Petrol price increase is good news for LPG sellers

Vol 15, PW 24 (14 Jun 12) Midstream & Downstream

More cars are likely to switch to LPG as fuel following the steepest petrol price increase in Indian history, according to dealers.

Bharat Petroleum, Hindustan Petroleum and IndianOil announced on May 24 they were raising their petrol price by Rs7.54/litre, sparking nationwide protests, shutdowns and violence. On government instructions they backtracked on June 2, reducing the price by Rs2/litre to Rs75/litre ($1.36).

Yet companies like French major Total, Mumbai-based Aegis and Reliance who sell LPG as car fuel aren’t complaining. Over the last three months, they say, the difference between LPG car fuel and petrol prices has narrowed to 22%.

“Because of the (petrol) price rise,” says Indian Oil, “LPG fuel is again 40% cheaper than petrol.” Aegis predicts the percentage of newly sold cars converted to LPG as fuel will shoot up from 10% to 30%, or even 40%.

In short, one in three new cars might convert to LPG. Only cheap diesel could spoil this rosy scenario.

In India diesel sells for around Rs45/litre – just Rs1 more than the equivalent price for LPG car fuel. “For the last two years,” adds IndianOil, “diesel has been our main competitor.

” In India diesel prices aren’t market-linked but kept artificially low through government subsidies. This is unlikely to change as the ruling pro-poor Congress Party-led government is unlikely to want more drama from angry drivers.

Some believe this will ensure that all-India auto LPG sales this fiscal will stay steady at 365,000 tonnes, similar to last year. India has around 1100 stations selling auto LPG, some stand-alone, but most at petrol and diesel stations operated by IndianOil, HPCL or BPCL.