In a pioneering move, India has entered into its first structured agreement for importing Liquefied Petroleum Gas (LPG) from the United States. Set to commence in 2026, the deal involves the delivery of 2.2 million tonnes per annum (MTPA) of LPG, accounting for 10% of India's total annual imports. This initiative is part of India's strategy to diversify its energy suppliers and forge stronger trade connections with the US.
LPG plays a vital role as a household fuel in India, predominantly used for cooking purposes. Over recent years, government initiatives such as the Ujjwala Yojana have significantly expanded LPG access, especially in rural and low-income areas. Consequently, India has emerged as one of the largest consumers of LPG worldwide. However, with over 60% of its demand being met through imports from West Asian countries like Saudi Arabia, UAE, Qatar, and Kuwait, India is eager to find alternative and reliable sources.
This groundbreaking agreement entails a one-year contract for 2026. Indian public sector oil companies, including IOC, BPCL, and HPCL, will jointly procure LPG from US suppliers such as Chevron, Phillips 66, and TotalEnergies. The supply will be sourced from the US Gulf Coast and priced based on the Mont Belvieu system, a benchmark widely used in the US market.
Energy Security: By incorporating the US as a significant LPG supplier, India aims to reduce its reliance on Middle Eastern sources, particularly crucial during regional instability or supply chain disruptions.
Trade Balance: This agreement is a step towards narrowing India's trade surplus with the US, a recurring issue in trade discussions. By boosting energy imports from the US, India seeks to balance the trade flow between the two nations.
Flexible Pricing Options: The Mont Belvieu pricing linked to US LPG provides an alternative to Middle Eastern prices, offering Indian companies greater flexibility in securing cost-effective supplies.
Despite the promise of the deal, there are technical and economic challenges that need to be addressed. US LPG is rich in propane, while India prefers more butane-heavy LPG for domestic use, necessitating potential blending or storage adaptations. Additionally, freight costs from the US are higher compared to the Middle East, which could impact the cost-effectiveness of the imports. As this is a short-term deal limited to 2026, the long-term benefits will depend on future contracts and market stability. Furthermore, consumer cylinder prices may not decrease immediately due to existing subsidy frameworks.
This agreement aligns with India's broader objectives of diversifying energy imports, enhancing supply chain resilience, and strengthening energy trade relations with global partners. India is expected to continue expanding such arrangements, not only with the US but also with other emerging suppliers, reflecting its commitment to a robust and diversified energy strategy.
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