The Great LPG Divide: India’s LPG Cylinder Market Splits in Two

Two-and-a-half months into the Iran war, India’s LPG market is splitting into parallel economies.In parts of the country, gas cylinders are available as before. At the most, deliveries are taking longer than earlier but there isn’t much fear of a stockout. Elsewhere, LPG prices have soared so high that families are falling back on firewood. Migrant workers are abandoning cities and returning home. 

These two realities coexist in close proximity. In Delhi, gas distributors in and around Greater Kailash, East of Kailash and Chirag Delhi say they are getting sufficient LPG from HP’s Loni Plant in Ghaziabad, and from Indane’s Madanpur Khadar plant. And yet, visit Madanpur Khadar itself, as CarbonCopy did a month ago, and you will find locals failing to find affordable LPG, and consequently falling back on firewood or travelling back home.

This contradiction shows up again and again. In Bangalore, residential colonies are getting LPG cylinders. In Hyderabad, working men’s hostels aren't. In Goa’s Madgaon, as a gas dealer told CarbonCopy, there is no delay in LPG delivery. In Uttar Pradesh’s Deoria, Gorakhpur and Basti, queues are long and laced with apprehension.

The divide is not merely about availability. It is also about price. Today, the price of an LPG cylinder is a function of who you buy it from. In Bangalore, registered buyers get a 14 kg cylinder at ₹915 or thereabouts. Those buying a similar cylinder from shopkeepers supplied by private LPG firms pay anywhere between ₹ 2,800 and ₹3,300. In tandem, illegal gas refilling centres are now selling gas at anywhere between ₹ 100 to ₹300 or even ₹ 500 per kilo — ₹1,400 to ₹ 4,200 to ₹ 7,000 per cylinder.

How does one understand these disparities? One part of the answer lies, as CarbonCopy wrote last month, in the Indian government’s response to the energy shock. It has taken a tack where some parts of India are carrying on as ever while others are left to cope the best they can. Not only has it fallen back on its gas allocation hierarchy where household consumption (PNG) and transport (CNG) prevail over fertiliser production, industry and power plants, it is also directing most supplies to registered LPG users.

“This is what we saw with demonetisation as well,” said Rohit Chandra, a professor at IIT Delhi. “The unregulated end of the market was the worst affected.”
The result is a fragmented cooking fuel system in which access to cheap LPG is determined by income, domicile and acceptability by formal supply chains. In other words, as shortages deepen, India’s LPG market is beginning to shed the poorest people in India — those left untouched by subsidised LPG or piped natural gas. They are the ones paying some of the highest rates anywhere in the world for LPG).

A tale of three supply chains 

To understand why these disparities are emerging, one must first look at how LPG reaches India’s kitchens.

Large ships carry crude to Indian ports. From there, two supply chains kick into action. 

The first is that of state-owned oilcos. Their refineries distil this crude into finished fuels like petrol, diesel and LPG. This LPG then flows to regional bottling plants and from there to local dealerships. Each of these, as Janardhan Singh, general secretary (UP Chapter) of the All India Bharat Gas Distributors Association told CarbonCopy, caters to anywhere between 10,000-30,000 customers.

There is a wrinkle here. These 10,000-30,000 customers are registered LPG consumers — about 33 crore in total. They are the ones who leave missed calls to order a new cylinder and thereafter, confirm receipt through OTPs. Apart from them, India also has a large transient population of workers and students who lack the paperwork to get an LPG connection. They get their cylinders from the informal economy — from neighbourhood stores and the like. 

These stores get cylinders from smaller LPG bottling firms. Some of these, like Green Gas, are owned by state-run oilcos like GAIL and Indian Oil. Most of the rest, though, are private firms like Jyothi Gas, Surya Gas, Super Gas and Go Gas. These buy LPG from international sellers (or Indian firms that buy from global sellers) and run their own bottling plants. 

“Before this war, we got gas cylinders from the company for ₹ 1,000, added eighty rupees as our margin and sold them to the shopkeepers,” a Karnataka-based distributor for Green Gas told CarbonCopy on the condition of anonymity. “Shopkeepers then added another ₹ 100 as their margin and sold it to customers.” It’s in this subset of the market that, as in Bangalore, LPG cylinders now cost ₹ 2,800.

In addition, there is India’s black market. This is where illegal LPG cylinder refilling centres operate — and LPG now gets sold per kilo for ₹ 300 or more. As markets go, this one is a black box, mainly because neither India’s informal economy nor such illegal subsets get much attention. For this reason, definitive studies on how this black market for LPG worked, even in the pre-Iran war days, are hard to come by.

Working on this report, though, CarbonCopy came across a range of explanations on how the black economy used to procure LPG in the past. Some sold cheaper domestic LPG to commercial units. Others bought domestic cylinders from dealers and sold them to unregistered users. Yet others filled 5 kg cylinders from 14 kg cylinders and sold the smaller ones at a premium. Registered users, as a member of the All India LPG Distributors Federation (AILDF) told CarbonCopy, might also be selling surplus cylinders. “Even if a person books using Aadhaar, there is no way to see if they are selling it to chaiwallahs,” he said. “Whatever happens once the cylinder goes out of the godown is hard to trace for the company.”

In a nutshell, India had three supply chains for LPG. The first catered to registered users. The second, working through small shopkeepers, catered to transient populations. The third, working clandestinely, mopped up any unmet demand. Then came the war on Iran.

How these supply chains are changing

India imports nearly 60% of its LPG requirements, much of it from the Gulf. With the West Asia crisis, India began getting less LPG than before.

Qatar, the biggest supplier of LPG to India, had shipped 626,000 tonnes of LPG to us this February. Once the war began, it managed to send just 163,000 tonnes over the next 55 days. Supplies from other countries in the Gulf, which meets 90% of India’s LPG demand, fell as well. Global LPG prices rose as well, eating into what India could purchase. On the whole, as a Mumbai-based LPG analyst told CarbonCopy on the condition of anonymity, “Availability is down 25-30% since the 27th of February — perhaps even 35-40% down.”

But the costs of this shortage have not been distributed evenly across the three supply chains described above. The one feeding registered users remains insulated. At the most, it has extended the time between bookings — and is taking longer to deliver cylinders. Its cylinder price remains the same.

The second supply chain has been affected more. Working on this report, CarbonCopy spoke to a steel-welder from Assam who now works in Bangalore. “I buy my gas from Sumer Singh,” he told CarbonCopy. “Before the war, I paid ₹1,050 for a cylinder. I used to call him and he would do home delivery. These cylinders now cost ₹ 2,800. Ten days ago, they were even costlier — ₹ 3,300.”

CarbonCopy met Sumer Singh. The owner of a small shop selling (and repairing) household utensils, he also distributes LPG cylinders bottled by Green Gas. “We used to get the 14 kg cylinder for ₹ 950,” he said. “We would then sell that for ₹ 1,050. We are now getting it for ₹2,700 and I sell that for ₹ 2,800.”

To understand why the cost of these cylinders has spiked from ₹ 950 to ₹ 2,700, CarbonCopy spoke to Sumer Singh’s supplier — the distributor of Green Gas quoted above. The firm, he said, is selling cylinders to distributors like him for ₹2,520. “That is the plant-filling rate,” he said. “That is what we pay. And then, we sell to sellers at ₹ 2,600. And they then sell at ₹2,700 or ₹2,800. That depends on local demand.” The pre-war plant-filling rate, in contrast, was below ₹ 1,000.

On being asked about this jump to ₹2,520, he said: “All these companies — Agni, Green, Surya, etc — buy LPG from global markets.” For instance, Confidence Petroleum, which sells Go Gas, bought LPG from the US in March. It bought another shipment from Iran in April, again after paying a large premium. 

To understand these trades in more detail, CarbonCopy went to the Bangalore offices of two private LPG cylinder sellers in Bangalore — Jyothi Gas and Confidence Petroleum. At both, employees said their managers were travelling and unavailable for comment. A third company, Sree Surya Petroleum, had shifted its office. 

In the meantime, though, a large observation can be made. The second supply chain is transmitting global prices to Indian buyers. That leaves the illegal refilling centres. In Bangalore, locals say the government has cracked down on these — forcing several units to close. Elsewhere in India, the picture is less clear. These centres continue to operate in Delhi,  Bangalore, Bhubaneswar, Surat and elsewhere.

How are they getting LPG? One possibility, as a Bharat Gas distributor in Uttar Pradesh told CarbonCopy on the condition of anonymity, is that cylinders are flowing from dealerships to the black market. This report on an LPG dealership in Delhi called Guruji Indane Gas Service, raided this March, is an instance. Media reports also suggest that fake orders are being placed in the name of registered users — with the help of OTP spoofing — and then diverted into the informal economy. In addition, the distributor claimed, some registered customers continue to sell. “People who changed a cylinder every 45 days are now booking every 25 days,” he said.

LPG is also being siphoned from domestic gas cylinders. “A 14 kg cylinder will run for 40 days in my house,” the Assamese migrant worker had told CarbonCopy. “Now, the cylinders we get last no more than 25-28 days. Which is why I say they are filling 12 kg or so in these cylinders.”

At this end of the market, the driver of business is the inflated price of LPG in the second supply chain. It has pushed prices to a level where vendors can even sell commercial LPG cylinders — 19 kilos at ₹3,071 in Delhi or ₹161 a kilo — in the domestic market and make a nifty profit. 

This is an inversion from the past where they diverted domestic cylinders to commercial users.

Along the way, as two of India’s three supply chains for LPG align to global prices, India is seeing some striking consequences. Prime amongst them, a rising number of Indians who can no longer afford LPG.

How the LPG market is shedding customers 

Talking to CarbonCopy, Sumer Singh had made an interesting observation. “Rates have fallen,” he said. “Ten days ago, we were getting cylinders for ₹3,100. That is now down to ₹2,700.”

He is not the only one seeing this dip in prices. Another LPG seller down Bangalore’s Varthur Road echoed his observation. “Before all this started, we sold LPG cylinders at ₹1,200,” said Nirmal. “That was the rate on March 1. By April 1, that rate stood at ₹3,300-3,500. Now, on May 4, it came down to ₹3,200.”

According to gas dealers in Kolkata, too, cylinder prices rose the most after the first week of the war, hit a ceiling, and are now coming down. “The current rate of LPG cylinders is ₹2,800,” a Kolkata-based gas dealer told CarbonCopy on the condition of anonymity. “Two weeks after the war, it had hit ₹ 4,500.”

Across Bangalore and Kolkata, the two cities CarbonCopy surveyed, LPG supplies are still below what sellers want. “Before the war, I used to sell 15-20 cylinders a day,” said the Kolkata dealer mentioned above. “Now, I hardly get five cylinders.” Nirmal’s shop, too, was getting 10-15 cylinders a day as recently as this January. “That is now down to two or three cylinders a day,” he said.

Despite demand still outrunning supply, as the LPG analyst quoted above said, why are prices falling?

One part of the answer lies in industry dynamics. Any LPG bottler who bags a cheaper tender can undercut rivals – and grab marketshare. In Bangalore, for instance, Sumer Singh gets LPG cylinders for ₹2,700 while Nirmal, about hundred metres away, pays ₹3,200. Another part of the answer, said the distributor of Green Gas, lies in pressure from the supply chain. “We are telling companies they have to bring these rates down,” he said. “The people who buy cylinders from us cannot afford these rates.” 

A second — and much bigger — reason, though, lies in poorer customers’ inability to pay high rates. “As of now, anyone willing to pay a premium will get as much LPG as they need,” said the Mumbai-based LPG analyst. “What is happening is that a bunch of buyers are choosing to not pay that premium. They are shutting down instead.”

In Surat, workers began to return home when LPG became too expensive. In Madanpur Khadar, too, when the price of LPG touched ₹ 300/kilo, users began to drop out. As one buyer, Anju Devi, told CarbonCopy in March. “We earn about ₹400-450 a day.” With one kilo of LPG lasting two days, cooking costs now account for a third of the household budget for families such as hers. In response, they are cutting back on LPG consumption. In extreme cases, they are discarding LPG entirely and falling back on firewood, coal and kerosene.

In Bangalore too, high LPG prices are turning away buyers. “We have 15-20 people asking for LPG cylinders every day,” said Nirmal. “Of these, given the capacity to buy, half will buy.” The rest, as Sumer Singh said, are falling back on induction stoves or wood. With this, demand is falling. 

Endgame

On the whole, India’s informal market for LPG is splintering into micro-markets. When Malvika Chakravarthy, who has recently moved from Gurgaon to Bangalore, contacted her gas agency for a new cylinder, she was told they could “give me a new connection without documentation for ₹ 6,000+ for a cylinder.” Her house-help, however, gets a gas cylinder for ₹ 3,000. “I am waiting for her to help me get that cylinder,” Chakravarthy told CarbonCopy.

Such arrangements might, however, be short-lived. If shortages persist, the entire LPG supply chain — be it LPG exporters, Indian LPG bottlers, their distributors or local sellers — will first cater to the highest paying customers. With that, the poorest customers will be priced out of the market.

This extends beyond families. A private LPG bottler’s capacity to pay for imported LPG is a function of its customers’ capacity to pay. For this reason, while Confidence Petroleum (which supplies to commercial and domestic buyers) is able to buy US cargoes, smaller firms catering predominantly to migrant workers will struggle. 

In a nutshell, India’s private LPG market is about to shed customers. Both poorer customers — and the firms supplying them — will face the axe. If the Indian government follows in their footsteps and starts passing global LPG prices onto registered customers, even the first supply chain will see an unknown percentage of customers drop out. 

People like Anju Devi, who are part of the third supply chain, are already dropping out. With one kilo of LPG costing ₹300 – and lasting two days – cooking costs now consumed a third of her household income. Even a month ago, when CarbonCopy met her, she was already cutting back – buying less, cooking less, stretching the cylinder just that bit longer. Since then, prices have softened somewhat but the new floor is yet unknown. What we do know is that it will be set, not by local purchasing power or distributors’ demands for lower prices, but by the global LPG market. This is how markets shed unviable customers.

With that, millions of families like hers are likely to fall back on induction stoves or firewood, putting pressure on either the grid or India’s trees and forests.