Forecast-beating Indian LPG demand growth will hit the brakes in 2027 but peak in 2035

India’s impressive LPG demand growth over the past two decades will maintain its pace for another round in 2024 before slowing down in 2027 and peaking in 2035. The growth deceleration occurs as LPG penetration in cities reaches full capacity while affordability remains the biggest factor for expansion into rural areas. Notwithstanding, India’s net short balance in LPG will maintain the country as an attractive export market since almost 60% of the demand will be met by imports throughout the next decade.

LPG demand in India soared by 7% in the first eight months of the year on an annual basis, surpassing previous government and industry estimates ranging from 1% to 3%. Following gasoline (8%) and jet fuel (10%), LPG growth corroborated our above consensus forecast of 5.4% growth for 2024. The sustained expansion of LPG consumption was inevitably underpinned by the extension of government subsidies in the election year.

India’s LPG demand, which landed at 915 kbd in 2023, recorded a compound average growth of 6.3% since 2000 and 12.4% over the last decade. The country accounts for almost 20% of total Asian demand; making it the second-largest demand center in the region after China. However, Indian LPG demand is concentrated in the residential and commercial sector, making up around 97% of the total demand, while the Chinese LPG demand is dominated by its petrochemical sector which accounts for 55% of the demand in the country.  

Sectoral distribution of LPG demand in Asian countries (%)

Source: Kpler

India’s LPG demand has more than quadrupled since 2000 thanks to fast uptake in the urban areas and wider conversion to clean cooking materials in rural communities. This impressive growth came on the back of government subsidies and support schemes for access to LPG cylinders, enabling rural communities to move away from organic cooking matter (charcoal, wood) to reduce pollution and improve population health. Industry reports reveal that LPG coverage reached almost full capacity in 2023, however, more than 90% of the urban households use LPG for clean cooking. Among rural families, the ratio is 50% while more than 40% of the households in rural areas still rely on highly polluting organic matter or coal.

India’s historical LPG demand (kbd)

Source: Kpler

Affordability is the main barrier to the wider expansion of LPG into rural households. To overcome this barrier, the government announced in May 2022 a targeted subsidy of ₹200 per 14.2 kg cylinder for up to 12 refills every year for the beneficiaries of the LPG support program, Pradhan Mantri Ujjwala Yojana (PMUY). However, even after this subsidy, an average rural household had to spend close to 10% of its monthly income on LPG refills, therefore the government raised the support amount to ₹300 in October 2023. In March 2024, the government extended the subsidy scheme (with an estimated cost of $1.5bn) for another fiscal year. The subsidy currently covers around 35% of the domestic LPG cylinder prices while it was 50% in October 2023. Per government figures, the program has more than 100 million beneficiaries, or 7% of the population.  

Fiscal balance in the short and medium term will determine the longevity of the subsidies. Although the government ran a fiscal deficit of 8.1% in Q1 while targeting 4.9% for the whole fiscal year and has a debt-to-GDP ratio of 82%, the support program in rural areas is likely to continue for political and social reasons.  

Our figures show that India will record another robust growth year in 2024 at 5.4%, reaching 965 kbd, driven by the extended support for rural households as all this growth will come from the residential and commercial sector. Though the growth forecast may seem ambitious, it is well supported by the impressive performance achieved so far in the year. Our short-term forecast sees overall LPG demand increasing by 2% and 4.5% in 2025 and 2026, respectively. The data from the Indian government shows that LPG consumption of PMUY consumers increased by 29% from 3.01 in 2019-20 to 3.87 refills in 2023-2024, still below the allocated figure of 12 in the program. Therefore, the extension of the subsidy scheme will support growth in the medium term.

Beyond 2027, we see limited potential for India to replicate its average growth in the past two decades (6.3% CAGR) as household consumption nears its saturation point, and full conversion among all rural households may not be possible due to financial and physical barriers. Accordingly, our estimates show that Indian LPG demand will see a compound average growth of 1.4% from 2024 to 2035, reaching 1,128 kbd in 2035 – the year when it peaks.

India LPG demand forecast (kbd)

Source: Kpler

In addition to affordability and delivery barriers for full penetration in rural areas, changing consumption dynamics in the urban areas will weigh on the projected growth rate. Urban areas are gradually being connected to natural gas pipelines as the government invests in infrastructure development for the city gas distribution (CGD), which includes compressed natural gas stations and piped natural gas. The fast-expanding network of piped natural gas will gradually replace domestic and commercial LPG consumption in urban areas. In fact, natural gas consumption within CGD is emulating the growth trend observed in LPG as it jumped by 12% on average from 2015 to 2023, according to official data from the Indian Petroleum Ministry.

Apart from the residential and commercial sector, the petrochemical-led LPG demand is also expected to increase. We estimate that the current LPG demand in the petrochemical sector is around 21 kbd. However, by 2028, two PDH plants will add around 50 kbd to LPG demand in the petchem industry. Meanwhile, Gail’s 500 kt/year propylene PDH plant in Usar is slated to ramp up by 2025 and with a 75% average utilization rate, it will bring an additional 15 kbd of LPG demand. Moreover, Petronet’s 750 kt/year plant, planned for commissioning in late 2026, will add another 22 kbd to demand by 2028 at the same utilization rate.  

Considering India’s growing appetite for petrochemical products in line with strong economic growth and expanding middle class as well rising output from the Middle East, developers may vie for building more PDH plants in the medium term. Although it might be challenging to forecast the growth trend in the petchem industry with a limited number of PDH plants currently under construction, we believe that India will be attractive for developers, ultimately expanding its PDH plants fleet and bringing LPG demand in the petrochemical sector above 80 kbd by 2035. That said, our books show that petchem-led LPG demand will see a compound growth of 9% per year from 2022 to 2040.

India LPG demand forecast in the petrochemical sector (kbd)

Source: Kpler

Although we expect modest growth in Indian LPG demand, the country will remain an attractive export destination for producing nations. Our books show that the net short balance of the country will require an import dependency of 60% throughout the next decade. This will be significant for Middle Eastern producers, especially Saudi Arabia, which will continue to have a secure outlet for their increasing production with upcoming natural gas and condensate projects.

Indian waterborne LPG imports by origin country (kbd)

Source: Kpler

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