Oil companies are struggling with excess import of liquefied petroleum gas (LPG) and contemplating several measures, including deferring offloading of stocks in Indian ports and fresh onloading overseas, following a sharp 5-6% fall in the demand for the fuel across the country since September 2012.
The decline in demand has been on account of the introduction of the ceiling on the number of cylinders that can be given to households at subsidised rates, and the high price of LPG over and above the cap.
According to industry sales review, negative growth in LPG consumption has become routine since September 2012 when the ministry cracked down on multiple connections. Data-wise, while the domestic LPG segment has been declining, there has been a considerable growth in non-domestic segment.
"This is purely because the domestic LPG segment has taken a significant beating since the introduction of the cap and high prices. Vis-a-vis this fall, demand in the non-domestic category looks high, but is actually not so much in terms of absolute numbers", said an official source with oil retailing company. He added that the non-domestic segment, especially auto LPG, would have actually grown substantially but rising LPG prices have narrowed the gap between the cost of this fuel and that of motor spirit (petrol).
On the other hand, oil companies have already received heavy inventories that were booked much in advance, both in the form of LPG and crude. Now with the waning demand, they have been deferring the receipt of the inventory with mutual discussion with overseas suppliers. Some are also exploring the option of diverting the supply to the export markets, said an official source close to the development. The sudden drop in demand has caught the companies off guard due to excess inventory booked earlier in the year as part of the overall crude procurement. Public sector oil companies usually book most of their crude requirement under a term contract in the beginning of the financial year, sources said.
Forecast
The demand for LPG is estimated to be the slowest ever for 2012-13 as against average growth rate of 14-19 per cent in the fifth five-year plan period. Officials sais that LPG demand has been considerably going down since households are exploring alternative options, given the consistent rise in the price of the fuel. The fall in demand was exacerbated when the government decided to cap the number of subsidised cylinders per household to six in September last year, and distribute anything above that at the prevailing market prices. The cap was recently raised to nine cylinders per household.
A snapshot of the statistics reveal that year-on-year LPG consumption has declined from 9.1 per cent in 2010-11 to 7 per cent in 2011-12. It is accompanied by a subsequent drop in production as well, from 10.34 million metric tonne to 9.55 million metric tonnes in 2011-12. Till December 2012 (for the year 2012-13), total LPG production was around 6.9 million tonnes.
On the other hand, LPG import has grown consistently since 2000-01, barring occasional drop in one year. In fact after languishing around 2.2-2.8 million tonnes, till 2009-10, the growth was sharp year over year from 4 million tonnes in 2010-11 to 5.08 million tonnes in 2011-12.
While imports continue to grow, more and more inventory of LPG is already getting diverted into LPG export which has been growing consistently since 2005-06.
Alternatives and comparative distribution prices
The government in September 2012, introduced a cap on the use of LPG cylinders distributed at subsidised rate below the market price. In order to bring down the ballooning fiscal deficit, the government has targeted two major items of import- gold and crude. As far as crude is concerned, the government has been aligning petro products distribution in line with the market rates in the domestic market, to help oil companies recover the dues, so that they become profitable and bear the costs of import. Earlier the cap was fixed at six cylinders, which households would get at a subsidised rate of around Rs 430-440 per 14.2 kg LPG cylinder. Over and above the cap, the cylinders are charged at market rate ranging between Rs 980-990 till date.
In January this year, however the government raised the cap from six subsidised cylinders per household to nine.
However to battle the rising cost of LPG cylinders, people have been resorting to alternatives such as induction plates, microwaves, toaster, grill for cooking. Reportedly, households have been even moderating the food habits to minimise LPG use.
A detailed analysis of retail selling prices of petro products in neighbouring countries put out by Indian Oil Corporation (IOCL) suggests that the price of kerosene and LPG is lowest in India. This is in comparison to other neighbouring countries like Pakistan, Bangladesh, Nepal and SriLanka. The price of Kerosene as tabulated by the report is at a subsidised rate of Rs 14.79 per litre in India while it costs Rs 56.05/ litre in Pakistan, Rs 40.82 per litre in Bangladesh, Rs 44.62/litre in Sri Lanka and Rs 60.41/litre in Nepal. Similarly, LPG costs Rs 410.52 per cylinder in India while Rs 533.21 in Bangladesh, Rs 919.59 in Pakistan, Rs 911.86 in Nepal and Rs 1,151 in Sri Lanka
