impact gas availability for priority segments. The association has requested clarity on sustained gas supply to continue serving smaller customers across the country.