How India's LPG Crisis is Reshaping Petrochemical Supply Chains

The Indian government is taking significant steps to address the ongoing LPG supply crisis by reallocating feedstock to support the struggling petrochemical industry. With the disruption of LPG imports from the Middle East due to conflict, the government has prioritized domestic LPG production while also ensuring that essential sectors like packaging and healthcare receive necessary supplies. This article delves into the government's strategic decisions, including the temporary removal of customs duties on petrochemical imports and the increase in commercial LPG allocations, highlighting the broader implications for various industries and consumers.

By Narendra Chaudhary Apr 2, 2026, 18:52 IST

Government's Strategic Shift in LPG Production

The Indian government has instructed oil refineries to redirect some of the feedstock typically used for cooking gas (LPG) production to support industries facing a petrochemical shortage, which affects various sectors including packaging and condom manufacturing.

On April 1, the Ministry of Petroleum and Natural Gas mandated that refineries allocate a portion of propylene to the petrochemical sector, which has been significantly impacted due to the diversion of feedstock for LPG production.

During an inter-ministerial briefing regarding the implications of recent events in West Asia, Sujata Sharma, Joint Secretary at the Ministry, explained that the disruption of LPG supplies from the Middle East, caused by ongoing conflicts, prompted the government to maximize LPG production to satisfy domestic cooking gas needs.

This increase in LPG output was achieved by reallocating resources that were previously designated for petrochemical manufacturing.

Sharma noted, "However, other sectors also require these molecules, leading to this decision."

Prior to the conflict that began on February 28, India relied on imports for approximately 60% of its LPG consumption, with around 90% of these imports passing through the Strait of Hormuz, which is currently closed, affecting the availability of imported LPG.

To enhance domestic LPG production, the government issued directives on March 9, instructing all oil refining companies, including those in petrochemicals, to ensure that all C3 and C4 hydrocarbon streams—such as propane, butane, propylene, and butenes—are exclusively used for LPG production and supplied solely to public sector oil marketing companies. Refineries were also ordered not to divert these streams for petrochemical products or any downstream derivatives.

This decision halted the supply of propylene, disrupting the plastic manufacturing sector, which in turn affected the production of packaging materials, impacting the food and beverage industry as well as the fast-moving consumer goods (FMCG) sector. The condom manufacturing industry also faced shortages of raw materials.

In response to these challenges, the ministry has requested refiners to allocate some propylene back to the petrochemical industry.

"This adjustment will influence the availability of domestic LPG supplies, but we are committed to ensuring that domestic consumers are not adversely affected," Sharma stated.

She also mentioned that the temporary removal of customs duties on certain petrochemical imports would assist industries impacted by the LPG production focus.

"I am very optimistic that this will yield positive results," she added.

While domestic LPG supplies have been prioritized, commercial LPG supplies faced initial disruptions. However, the government has since reinstated partial supplies, initially at 20%, which has now increased to a total of 50%, including a 10% allocation linked to piped natural gas (PNG) expansion reforms.

This allocation is prioritized for essential sectors such as restaurants, dhabas, hotels, industrial canteens, food processing, dairy units, subsidized canteens operated by state governments or local bodies, community kitchens, and 5 kg cylinders for migrant workers.

Sharma reported that 4.3 lakh 5 kg LPG cylinders have been sold, and since March 14, 60,000 tonnes of commercial LPG have been distributed across states and union territories.

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

In line with these measures, the government has further increased the allocation of commercial LPG by an additional 20%, bringing the total allocation to 70% of pre-crisis levels (including the 10% reform-linked component). This additional allocation is being prioritized for labor-intensive and core industrial sectors, including steel, automotive, textiles, dyes, chemicals, and plastics, particularly for processes where natural gas cannot be substituted.