Govt redirects LPG feedstock to industry amid petrochemical crunch

The government has directed oil refineries to divert a portion of the feedstock normally used for producing cooking gas (LPG) to industries affected by the ongoing petrochemical shortage, which spans sectors from packaging to condom manufacturing.

The Ministry of Petroleum and Natural Gas, on April 1, directed refineries to allocate a portion of propylene to the petrochemical industry, which has been severely affected, as most feedstock has been diverted for cooking gas (LPG) production.

At an inter-ministerial briefing on the fallout of developments in West Asia, Sujata Sharma, Joint Secretary in the Ministry of Petroleum and Natural Gas, said following the disruption in India's LPG supplies from the Middle East due to the war, the government had asked refiners to maximise LPG production so as to meet cooking gas requirements.

This maximisation of LPG production was done by diverting streams that were previously used for making petrochemicals.

"But then there are certain other sectors which also need some of these molecules and thereby this decision has been taken," she said.

Before the outbreak of conflict in the Middle East on February 28, India imported about 60% of its LPG consumption, out of which about 90% was transiting through the Strait of Hormuz. The strait has been effectively shut, impacting supplies of imported LPG in the country.

To boost domestic production of LPG, the Government on March 9 issued directions to all oil refining companies, including petrochemical complexes, that the entire output of C3 and C4 hydrocarbon streams - such as propane, butane, propylene and butenes - is utilised exclusively for LPG production and supplied only to the public sector oil marketing companies. Refineries were also instructed not to divert these streams for the manufacture of petrochemical products or any downstream derivatives.

This led to the stoppage of the supply of propylene, disrupting the plastic manufacturing industry. Production of packaging material was hit, impacting the food and beverage industry as well as the fast-moving consumer goods (FMCG) sector. Even the condom industry ran short of raw material.

To meet their demand, the ministry has asked refiners to allocate a portion of propylene to the petrochemical industry.

"This move will have an impact on supplies available for domestic LPG, but it will be ensured, and it has been ensured that supplies to domestic consumers are not affected," Sharma said.

She went on to state that the decision to temporarily abolish customs duty on the import of certain petrochemicals will also help the industry hurt by LPG production.

"I am very very hopeful that it will give us very good results," she added.

While domestic LPG supplies have been prioritised, commercial LPG supplies were initially impacted. Subsequently, the government restored partial supplies of 20% to commercial consumers, which was further enhanced to an overall allocation of 50%, including 10% linked to piped natural gas (PNG) expansion reforms.

This allocation has been prioritised for key sectors such as restaurants, dhabas, hotels, industrial canteens, food processing and dairy units, subsidised canteens run by State Governments or local bodies, community kitchens, and 5 kg cylinders for migrant labourers.

Sharma said 4.3 lakh 5 kg LPG cylinders have been sold, and since March 14, 60,000 tonnes of commercial LPG have been uplifted across States and UTs.

Additionally, educational institutions and hospitals continue to receive priority, accounting for around 50% of the total commercial LPG allocation.

In continuation of these measures, the government has further enhanced allocation of commercial LPG by an additional 20%, taking the total allocation to 70% of the pre-crisis level (including the 10% reform-linked component). This additional allocation is being prioritised for labour-intensive and core industrial sectors, including steel, automobile, textile, dye, chemicals and plastics, with preference to process industries and those requiring LPG for specialised heating purposes where substitution with natural gas is not feasible.

(Except for the headline, Fortune India has not edited the content of this PTI report.)