Decoding the Pricing of Liquid Petroleum Gas (LPG) Cylinders

It's important to note that India imports approximately 50% of the LPG demand while the rest is catered by its domestic production.

• LPG prices in India are largely influenced by international LPG prices and the Import Parity Price (IPP) mechanism .
• The IPP formula is based on the assumption that LPG is imported into the country.
• The Import Parity Price comprises several elements such as:
  • FOB (Free on Board) price
  • Custom Duty
  • Insurance
  • Ocean Freight Price
  • Port charges, etc
• These costs are primarily quoted in dollars and then converted into rupees.
• Additional costs encompass:
  • Goods and Service Tax (GST)
  • Bottling charges
  • Inland transportation cost
  • Dealer commission
  • Promotion cost
  • Margins levied by OMC
• These costs culminate in the retail selling price of an unsubsidised LPG cylinder.
• It's noteworthy that oil corporations have the authority to revise prices every month.

What Influences LPG Price?

Some major factors that affect LPG prices include:

• Any surge in the global price of LPG directly impacts LPG prices in India.
• A depreciation in the value of the rupee can also lead to an increase in LPG prices.
• Geopolitical conflicts such as the Russia-Ukraine conflict can also escalate LPG and crude prices.
• Global LPG prices often move in sync with crude oil prices, a primary raw material.
• Under the Pradhan Mantri Ujjwala Yojana , consumers are entitled to up to 12 subsidized cylinders, which also plays a role in determining the price of LPG.

Concerns with LPG Pricing:

• The suitability of the IPP or import parity price mechanism for determining LPG prices is a subject of debate.
• Accusations of price-fixing by oil and gas-producing corporations also contribute to the price rise.
• Despite having different structures and operating models, all major state-owned OMCs charge similar prices for LPG.