LPG as car fuel expected to surge by 60% this year

Vol 11, PW 20 (21 Feb 08) Midstream & Downstream

Oil ministry bureaucrats are standing firm against a long pending request by private oil refiners Reliance and Essar to be allowed to sell LPG as car fuel.

Under existing law all LPG produced in India must be sold as household cooking fuel. If companies want to sell locally produced LPG as car fuel, they must import an equivalent quantity and hand it over to a â€کpool’ run by IOC, BPCL and HPCL.

All LPG sold as cooking fuel is subsidised by the government, but LPG used as car fuel is not. Last year in India some 18,600 tonnes per month of LPG was sold as car fuel.

Of this amount, IOC sold the vast bulk (8900 tonnes) while BPCL and HPCL together sold 9700 tonnes. LPG for domestic cooking is sold at Rs20.94/kg in Delhi; unsubsidised LPG car fuel sells at Rs62/kg.

Despite this huge difference in price, sales of LPG as car fuel are expected to soar by 60% this year. Smelling an opportunity, Reliance and Essar are increasingly keen for a slice of the cake.

In late December the ministry held a meeting with IOC, BPCL, HPCL, Reliance and Essar to discuss Reliance and Essar’s wish to enter the market for LPG car fuel. Each company set out its arguments, but nothing conclusive emerged.

Are state-owned marketing companies being obstructive “No,â€‌ retorts a senior IOC source. “Reliance and Essar have been asking the ministry for permission to buy LPG from us at various locations for sale as auto LPG.

â€‌ IOC says it has no objection, so long as Reliance and Essar replace the LPG taken at the same locations. “If they take LPG from us at Mathura or Delhi and hand over an equivalent imported quantity at Kandla, who will pay for the freight from Kandla to Delhi or Mathura Why should we bear it We have no issue if they hand over the imported LPG to us at Mathura or Delhi.