Knowledge Nugget | India’s LPG Crisis: Why strategic reserves are critical after strait of hormuz disruptions

Key takeaways:

What are strategic reserves?

1. Strategic reserves are the government-managed stockpiles of crude oil to be used in case of emergency or supply disruptions. The concept of dedicated strategic reserves was first mooted in 1973, after the first oil crisis. However, strategic reserves are different from commercial reserves, which have the objective of meeting short-term operational needs.

2. While India has strategic petroleum reserves for crude oil, it has none for LPG and liquefied natural gas (LNG). A bulk of the available stocks for crude oil are also commercial stocks with refiners.

What is India’s dependence on LPG imports?

3. India depends on imports to meet about 60% of its LPG consumption, and a whopping 90% of those imports came via the Strait of Hormuz. This means that the Strait of Hormuz effectively saw the movement of around 54% of India’s LPG consumption.

4. In the case of LNG imports, on which India depends to meet half of its natural gas requirement, the Strait accounted for 55-60% of the supplies. As for crude oil, about 40% came through the shipping corridor.

The Strait of Hormuz — the narrow waterway between Iran and Oman — is the key maritime chokepoint which has been disrupted since the outbreak of war in West Asia.

5. India’s LPG consumption stood at about 90,000 tonnes a day before the war. But with the disruption in flows through the Strait of Hormuz and seasonal dip in demand, LPG consumption has declined to about 72,000 tonnes a day, according to Petroleum Ministry estimates.

6. The disruption has forced India to ration LPG supplies to industrial and commercial consumers in a bid to prioritise crores of households that depend on the fuel to run their kitchens. There are over 33 crore households in India with LPG connections. As a demand management tool, the minimum gap between LPG refill bookings by households has also been increased.

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7. Moreover, domestic refineries have been maximising domestic LPG production to partly offset the loss in imports, and refiners are scrambling for LPG cargoes from alternative geographies like the US, Australia, and Russia, among others.

8. With the West Asia war exposing the risks of having thin emergency energy buffers, the government and industry stakeholders are now looking at creating additional storage for LPG and liquefied natural gas (LNG), and expanding the capacity of the crude oil stockpiles that can be used during extended energy supply disruptions.

What is the difference between LPG and LNG? LPG is a gaseous fuel mix primarily comprising propane and butane that is a byproduct of crude oil refining and natural gas processing. It may also contain some propylene, butylene, and isobutylene or isobutene. Under relatively low temperatures or moderate pressure, the gas mix becomes a liquid. It is mostly used for cooking and heating, with some industrial applications as well. It is around 1/260th of its gaseous volume. LNG, on the other hand, is primarily natural gas — mainly methane — cooled to below -160 degrees Celsius and cryogenically turned into a liquid. Now, LNG itself doesn’t have too many direct uses, except for an upcoming fuel to power heavy vehicles, ships, and trains. The key purpose of liquefaction of natural gas into LNG is to transport it over long distances across seas, where supplying natural gas through pipelines is not feasible.

What is the Status of India’s Strategic Petroleum Reserves (SPRs)?

1. According to the statement made by the Ministry of Petroleum and Natural Gas (MoPNG) in the Rajya Sabha on March 23, India is currently holding 3.37 million tonnes of oil, or just about two-thirds of their total storage capacity (5.33 million tonnes of crude oil).

2. The SPRs are meant to act as a buffer for short-term supply shocks. At full capacity, the three SPRs cover around 9.5 days of India’s crude oil supplies.

3. India has SPRs at three locations in Andhra Pradesh and Karnataka. These are underground caverns at Visakhapatnam, Andhra Pradesh (1.33 million tonnes); Mangaluru, Karnataka (1.5 million tonnes); and Padur, Karnataka (2.5 million tonnes).

4. In India, ISPRL (Indian Indian Strategic Petroleum Reserve) is a special purpose vehicle as a wholly-owned subsidiary of the Oil Industry Development Board tasked for building and managing the strategic crude storage.

5. The International Energy Agency (IEA) recommends that countries hold oil stocks equivalent to at least 90 days of their net oil imports. IEA members are obligated to maintain these levels of reserves; India is not a full member of the grouping but an associate member.

6. The current total national capacity for storage of crude oil and petroleum products is 74 days, including commercial stocks with refiners; it is still lower than what the IEA recommends.

7. Recently, a Strategic Collaboration Agreement was also signed between Indian Strategic Petroleum Reserves Limited and Abu Dhabi National Oil Company to enhance the UAE’s participation in India’s Strategic Petroleum Reserves to 30 million barrels, and work together to set up strategic gas reserves in India.

8. The UAE has been the first country to partner with India in strategic petroleum reserves. In 2018, the ISPRL and ADNOC entered into an agreement for the UAE to store over 5 million barrels of crude oil reserves at ISPRL’s facility in Mangaluru.

BEYOND THE NUGGET: Understanding IEA standards: Why India’s reserve goals matter

1. IEA, created in 1974 as one of the responses to the global oil crisis, is an autonomous intergovernmental organization within the framework of the Organization for Economic Co-operation and Development (OECD).

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2. In February 2026, India requested full membership of the organisation. As of now, India is an associate member of the Paris-based agency, which is a leading intergovernmental body that works on energy security, global energy policy, and, now increasingly, on climate change and energy transitions.

3. The founding charter of IEA provides that only those countries that are already OECD members or through those that have joined OECD can become a member of IEA. Today, there are 33 members of IEA; Colombia was recently inducted as the 33rd full member.

4. In 2015, IEA opened the doors for non-OECD countries to become associate members. The associate members participate in the policy discussions and activities, but do not have decision-making rights. India became an associate member in 2017. There are 13 associate members right now.

5. There are certain criteria that need to be fulfilled to become a member of IEA, in addition to being a member country of the OECD.  Some of the requirements as per IEA is that “a country should have crude oil and/or product reserves equivalent to 90 days of the previous year’s net imports, to which the government has immediate access (even if it does not own them directly) and could be used to address disruptions to global oil supply, a demand restraint programme to reduce national oil consumption by up to 10%, and legislation and measures to ensure that all oil companies under its jurisdiction report information upon request. ”

Post Read Question

Consider the following statements:

1. India has 3.37 million tonnes of strategic LPG reserves at three locations.

2. IEA recommends that countries should hold oil stocks equivalent to at least 90 days of their net oil imports.

3. India is a founding member of the IEA.

How many of the statements mentioned above is/are correct?

(a) Only one

(b) Only two

(c) All three

(d) None

Answer key

(a)

(Note: Statements 1 and 3 are incorrect.)

(Sources: How much did LPG imports fall due to Hormuz closure, and why demand may fall too, One-third of India’s strategic petroleum reserves are empty: Why this matters for fuel security, Government asks oil companies to build 30-day LPG reserves amid Hormuz supply risks)

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