(Bloomberg) — As more than 1.3 billion Indians are forced to stay home and factories are idled amid the world’s biggest coronavirus lockdown, there’s one fuel that’s proving resilient to the resulting plunge in energy demand.
Liquefied petroleum gas — used for cooking at home in India and other Asian countries — has avoided the collapse in consumption that’s hit gasoline and diesel. It’s also benefiting as authorities stock up on supplies for lower-income people, while production of LPG — a byproduct of oil refining — is falling as processors wind down activities to cope with lower overall demand for fuels.
India’s three biggest state-owned refiners projected a 40% jump in demand for the gas in the first week of April from a year earlier, according to company officials who asked not to be identified, compared with 70% slumps for diesel and gasoline. The processors — Indian Oil Corp., Bharat Petroleum Corp. and Hindustan Petroleum Corp. — have cut run rates by as much as half due to the lockdown, which has been extended until May 3.
Regional spot prices are rising and it’s mainly due to prompt import demand from India, said Jeslyn Chua, an analyst at industry consultant FGE. “Even with the lockdown, people there still have to eat and the government has also given free supplies to the poor.”
Indian Oil, Bharat Petroleum and Hindustan Petroleum issued tenders early this month to buy as much as 737,000 tons of LPG for delivery in April, May and June. That’s pushed spot prices to a premium of about $20 a ton over the Argus Far East Index, from a $4 to $5 a ton discount at the end of March, according to two traders of the fuel.
The Indian refiners only managed to purchase just over half of the LPG they were seeking and may issue more tenders soon, according to people familiar with the purchasing plans at two of the three companies, who asked not to be identified as the information is private.
The processors agreed to pay as much as $50 a ton over Saudi Arabian contract prices for deliveries in April and May, the people said. That compares with a $10 a ton premium for LPG paid by Bharat Petroleum in November.
See also: Oil Demand Slumps 70% in Third-Biggest Buyers as India Shuts
India will likely lose about 90,000 barrels a day of domestic supply of LPG this quarter due to run cuts, while demand will grow by 78,000 barrels a day from a year earlier as the government gives 80 million free refill cylinders to the poor, FGE said in a note released Wednesday.
Indonesia’s PT Pertamina has also sought 90,000 tons of LPG for this month and next. Southeast Asia’s largest economy is buying spot cargoes of the fuel in anticipation of an increase in demand during Ramadan, when Muslims prepare elaborate meals to break their daily fasts, Chua said. The holy month starts in late April this year.
India — where FGE estimates 97% of LPG demand comes from residential consumers — already imports around half of its annual needs. However, the lower local production is forcing refiners to seek more from abroad, with Indian Oil set to import 50% more than normal in April and May.
The LPG market is likely to tighten further after the world’s biggest producers agreed to cut output as output of the gas correlates with oil-processing levels. Indian processors will probably import around 30 cargoes a month in April and May and 26-28 shipments in June, FGE’s Chua said.
(Updates with new estimates from FGE in 8th paragraph.)
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