Latest LPG Price Hike: Under-Recoveries and Supply Dynamics

08 Sep 2026

Tags: Economy   Planning & Growth   Economic growth

Source: The Hindu

Context: Oil-marketing companies (OMCs) raised the price of commercial LPG cylinders by about ₹10 from September 1, after two consecutive months of decline. The 19-kg cylinder in Delhi now costs ₹2,747.5, while the 14.2-kg domestic cylinder price remains unchanged.

Why Has Commercial LPG Become Costlier?

• The hike is primarily aimed at partly offsetting under-recoveries on domestic LPG, rather than reflecting a major supply shock in the commercial segment.
• Under-recovery occurs when OMCs sell LPG at a price below the level required to recover the cost of procuring, producing and distributing it.
• Government data showed domestic LPG under-recoveries falling from over ₹700/cylinder in June to ₹500 in July and around ₹188 in early August.
• With domestic LPG accounting for 90.4% of India’s total LPG consumption, even relatively small under-recoveries create a significant financial burden for OMCs.
• Around 10.6 crore Pradhan Mantri Ujjwala Yojana (PMUY) beneficiaries receive an additional ₹300 subsidy per cylinder, further reducing the effective price paid by eligible consumers.
• The commercial LPG price increase therefore appears to be an attempt to partially balance the pricing burden, although the smaller commercial segment cannot fully compensate for domestic LPG losses.

Understanding LPG Pricing in India

• Domestic LPG: Primarily used by households and politically sensitive because of its impact on household expenditure and inflation.
• Commercial LPG: Used by restaurants, hotels and industries and generally sold at market-linked prices.
• OMCs can face a gap between market/procurement costs and regulated domestic selling prices, creating under-recoveries.
• Higher commercial LPG prices can therefore indirectly help OMCs recover part of the losses associated with supplying subsidised or controlled domestic LPG.

What Does the Supply Situation Show?

• India’s POL (Petroleum, Oil and Lubricants) imports declined by 45.1% between April and July, according to the Petroleum Planning and Analysis Cell (PPAC).
• The decline was attributed partly to lower imports of LPG, petroleum coke and fuel oil.
• However, lower imports have been accompanied by a substantial increase in domestic LPG production by OMCs, from 34,000 metric tonnes/day to 55,000 metric tonnes/day.
• Following an August 13 directive, upstream companies and public and private OMCs were given a combined daily production target of 63,810 metric tonnes.
• Thus, the current price increase appears to be driven more by pricing and under-recovery considerations than by an immediate domestic LPG shortage.

Likely Impact on Consumers and Businesses

• For restaurants and other commercial users, the ₹10 increase per cylinder is likely to have a limited immediate impact on operating costs.
• However, businesses may be concerned that repeated increases could eventually translate into higher food and service prices.
• Industries such as glass manufacturing, which use LPG-fired furnaces, could face greater cost pressures, particularly with festive-season demand expected to increase.
• The impact may be moderated by the ongoing shift from bottled LPG to piped natural gas (PNG) among industrial consumers seeking more reliable and consistent supplies.
• According to the Petroleum and Natural Gas Regulatory Board (PNGRB), industrial PNG sales increased by 30% between April and June year-on-year, indicating accelerating substitution.

Broader Significance

• The episode highlights the challenge of balancing consumer affordability, OMC financial viability and market-based energy pricing.
• Persistently subsidised domestic LPG can impose financial pressures on OMCs, while shifting the burden to commercial consumers can raise business input costs.
• Greater domestic production, diversification of energy sources and expansion of PNG infrastructure can reduce vulnerability to fluctuations in LPG imports and pricing.
• The policy challenge is to ensure affordable household energy access without creating unsustainable pricing distortions or excessive cross-subsidisation