Govt may charge cooking gas, natural gas users to build $42 billion fuel reserve

India could weigh new levies on LPG and natural gas users to fund strategic fuel reserves. The proposal underscores supply risks after Middle East disruptions and the country's dependence on fuel imports.

In Short

• Proposal aims to stockpile two months of crude and LNG, six weeks of LPG
• Levy could add Rs 1.29 per kg on LPG and Rs 1.43 per cubic metre on natural gas
• Charges may increase household gas bills by about 2%, impacting industrial users too

India could soon impose new charges on cooking and natural gas consumers to fund a planned $42 billion strategic fuel reserve, reported news agency Reuters.

The plan, which is yet to be approved by the Prime Minister’s Cabinet, would extend India's strategic reserves beyond crude oil for the first time.

As per the report, the proposal aims to create stockpiles that are designed to cover about two months of crude and liquefied natural gas demand, and around six weeks of liquefied petroleum gas, or cooking gas consumption.

The decade-long plan comes amid the recent supply disruptions caused by the Middle East crisis.

As the world's third-largest oil importer, India relies heavily on foreign fuel, making it vulnerable to supply chain disruptions, particularly through the Strait of Hormuz.

Hence, the government has seen a hike in import costs and has highlighted India's continued dependence on imported fuel.

HOW WOULD THE CHARGES BE LEVIED?

Under the proposed plan, the authorities anticipate raising about $1.5 billion for the cooking and natural gas storage infrastructure. The authorities plan to finance this sum through certain imposed levies on users.

For LPG, a levy of Rs 1.29 per kg is under consideration by the Ministry of Petroleum and Natural Gas.

On the basis of current consumption, this could potentially raise about $460 million a year for infrastructure development.

Once approved, the users would face an addition of about 18 rupees to the cost of a standard domestic cooking gas cylinder.

In regard to natural gas, the ministry has proposed a levy of Rs 1.43 per standard cubic metre, which would generate about $1 billion annually.

However, the Ministry is yet to iron out the exact metrics on which these levies would be collected and therefore, has not provided any clarity on the matter. It is expected that the proceeds would primarily fund natural and cooking gas storage infrastructure, while crude reserves and strategic fuel inventories would continue to be financed by the federal government.

WHAT WOULD THE LEVY MEAN FOR USERS

The proposed levies would add about 2% to the current gas bills paid by the households.

The Ministry has kept discussions confidential to prevent consumer panic, particularly given the political volatility surrounding domestic fuel pricing.

If in effect, the industrial users of natural gas suspect higher operational costs in fertiliser plants, power stations, and steel manufacturers.

While New Delhi currently has 5.33 million tons of government-owned strategic crude storage capacity, and another 6.5 million tons under construction, it lacks dedicated strategic reserves for LPG and LNG.

This plan has gained traction as India’s emergency fuel reserves lag significantly behind its major Asian competitors. Where Indian government-controlled stockpiles cover less than 10 days of national demand, peer nations such as Japan and South Korea hold robust emergency reserves designed to last well over 100 days.

Battling against this buffer supply lag, the proposal for reserves aims to shield domestic consumers from sudden supply cutoffs and any massive global price spikes during future international conflicts.

- Ends