Why LPG losses likely to shrink for oil marketing companies

Losses from selling liquefied petroleum gas (LPG) could nearly halve in the September quarter for companies like Indian Oil, Hindustan Petroleum Corporation, and Bharat Petroleum Corporation, as a sharp drop in demand has left the market with surplus supplies, according to a note by ICICI Securities.

The Mumbai-based brokerage estimates the quarterly run rate of LPG losses for oil marketing companies (OMCs) may fall to below ₹12,000 crore in the second quarter, from around ₹22,000 crore in the first quarter, provided current prices hold.

Indian refiners boosted domestic LPG production by more than 40% during the first few months of the war in West Asia this year. As a result, domestic LPG availability rose to around 1.5-1.6 million tonnes a month, meeting more than 65% of the country’s demand during April and May.

Imports, meanwhile, are estimated to have dropped to roughly 1 million tonnes a month, accounting for about 38% of total consumption. India imported more than 62% of its LPG requirement before the recent geopolitical conflict, with imports averaging about 1.7 million tonnes a month.

At its worst, imports averaged around 4.5–4.6 million barrels per day, which was sufficient to meet most domestic demand.

In June, the supply situation shifted further in favour of the oil marketing companies. Domestic production, along with contracted imports, exceeded consumption, which has fallen sharply.

ICICI Securities estimates LPG demand is now running at about 2.2 million tonnes per month, nearly 18% lower than pre-conflict levels.

The brokerage attributes the decline in demand to elevated prices in the commercial segment, longer refill cycles among household consumers, and a gradual shift by some industrial users towards gas-based alternatives.

The resulting surplus is expected to improve market dynamics for the state-run fuel retailers. Easier availability could encourage companies to offer steeper discounts to drive adoption in the commercial and industrial segments. Lower LPG prices would also help reduce the subsidy burden borne by oil marketing companies.

Overall, ICICI Securities believes the sharp improvement in LPG availability and pricing is a positive development for oil marketing companies, particularly as geopolitical uncertainties continue to influence global energy markets.

Puri said cumulative under-recoveries of oil marketing companies (OMCs) stood at ₹1,88,841 crore between January and June, rising to ₹2.10 lakh crore when LPG is included. During the same period, cumulative OMC losses stood at ₹74,781 crore.

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