India Plans New LPG Subsidy Formula as US Imports Rise

The Indian government is considering an overhaul of the methodology used to calculate liquefied petroleum gas (LPG) subsidies after a sharp increase in long-term LPG imports from the United States, according to a report by The Economic Times. State-run fuel retailers recently signed year-long supply contracts with US exporters, prompting calls to revise the current benchmark, which is based on the Saudi Contract Price — a reference suited to Middle East-sourced cargoes. Oil companies have argued that the Saudi-linked formula no longer reflects real costs, particularly as US LPG involves significantly higher freight charges.

Under the existing system, LPG imported at a higher cost but sold domestically at capped retail prices results in losses for oil companies, which are later compensated by the central government through subsidies. With US shipments costing nearly four times more to transport than Saudi cargoes — and becoming economical only when offered at steep discounts — companies want US price components and shipping costs incorporated into the subsidy calculation. Any revision to the formula could materially impact the government’s subsidy outlay and, indirectly, household LPG pricing dynamics.

The shift in sourcing follows a landmark agreement under which Indian Oil, BPCL and HPCL will import around 2.2 million tonnes of LPG from the US beginning in 2026 — nearly 10% of India’s total LPG imports. The move comes amid evolving global trade dynamics and heightened US scrutiny of India’s energy ties with Russia, even as New Delhi continues to emphasise that its procurement decisions are guided by national interest. India also ramped up crude oil imports from the US in October, lifting volumes to about 540,000 barrels per day, the highest since 2022.

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