Caught in crossfire: India faces LPG supply crunch

LPG shortage crisis looming?

Drewry projects a supply gap of 1.0 million tonnes during March and April 2026, despite the emergency measures implemented by the Indian government. 

Note: Figures over March-April 2026 are calculated considering 2026 import forecast and factoring in cyclical factors.
Source: Drewry Maritime Research

Steps have been taken to manage the crisis, but relief remains limited

Faced with supply concerns, the government implemented several emergency measures to manage the shortage. However, structural constraints mean that these efforts can only provide limited relief in the short term.

1. Scramble for alternative supplies

Indian buyers have begun sourcing LPG cargoes from outside the Middle East, including the US, Canada, Algeria, Norway and Argentina. Contracted imports from the US will dominate the alternative supplies procured, followed by other supplies and spot cargoes. While India has gradually diversified its imports in recent years, replacing Middle Eastern volumes immediately will be challenging.

The most immediate constraint is distance, even before considering differences in the propane–butane mix. Cargoes from the USGC typically take 35–40 days to reach India compared to 10–12 days from the Middle East, limiting their ability to provide prompt relief. 

Costs are also significantly higher once freight and terminal charges are included, pushing the estimated landed price of US LPG to roughly $700 per tonne, with a weaker Indian rupee further increasing the import burden.

Although the US is viewed as the most viable alternative supplier, given its strong propane inventories and robust NGL production, its ability to provide additional spot cargoes in the near term remains limited. Additional export capacity is expected later in the year, but for now, prompt availability for Asian buyers remains tight.

Despite efforts, the dominance of the Middle East persisted due to the region’s proximity and the nature of India’s LPG demand, requiring butane-rich blends. On the other hand, US cargoes are mostly propane-rich. Thus, diversifying to the Atlantic Basin requires more than just new contracts; it requires finding suppliers willing and able to meet India's specific demand profile, a factor that has historically limited the share of other countries in India’s import basket.

Source: Drewry Maritime Research

From a shipping perspective, the disruption is already reshaping trade flows. As Indian buyers turn to suppliers in the Atlantic Basin, long-haul voyages will become prominent, raising tonne-mile demand on routes typically served by VLGCs. The urgency to secure cargoes has led to a pivot towards MGCs to move smaller, available parcels quickly, even on longer routes. Overall, these factors will tighten vessel availability and keep freight rates volatile in the short term as the market rebalances.

2. Boosting domestic LPG production

The government has directed domestic refiners to maximise LPG recovery and expand domestic output by 10%, but the scope for rapid expansion looks far-fetched. LPG accounts for only 4–5% of total crude refining output. Consequently, even a 10% increase in refinery runs yields only a modest increase in LPG output.

Furthermore, domestic LPG production in itself is tied to the very region in conflict. Indian refineries are optimised to process medium- and heavy-sour crude from the Middle East, which yields higher LPG volumes than lighter crudes. 

Since the conflict has disrupted crude oil flows from the region, domestic LPG production could actually decrease as refineries struggle to process unfamiliar crude slates. At the same time, broader disruptions in Middle Eastern crude supply are tightening India’s overall crude availability, further exacerbating the current conditions.

3. Prioritising residential consumption

To protect household consumption, the government, under the LPG Control Order, has curtailed feedstock to the petchem sector and placed curbs on industrial and commercial users. While this prioritises cooking over commerce, it comes at a high economic cost. Reduced industrial activity and feedstock shortages are expected to affect operating rates, potentially leading to increased inflation and unemployment or stagflation.