Drewry's latest LPG Forecaster highlighted the 24% surge in India's 2024 LPG imports, propelled by strong residential consumption, which was in turn fuelled by the general elections, low domestic production and diversion of domestic LPG to the petchem sector.

However, India's import growth is likely to slowdown in 2025 as residential demand eases, with the policy shifting towards natural gas and biofuels as LPG penetration nears saturation. Meanwhile, with almost all of India's LPG supply coming from the Middle East, the US-China tariff war could encourage China to source more from the Middle East, forcing India to look elsewhere and thereby altering some changes in trading patterns. However, varying butane content in cargoes from the Middle East versus the US could make sourcing from the latter difficult.

Residential and industrial sectors ignite a surge in domestic LPG demand
India's LPG consumption surged in 2024 due to a combination of low global prices, the general elections and increase in rural LPG consumption. The country added 7.5 million low-income households under the Pradhan Mantri Ujjwala Yojna (PMUY) Phase 2 subsidy scheme, covering 103 million households since the scheme was launched in 2016. Stable LPG cylinder prices throughout 2024 further incentivised residential consumption while industrial consumption received a boost from, in particular, the ceramics industry in Gujarat's Morbi region, with ceramic producers shifting to propane due to its favourable price compared to PNG on an energy basis.

The Indian LPG market navigates seasonal ups and lows with demand peaking in the winter, remaining steady in the summer and declining in the monsoon. Additionally, elections, festivals and global fuel prices sway the LPG demand in the country.

Subdued domestic production sparked a surge in imports
India's LPG consumption increased 7% in 2024 while domestic production remained stable due to lower refinery yields, heavy maintenance schedules and slow ramp-up of LPG production facilities. Indian refineries are more optimally designed to produce petrol and diesel, limiting LPG production. Domestic production is also redirected to the petchem industry (driven by higher margins in downstream derivatives production), leading the country to rely heavily on imports. India imported around 67% of its domestic requirement in 2024, up from 47% in 2015, with Indian Oil Corporation being the largest importer of LPG in the country in 2024.

Import growth to ease in 2025
Growth in India's LPG imports is projected to slow down in 2025 as we expect the country's residential LPG consumption to plateau because of:

• The decline in urban use of LPG as a cooking fuel after the shift towards piped natural gas,
• An expected reduction in the government's LPG subsidy in 2025,
• A rise in residential cylinder price to align it with Saudi CP prices (the government made no provision in the budget to compensate the refiners for the subsidy-linked losses), and
• An expected premium on Saudi CP propane prices, mainly if China competes for Middle East supplies after a likely tariff war with the US. The tariff war may reduce consumption from price-sensitive areas and create downward pressure on imports.

LPG import mix steers the choice of sourcing country
India imports LPG predominantly from the Middle East, vastly different from the other leading importers that primarily source from the US. In 2024, the Middle East contributed 97% of India's total LPG imports.

This uniqueness can be attributed to various factors:

First, India imports LPG primarily to meet its residential demand, which requires blending 60% butane and 40% propane. Middle Eastern exports are better suited as they are primarily butane-dominated, since their LPG production is a byproduct of oil processing. On the other hand, US supplies are primarily propane-dominated, as LPG production in the US is the byproduct of natural gas processing. Notably, Butane accounted for 52% of India's LPG imports in 2024.

Secondly, India prefers long-term import contracts as they offer price stability; hence the reliance on Middle Eastern suppliers as the US favours spot contracts.

Lastly, while US supplies may become cheaper, they are less stable and susceptible to climatic conditions disrupting vessel loadings at the terminal. In contrast, the Middle East offers more stable pricing and supply due to long-term arrangements.

Although the Middle East has largely sufficed India's LPG requirements, we expect some alterations in India's import sourcing in the near term, which will be driven by the country's growing petchem capabilities.

Shifting headwinds to impact import patterns, but to what extent?
A decline in India's LPG import growth in 2025 will lead to a shift in the trade pattern. While plateauing residential demand will reduce the demand for butane, new PDH capacity in 2025 will boost the demand for propane. Thus, India will need to alter the propane-butane mix in its LPG cargoes as propane-rich US cargoes find favour with the former's importers.

GAIL is preparing to commission the 5 mtpa PDH plant in Usar, Maharashtra, in 2025 which will require propane imports.

Petronet also aims to diversify into petchem and plans to develop a 7.5 mtpa PDH plant near its 17.5 mtpa Dahej LNG terminal.

Reliance Industries' Jamnagar Polypropylene Plant 3, which boasts capacity of 5.2 mtpa, is also expected to start operations in 2025.

If the US-China trade war were to happen, Saudi CP prices could attract a premium, with China likely contracting Middle Eastern suppliers and thereby compelling India to diversify its import sources, including the US. Indian buyers are already forging new ties with BPCL, signing an annual contract with Norway’s Equinor to secure 550 ktpa of propane and butane, reducing its reliance on the Middle East.

Adding to this dynamic, lower Mt Belvieu prices and reduced terminal fees in 2H25 make US propane supplies even more competitive for India. Meanwhile, if China shifts to the Middle East, since it needs more propane for its PDH plants, it will likely re-export butane to neighbouring countries, further influencing regional trade patterns.

The shift will also impact the LPG vessel segments that India employs to import LPG. Typically, India uses MGCs to transport LPG, as the country has low storage capacities and most terminals are unable to cater to VLGCs. However, upgrading the infrastructure as well as changing supplier countries can lead to changes in the vessel employment patterns with VLGCs increasing their share in India's import mix.

Pipavav terminal in Gujarat recently commenced VLGC operations and is equipped to handle large vessels with larger parcel sizes.
BW LPG, in partnership with Confidence Petroleum India Ltd. and Ganesh Benzoplast Ltd. are planning to build an LPG terminal at the Jawaharlal Nehru Port with 120 kcbm storage capacity. Once ready, the terminal will be able to cater to the latest VLGCs of 93 kcbm capacity and will be linked to the Uran-Chakan pipeline for seamless connectivity. The project is in the final planning stage with construction expected to begin in 2Q25.

Conclusion
These developments have the potential to make India more capable of diversifying its import sources, which can support India-US trade. However, any drastic shift will be unlikely, at least in the short to medium term, given India's strategic dependence on the Middle East.

Nevertheless, India's growing LPG imports from the US would boost the tonne-mile demand, with more VLGCs absorbed in the market, whereas the demand for MGCs will gradually reduce. However, expectations of slower growth in India's LPG imports will create a surplus of LPG vessels, particularly VLGCs, with 12 VLGCs expected to join the fleet in 2025.

Given that Indian imports provide significant employment to both MGCs and VLGCs, the slowing growth is likely to impact the vessel employment and earnings over 2025-26.
Source: Drewry