economy · 2026-08-27
LPG's Hidden Bill Keeps Growing for OMCs
Photo: Cyzen / Wikimedia (CC BY 4.0)
The loss oil companies book on every subsidised LPG cylinder is shrinking, but the total unpaid bill still crossed ₹59,000 crore, so the government wants fewer cylinders sold at all.
What is this loss oil companies book per cylinder?
For a 14.2 kg cylinder sold at ₹942, the gap between that price and the market cost has been shrinking: over ₹700 in June 2026, ₹500 in July, and just ₹188 in August. For PM Ujjwala households paying ₹642, the shortfall is even bigger, but it is the total across all cylinders sold, not the per-unit figure, that has kept climbing.
Why is the per-cylinder loss shrinking while the total bill grows?
The per-cylinder gap fell because retail prices held steady while global LPG costs eased slightly after their war-driven spike. But oil companies still sell tens of millions of cylinders every month, so even a shrinking per-unit loss adds up, pushing the cumulative unpaid bill from over ₹51,000 crore in June to over ₹59,000 crore in July.
How does government compensation compare to the losses?
The government paid oil companies ₹52,000 crore in compensation for these LPG losses through FY27, including ₹22,000 crore in FY23 and ₹30,000 crore split across FY26 and FY27. Even after that payout, the companies were still short more than ₹59,000 crore as of July 31, 2026, because the compensation has not kept pace with rising global gas prices.
What pushed global LPG prices up in the first place?
LPG for India is priced as a 50:50 propane-butane blend benchmarked to Saudi contract prices, which stood at about $543 a tonne in February before Iran's war with the US and the closure of the Strait of Hormuz choked Middle East exports. Prices jumped to $775 a tonne by April and $790 by June, a roughly 46% rise, which is what widened the subsidy gap the government is now trying to shrink by pushing households onto piped gas instead.
How is the government compensating firms for ₹59,000cr?
The government pays OMCs back in lump sums, not per cylinder. It has disbursed ₹52,000 crore in compensation through FY27, including ₹22,000 crore in FY23 and ₹30,000 crore split across FY26 and FY27. But the unpaid gap kept growing faster: even after that payout, accumulated under-recoveries stood at over ₹59,000 crore as of July 31.
Where did the ₹59,000 crore shortfall actually come from?
OMCs sell each 14.2 kg cylinder for ₹942 (₹642 for Ujjwala households) while the market cost hit ₹1,600 in June 2026. That gap, the implicit subsidy, was over ₹700 per cylinder in June and ₹500 in July, before easing to ₹188 in August as global LPG prices settled after peaking near $790 a tonne, up 46% from pre-war levels.
Has compensation kept pace with LPG losses before?
In August 2025 the Cabinet approved a separate ₹30,000 crore payout for LPG under-recoveries from 2024-25, paid in twelve tranches, because high international prices were not passed on to consumers. That pattern repeats now: government compensation arrives periodically in large tranches, while the under-recovery accumulates continuously as long as retail prices stay fixed below cost.
How do LPG losses compare with fuel losses at these firms?
LPG is only part of the picture. IndianOil alone reported an LPG loss of ₹9,211 crore for FY26, but combined petrol and diesel under-recoveries across the three OMCs were estimated near ₹1.72 trillion for one quarter alone during the crude spike. Actual Q1 losses came in far lower, ₹18,149 crore, showing how much retail price hikes and tax cuts cushioned the hit.
How will govt cut the number of cylinders sold?
The main lever is converting LPG cylinder users to piped natural gas (PNG). The Oil Ministry has told oil companies and city gas distributors to fast-track this, and identified 21 lakh households where pipelines already reach but the connection isn't switched on, ordering them shifted to piped gas immediately rather than waiting for new infrastructure to be built.
How much progress has India made on piped gas connections so far?
Not much against the target. India had 1.74 crore piped domestic gas connections by June 2026, against a pro-rata goal of 4.41 crore, only 39% achieved. Just 1.5 lakh connections were added that month, and three city-gas areas, Delhi, Ahmedabad and Vadodara, accounted for a fifth of all new connections nationwide.
What other steps is the government taking to protect LPG supply?
Beyond pushing piped gas, the government raised commercial LPG supply to about 70% of pre-crisis levels, doubled small 5 kg cylinders for migrant workers, and pushed nearly all online bookings (98%) with delivery codes (93%) to stop diversion of subsidised cylinders. It also fast-tracked pipeline-laying rules and told city gas firms to prioritise commercial PNG hookups.
Why does the West Asia conflict make LPG riskier to keep selling?
India depends on the Middle East Gulf region for most of its LPG, so a regional conflict directly threatens supply, unlike piped natural gas which comes through more diversified, pipeline-based infrastructure. That dependence is why the Oil Ministry calls LPG a lasting "pain point" and wants households weaned off cylinders rather than waiting out this crisis alone.
Source: thehindubusinessline.com