India, the world's second-largest importer of liquefied petroleum gas (LPG), is undergoing a major transformation in its energy procurement strategy. Traditionally heavily reliant on supplies from the Persian Gulf, the nation is now rapidly diversifying its import sources, with the United States emerging as its primary supplier.
This strategic pivot comes as disruptions stemming from the Iran war expose the vulnerabilities of India's long-standing dependence on Middle Eastern gas. The US, which accounted for a mere 6% of India’s LPG imports last year, has seen its share surge above 20%.
US Rises as Key LPG Partner
The shift gained momentum after India signed its inaugural term LPG supply agreement with the US last year. This move was part of a broader effort to reduce reliance on Middle Eastern suppliers, a strategy now being accelerated by recent supply chain challenges. Indian state-owned refiners are reportedly planning to issue tenders this month for additional term supplies from the US, potentially covering up to 20% of India's total LPG imports for the coming year.
Such substantial purchases would cement the US's role in India's LPG market, providing a crucial alternative to routes through the volatile Persian Gulf.
Gulf Disruptions and Domestic Response
Despite the diversification efforts, the Persian Gulf remains an important source, but recent events have underscored its instability. Reports indicate that in September, several LPG cargoes destined for Bharat Petroleum Corp. and Indian Oil Corp. from Abu Dhabi National Oil Co. (ADNOC) could not be collected. While ADNOC has affirmed its commitment to fulfilling October volumes, these incidents highlight the persistent supply risks.
Concurrently, India has boosted its domestic LPG production, with output rising to approximately 44,000 tonnes per day, nearly 20% above August's average. This increase aims to meet heightened household demand during the festive season and mitigate ongoing supply uncertainties.
Long-Term Diversification Gains Urgency
The supply disruptions coincide with India entering its peak festive consumption period, with demand expected to remain high through Diwali in November and extend into the winter months. While alternative cargoes from the US and Africa helped alleviate immediate shortages over the summer, the latest developments suggest that diversification is becoming a permanent fixture of India's LPG procurement strategy.
For India, this shift transcends merely replacing disrupted shipments. A more prominent role for the US is set to fundamentally reshape the country's LPG import mix, significantly reducing its exposure to a region historically central to its cooking fuel supply chain and enhancing its overall energy security.