Households and industries are at risk of painful adjustments even from “small shift” in dynamics as India treads the fine line of ‘opportunistic but precarious’ jugaad amid the shortage of liquified petroleum gas (LPG), according to an Emkay Global report.
The in West Asia has entered its fourth week as the United States and Israel continue attacks on Iran, and Tehran fires back on America’s allies in the Middle East. Iran has also blocked shipments through the Strait of Hormuz in a tactic that has cut off the world’s most prominent oil trading route and disrupted supply worldwide, but especially in Asia.
The strategic transports 20% of the world’s fuel supply and 85-90% of India’s LPG imports from West Asia. India relies heavily on the Gulf for its energy requirements and reduced supply from Qatar, one of its largest suppliers could impact both availability and pricing in the domestic market in the longer term.
India’s LPG jugaad: ‘Opportunistic but precarious’, says report
According to the 24 March Emkay Global report titled ‘India amid the West Asia conflict: Caught in a squeeze’, while India’s demand-supply situation remains precarious amidst the ongoing West Asia conflict, the country “has so far managed to manage the shortfall through a mix of opportunistic buying and a few policy decisions”.
It however noted that even “a small shift in these dynamics could lead to the situation worsening materially, requiring painful adjustments for industries and especially ”.
- In terms of demand curtailment, the report noted that around 85% of India’s domestic LPG consumption (~90,000 tonnes/day) is by households, with the balance used by industries and commercial customers.
- Further, some 50% of industrial demand has been curtailed via supply restrictions, while 20% of demand has been reduced via price hikes and minor supply disruptions, leading to overall domestic demand near 76% of normal demand (~68,000 tonnes/day).
- On the supply side situation, the report highlighted that about 55% of India’s LPG demand is still met through imports via the Strait of Hormuz and while production has increased by 40% it is “currently meeting nearly 55% of consumption needs”.
Shortfall a real risk: Industries, households to feel heat
In terms of shortfall, the report noted that India is around 15% behind the new curtailed effective demand (~13,000 tonnes/day), despite various measures. This is being managed by purchases of spot cargoes, a few ship arrivals via the Strait of Hormuz, and push towards petroleum natural gas () and other fuels (coal, firewood etc).
It added that while the arrival of one ship (~45,000 tonnes per ship) arrival can cover three to four days of shortfall, this also highlights India’s precarious position. “Delays or failure in securing spot , or a lack of opportunistic Strait of Hormuz transits, can raise the shortfall immediately, leading to a sharper demand curtailment,” it noted.
The report said that while industrial demand will be hit first, sustained and large will eventually require adjustments for households as well.
In terms of cost, the report believes “the best fit in a protracted supply shock situation is near-equal distributional burden sharing by economic agents, with OMCs bearing the first leg of pain, followed by the government and eventually the end consumer”.