LPG shortage: What Emkay Global says on demand-supply and India's LPG jugaad

Emkay Global, in a fresh note titled “India’s LPG jugaad – Opportunistic but precarious,” said India has so far managed the LPG shortfall through a mix of opportunistic buying and a few policy measures, even as the country’s LPG demand-supply situation remains precarious amid the ongoing West Asia conflict, it said.

The domestic brokerage, however, warned that a small shift in the dynamics could lead to the situation worsening materially, requiring painful adjustments for industries and especially households.

Emkay said a total of 85 per cent of India’s domestic LPG consumption or 90,000 tons per day is by households, with the balance for industrial and commercial uses. Around 50 per cent of industrial demand has been curtailed via supply restrictions, while 20 per cent of domestic demand has been reduced via price hikes and minor supply disruptions, leading to overall domestic demand at 76 per cent of normal demand (68,000 tons per day)

Emkay noted that 55 per cent of India’s LPG demand is met through imports via Hormuz, with domestic production accounting for 40 per cent, and 5 per cent being sourced ex-Hormuz.

"Supply via Hormuz has collapsed completely; however, domestic production has increased by 40 per cent (via diversion of production capacity), and is currently meeting 55 per cent of consumption needs," it said.

The brokearge said despite these actions, India remained in a shortfall of 15 per cent of new curtailed effective demand (13,000 tons/day). 

"This is being managed by purchases of spot cargoes, a few ship arrivals via SoH, and push towards PNG and other fuels (coal, firewood etc). Notably, one ship arrival can take care of 3-4 days of shortfall (assuming 45,000 tons/ship). However, this also highlights India’s precarious position. Delays/failure in securing spot cargoes, or a lack of opportunistic Hormuz transits, can raise the shortfall immediately, leading to a sharper demand curtailment," the brokerage said.

Industrial demand will be hit first, but sustained large shortfalls will require adjustments for household as well eventually, it said.