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Explained: Why cooking gas is costlier, what lies ahead

The hike in prices will impact household inflation expectations, and could further hit subdued consumption sentiment.

Written by Karunjit Singh | New Delhi |
Updated: March 29, 2022 11:53:13 am
An employee of a gas agency carries a LPG cylinder to be distributed among the people. (Express Photo/File)

Oil marketing companies have raised the price of liquefied petroleum gas (LPG) by Rs 50 per 14.2 kg cylinder in the first hike since October, as international crude prices have surged due to the war in Ukraine. Over 70 per cent of households are estimated to use LPG as their primary cooking fuel and 85 per cent have LPG connections. The hike in prices will impact household inflation expectations, and could further hit subdued consumption sentiment.

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Linked to global oil prices

The price of LPG has been rising since November 2020; a 14.2 kg cylinder in Delhi now costs Rs 949 — Rs 355 or nearly 60 per cent costlier. Steady increase in crude prices due to the recovery in demand following the easing of Covid restrictions, slow restoration of production by oil exporters, and the Russia-Ukraine war have contributed to rising prices.

India’s LPG prices are benchmarked to international prices of petroleum gas. Saudi Arabia’s national oil company, Saudi Aramco, has set the price for LPG in March to $769.1 per metric tonne (MT), up 5.9 per cent from $726.4 per MT in January, and up over 104 per cent from the November 2020 price of $376.3 per MT. The price of India’s crude oil basket has risen from $41 per barrel in November 2020 to $115.4 as on March 23, 2022.

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The government had stopped subsidies on LPG cylinders for most consumers in May 2020, adding to the price burden on consumers. Due to high inland freight costs, the government now provides subsidies only through its direct benefit transfer scheme to customers in remote areas.
Under-recoveries persist.

Analysts note that despite the increase, OMCs are selling LPG at a loss — and further hikes are likely. “If we price crude at about $100-110, the under-recoveries even after the recent price increase of Rs 50 per cylinder is to the tune of about Rs 100-125 per cylinder,” Prashant Vasisht, Vice President & Co-Group Head at credit ratings agency ICRA, said.

PNG and CNG also costlier

Rising international gas prices have also impacted the price of piped natural gas (PNG) and compressed natural gas (CNG) supplied by city gas distribution companies, as they source imported natural gas in addition to domestically produced natural gas to meet demand.
Indraprastha Gas Ltd hiked the price of CNG in Delhi by Re 1 per kg to Rs 59 and the price of PNG by Re 1 per SCM (standard cubic metre) to Rs 36.61 earlier this week. Prices of PNG and CNG are expected to rise further post the next price revision of domestically produced natural gas, which is set to come into effect for a six-month period starting April 1.

Households’ LPG dependence

LPG is the primary cooking fuel in more than 70 per cent of Indian households, and 85 per cent households have LPG connections, according to an independent study released on Thursday by the Council on Energy, Environment and Water (CEEW). However, 54 per cent households continue to use traditional solid fuels such as firewood, dung cakes, agriculture residue, charcoal, and kerosene, either exclusively or with LPG — increasing the exposure to indoor air pollution.

The CEEW findings are from the India Residential Energy Survey 2020, conducted in collaboration with the Initiative for Sustainable Energy Policy in FY 19-20 in nearly 15,000 urban and rural households across 152 districts in 21 most populous states.

Inflation expectations

Inflation expectations in India have been sticky as households take time in believing that a high inflation phase is ebbing. Quantitative inflation expectations in India are formed based on households’ experiences of food and fuel inflation, according to a January 2022 RBI working paper titled Taking Cognisance of Households’ Inflation Expectations in India.

Households’ median inflation perceptions for the current period moderated sequentially by 70 basis points to 9.7 per cent in January in the latest round of survey conducted by the RBI. But the current period perception is still higher than the perceptions recorded in the same period a year ago.

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