Free LPG to poor households also supporting short-term demand outlook
Refiners tweak product slates, reduced throughput create supply hurdles
An unprecedented lockdown to battle the coronavirus pandemic may have hurt India’s oil and gas demand but LPG is swimming against the tide, as the call to stay at home has lifted the country’s demand for the cooking fuel.
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Forced to stay indoors for 21 days following an appeal from Prime Minister Narendra Modi, quarantine cooking has become the favorite pastime and stress reliever for Indians looking to kill time amid hopes and prayers that the lockdown might help contain the virus from spreading.
While this has prompted Indian refiners to boost LPG production to meet the sudden demand, it has also pushed the government to reach out to leading Middle East suppliers to ensure uninterrupted supplies of imported cargoes, while appealing to households to shun panic buying.
“India is witnessing a sudden increase in LPG demand. Residential LPG consumption is likely to increase during the lockdown period as consumers are likely to cook and eat more when they are together,” said Manish Sejwal, LPG analyst at S&P Global Platts Analytics.
However, Sejwal added that an anticipated drop in demand from the commercial sector may cap the rate of growth in overall LPG consumption.
While state-run Indian Oil Corp., the country’s largest refiner, has cut throughput at most of its refineries by 25-30%, it is finding ways to meet the rise in LPG demand.
“In the midst of reduction in demand for major petroleum products, there has been an increase in demand for LPG cooking gas. To meet the rising demand for LPG, Indian Oil is taking steps to increase LPG production in its major refineries by optimizing operations and improving LPG yields. Bottling plant operations and LPG refill deliveries are being streamlined accordingly,” the company said in a statement.
For the past 10 days, IOC has been delivering an average of 2.5 million LPG cylinders per day to customers, it said.
“Despite crude cuts, IOC refineries are maintaining LPG production close to normal levels by optimizing LPG yields with higher severity operation of their main LPG producing units. LPG customers are, therefore, advised not to resort to panic booking,” it added.
Consultancy Facts Global Energy expects around 1.7 million b/d of run cuts in April, in line with the anticipated collapse in domestic demand during the lockdown period.
“We estimate the loss in LPG output due to run cuts to be in the range of 50,000-60,000 b/d. It will be challenging for refiners to meet LPG requirements in an environment where all other products are collapsing,” said Senthil Kumaran, consultant at Facts Global Energy.
Kendrick Ng, analyst at Wood Mackenzie, added: “Refiners are reducing runs in response to lower oil products demand and weakness in refining margins. We estimate that the country will process about 800,000 b/d less crude in April, month-on-month basis, resulting in about 17% decline in the utilization rate.”
In addition, the government’s decision to give LPG cylinder refills to more than 80 million poor households free of cost is also expected to support LPG demand, analysts said.
“The increased demand is likely to be met by increased imports as refineries have reduced crude throughput in line with reduced petroleum product demand in India. Refineries are likely to run in max-LPG mode to serve the increased LPG demand,” Sejwal said.
The government has exempted essential services from this lockdown. Oil refining, wholesale distribution of LPG, and retail distribution of LPG cylinders fall under essential services.
So far, there has been no announcement on any partial or full shutdown of LPG import terminals.
“So far, there seems to be no hurdle in importing LPG into the country. However, there will be several issues around scaling up supplies. Shortages in the workforce across the supply chain can cause some troubles in the distribution of LPG,” FGE’s Kumaran said.
Oil and steel minister Dharmendra Pradhan said over the weekend that India had received assurances from Saudi Arabia that it would receive adequate LPG to meet local needs.
India imported 14.538 million mt of LPG in 2019, up 19.22% on the year as demand outpaced production growth. Consumption for 2019 was 26.944 million mt, up 7.93% on the year, while production over the same period grew at a slower pace of 0.28% to 12.77 million mt.
The annual growth in India’s 2019 LPG imports exceeded the industry’s growth projection of 17% due to the country’s general elections last yea, which spurred substantial stockpiling ahead of the polls in April-May 2019.
Platts Analytics expects India’s LPG imports in 2020 to rise by roughly 5% year on year, while LPG consumption would increase by slightly over 3% year on year.