Thanks to increased demand, liquefied petroleum gas (LPG) or cooking gas has become the favourite of all energy companies in India, including international players.
Total India, Saudi Aramco, Reliance Industries Ltd (RIL) and state-run firms Indian Oil Corp. Ltd, Bharat Petroleum Corp. Ltd (BPCL) and Hindustan Petroleum Corp. Ltd (HPCL) are all bullish on LPG and have firmed up plans to increase market share and participation in the segment.
In the next three years, the LPG segment—bottling plant, import terminals and pipelines—will see investments of over Rs30,000 crore from state-run refiners.
Alongside, France’s Total SA is reviving a plan to build its second underground LPG storage facility in Mangaluru with HPCL which could be set up at a cost of Rs1,000 crore.
Total chief executive Patrick Pouyanne, who was in India on 1 September, wants to invest in expanding the LPG infrastructure in India, including storage, import terminals and distribution network.
“We are reviewing the plan. Total and HPCL both have an LPG import facility in Mangalore. So rather than expanding our above ground facilities, we are reviewing the plan of a cavern in Mangalore,” Mukesh Kumar Surana, chairman and managing director, HPCL, told Mint on 19 September.
HPCL and Total, through their equal joint venture, South Asia LPG (SALPG), operate a 60,000-tonne underground LPG storage facility in Visakhapatnam. It was commissioned in 2007 at an investment of Rs333 crore. The Mangaluru facility may also have a capacity of 60,000 tonnes. HPCL is also setting up a 250 trillion tonne per annum capacity bottling plant at Panagarh in West Bengal. The plant will cost Rs200 crore in the first phase.
Three oil companies—Indian Oil, BPCL and HPCL—are also building a 2,600km pipeline to service central India which would connect Kandla or Mundra port in Gujarat to Gorakhpur in Uttar Pradesh, through Bhopal, Kanpur and Lucknow. Indian Oil will invest Rs5,000 crore while the two others will invest Rs2,500 crore each.
“Together, the OMCs (oil marketing companies) plan to invest over Rs30,000 crore in the next two-three years in creating LPG infrastructure in the country. Demand for LPG is going up and it would be fulfilled mainly by imports which also will go up. There will be a role for companies who can invest in import terminals. Also, given OMCs are the leaders in LPG, it would be profitable for international companies to tie up with them as they have end to end infrastructure available,” said a senior official from the LPG division of one of the companies on condition of anonymity.
Saudi Aramco, which opened an India office this month, said it would hold discussions with Indian businesses for partnerships as demand for fuel was robust in India and the petrochemicals industry was booming. “India has all the signs of a prosperous economy. I am very optimistic about our investments in India because India is a very important market. Investing in India is a priority, not a choice anymore,” said Amin Nasser, president and chief executive officer, Saudi Aramco.
India imports almost a million tonnes of LPG every month to meet rising demand. LPG consumption in 2016-17 rose 9.8% to 21.55 million tonnes. Of this, 11 million tonnes came from imports. Industry officials see LPG imports rise to 16-17 million tonnes over the next three years.
Currently, India imports LPG via term contracts from West Asian producers Saudi Aramco, Qatar’s Tasweeq, Abu Dhabi National Oil Co. and Kuwait Petroleum Corp.
The expansion in LPG infrastructure is prompted by a consumption surge, aided largely by the Pradhan Mantri Ujjwala Yojana cooking gas distribution programme launched last May for poor households. The scheme provides financial support of Rs1,600 for each cooking gas connection to eligible households. The connections are given in the name of women who head households. The government also provides an equated monthly installment facility for meeting the cost of stoves and refills.
According to data from the Petroleum Planning and Analysis Cell (PPAC), the total LPG consumption continuously for the last forty-nine months in a row recorded a positive growth of 3.8% during September and a cumulative growth of 9.9% for the period April to September.
Out of the five regions, northern region had the highest share in consumption of 31.1% followed by southern region at 28.6%, western region at 22.1%, eastern region at 15.9% and north-eastern region at 2.3% during April-September. Eastern region had the highest growth of 20.2% in total LPG consumption.
Meanwhile, small-capacity cylinders have emerged an attractive segment for private players as cylinders in the 5kg segment qualify as free trade LPG, which are not subsidized by the government, unlike the commonly used 14.2kg domestic cylinders. The larger capacity cylinders are sold at market price to consumers who have the option of receiving a government subsidy in their bank accounts.
In July 2016, RIL launched its small-capacity 5kg cylinders. RIL has also tested and developed a 4kg cylinder, and sells the product under the Reliance Gas brand.
RIL had early this year sought removal the cap on the quantity of liquefied petroleum gas (LPG) that the company is permitted to sell through its own parallel marketing channel. The petroleum ministry had in a notification on 29 July 2015, directed RIL, to restrict its own marketing of domestically produced LPG to 10,000 tonnes per month. RIL did not reply to an email sent on 17 October seeking details on its request to the ministry.
As per the LPG Control Order on regulation of supply and distribution, issued by the petroleum ministry in 2000, all cooking gas produced domestically must be supplied to state-run oil marketing companies—BPCL, HPCL and Indian Oil.
As per the ministry’s order, RIL sells the LPG produced at its two refineries at Jamnagar, Gujarat, to public sector retailers. However, under a parallel marketing scheme, private companies are allowed to import and market LPG to bulk consumers.
Private firms are not entitled to government subsidies, unlike state-run oil marketing companies, and have to sell fuel at market price.
But with the government’s bid to restrict the volume of subsidy by barring consumers earning more than Rs10 lakh per annum from taking advantage of subsidised LPG, an attractive market for LPG has opened up to all private players.
The OMCs are also planning to add a large number of liquefied petroleum gas (LPG) bottling plant, adding 47 gas bottling plants over the next two years, adding to the existing 189 units.
BPCL is planning to build a 2 million tonne per annum LPG import terminal on the Gujarat coast. The terminal will be set up at a cost of Rs1,000 crore.
Indian Oil, along with BPCL, is expanding its LPG production facilities in Kerala and Tamil Nadu. It is also constructing an LPG terminal with a capacity of 600,000 tonnes per year at Puthuvypeen special economic zone, Kochi. Indian Oil is also constructing an LPG import terminal at Paradip, Odisha.
Source: Mint