India’s LPG Subsidy Burden Crosses Rs 62,000 Crore as Global Price Shock Hits OMCs

India's public sector oil marketing companies are once again facing a sharp increase in the cost of supplying subsidised cooking gas, with their combined LPG under-recovery crossing Rs 62,000 crore in August 2026.

The figure rose from around Rs 59,000 crore in July, highlighting the growing pressure on state-run fuel retailers as international LPG prices and shipping costs remain elevated. Government compensation has provided some relief to the oil companies, but the gap between the cost of LPG and the price paid by consumers remains substantial.

What Is LPG Under-Recovery?

Under-recovery refers to the difference between the cost incurred by oil marketing companies to supply domestic LPG and the price at which the cylinders are sold to consumers.

For households, the impact is not immediately visible because retail LPG prices remain regulated and the government uses compensation and other measures to support affordability. For OMCs, however, the difference between procurement costs and selling prices adds to their financial burden.

The implicit subsidy on a 14.2 kg domestic LPG cylinder stood at around Rs 210 in September, compared with about Rs 188 in August. In June, the gap had been as high as Rs 721 per cylinder.

Why LPG Costs Have Increased

The sharp increase in LPG costs is linked to the disruption of energy supplies from West Asia following the conflict that began on February 28.

The Strait of Hormuz has traditionally been an important route for India's LPG imports. Disruptions along the route affected supplies from major Gulf producers and forced Indian buyers to look for alternative sources.

India has historically depended heavily on imports to meet its LPG requirement. The disruption has therefore had a direct impact on procurement costs, freight rates and the availability of cargoes.

US Becomes Major LPG Supplier to India

One of the biggest changes in India's LPG supply chain has been the rapid increase in imports from the United States.

Kpler data showed that India imported around 0.62 million tonnes of LPG from the US in August, following imports of about 0.89 million tonnes in July. US cargoes accounted for more than half of India's LPG imports in August, making the US the largest individual supplier.

Traditional Gulf suppliers saw their share fall during the supply disruption. UAE shipments stood at around 1.4 lakh tonnes in August, while Qatar supplied roughly 60,000 tonnes. Saudi Arabia supplied no LPG to India during July and August, according to reported Kpler data.

Algeria has also emerged as a new source. It supplied around 1.1 lakh tonnes of LPG to India in August, becoming the country's third-largest supplier during the month.

Longer Shipping Routes Add to the Cost

The shift towards US LPG has helped India diversify its supply sources, but transportation remains an important part of the cost equation.

US LPG is priced against the Mont Belvieu benchmark. That benchmark stood at around $0.68 a gallon, equivalent to roughly $360 per tonne, in August. The price was below Saudi Arabia's contract price, but the longer voyage from the US to India added significantly to freight costs.

According to an Equirus analysis reported in September, Houston-to-Asia VLGC freight rates moved above $300 per tonne in August, compared with more than $200 per tonne in April. Higher freight costs have reduced some of the advantage offered by lower US LPG benchmark prices.

India's LPG Import Volumes Recover

India's overall LPG imports also increased in August. Imports rose 14.5% month on month, while domestic LPG consumption reached around 2.42 million tonnes, a six-month high.

The changing import mix reflects the pressure created by disruptions in traditional supply routes. Indian refiners and OMCs have had to source cargoes from a wider range of countries while managing higher shipping and procurement costs.

For consumers, domestic LPG prices remain the key factor to watch, while for OMCs, the rising subsidy burden and higher input costs remain a major concern for margins and profitability.