14 DEC – Indian state oil firms start supplying LPG to private bottlers, which could boost imports

 

India’s national oil companies, or NOCs, have started supplying LPG to some private bottlers in a government-initiated move that could be extended across the country and heighten competition in a sector controlled by private importers, Indian industry sources said Dec. 11.

 

Supplying to private LPG bottlers had previously been the domain of international trading firms such as Total, SHV and Aegis. The availability of bulk LPG from NOCs to this segment opens up a big opportunity for unorganized private sector participation, possibly boosting import demand, the industry sources said.“This move comes on the advice of the Ministry of Petroleum and Natural Gas,” a source familiar with the matter told S&P Global Platts.

 

Another industry source said NOCs are already soliciting business from private sector bottlers. “Currently only two to three private players are being supplied,” he said. “However, in India it will be impossible to restrict supplies to only a few players, as it would be treated as discriminatory.”

 

Sources said the move was triggered by New Delhi’s plan to privatize India’s second-largest state-run refiner Bharat Petroleum Corp Ltd., or BPCL.The government announced in November 2019 it was selling a 53.29% stake in BPCL as part of a wider plan to spin off or sell stakes in dozens of state-owned firms.

 

Sources said the drive to get NOCs to supply private bottlers also followed government moves to eliminate subsidies on domestic cooking gas, as the fall in global oil and increases in LPG gas cylinder prices has narrowed domestic cooking gas rates versus the international market.

 

But local media has reported India’s oil minister as saying that BPCL’s LPG customers will continue to get a cooking gas subsidy after the privatization, which would be paid to consumers directly into their bank accounts and not to any company.

 

The FOB Middle East propane price has averaged $364.15/mt to date in 2020, down from $430.1/mt in 2019, while FOB Middle East butane has averaged $370.76/mt, down from $439.88/mt, Platts data showed.“This move will definitely raise competition for all existing players in the private-sector bottling market — it will be a supply-driven market,” one source said.

 

SUPPLY-DRIVEN MARKET

Private bottlers currently do not have the infrastructure for bulk imports and rely on international trading firms for supply. But with NOCs supplying bigger volumes, private bottlers can lower their supply costs and subsequently further lower the need for costly subsidies, the sources said.

 

This would also push up domestic demand for LPG and boost imports, they said.Other sources fretted that given the economies of sourcing scale for the NOCs, they could eventually have a complete hold on LPG bulk sourcing into India.

 

With increased competition, private sector importers will need to be more innovative in areas such as payment options, ensuring that they take the risk for addressing the bottom of the pyramid customer base effectively, one source said.Private-sector importers could also respond to this competition by aggregating their volumes and jointly sourcing supply.

 

As demand from private bottlers grows, imports by NOCs to meet this requirement are expected to rise from two VLGCs per year initially to about 12 VLGCs per year, if the policy is maintained, sources said.

 

A trade source said the supply of bulk LPG by NOCs could also open up new opportunities to private sector bottlers to widen their business into sectors such as auto LPG networks, where margins are healthy.

 

But sources cautioned the growth of auto LPG was limited by high costs, difficulty in acquiring land for auto LPG stations and future competition from electric vehicles.

 

Source: Platts