India's maiden US LPG term deal signals supply diversification, trade rebalancing

India's maiden term contract for LPG from the US marks not only a strategic shift in its procurement strategy, looking beyond spot purchases and towards diversified product suppliers, but also opens up a window for expanding oil ties with Washington amid mounting pressure to rebalance bilateral trade, industry sources and analysts said.

But cargo acceptability, freight volatility, and India's internal assessments of US blend quality will remain as critical variables. Equally important is how traditional LPG suppliers choose to respond -- whether through discounts, innovative contract terms, or strategic cooperation. The combined outcome of these factors will determine the roadmap for expanding LPG trade with the US, they added.

"This structured long-term deal between Indian oil public sector undertakings and US LPG exporters marks a pivotal shift in India's procurement strategy. It reflects a maturing approach of moving beyond spot buying into geographically diversified, contract-based sourcing linked to international indices such as Mont Belvieu," said Shrikant Madhav Vaidya, former chairman of Indian Oil Corp.

"What's particularly notable is that this is not just a commercial arrangement. It fits into a broader national strategy to strengthen energy ties with the US across crude oil, LNG, and now LPG," Vaidya, who is also the former president of the World LPG Association, added.

Petroleum Minister Hardeep Singh Puri said Nov. 17 Indian oil marketing companies had sealed a one-year deal to import about 2.2 million metric tons of LPG from the US in 2026, marking the first structured contract for US LPG in the Indian market. This purchase is based on using Mont Belvieu as the benchmark for LPG purchases.

Trade rebalancing efforts

"The deal will help moderate India's trade surplus with the US, which is on course to top $40 billion this year, and likely help assuage US concerns about India's continued oil imports from Russia," said Priyanka Kishore, director and principal economist at Asia Decoded, a Singapore-based research consultancy.

With LPG comprising over 41% of India's total refined product imports in 2024-25 (April-March), such deals offer both price risk mitigation and supply assurance as the country braces for rising domestic consumption, Vaidya said.

According to IHB Ltd, which is spearheading the Kandla-Gorakhpur LPG pipeline project, the new pipeline will source LPG from Kandla, Dahej, and Pipavav import terminals, alongside Koyali and Bina refineries, connecting directly to 22 bottling plants and indirectly to 21 others. IHB Ltd is a joint venture between IOC, HPCL, and BPCL. Once completed, this single pipeline will be capable of transporting about 8.25 million mt/year of LPG, about 25% of India's total LPG demand.

"The uptick in LPG imports is being driven not only by commercial demand but also by policy-induced rural penetration through the Ujjwala scheme expansion and rising household coverage. The move to sign a term contract for US LPG sends a clear message -- India is future-proofing its LPG basket, embracing index-linked pricing with physical security, and embedding resilience across the entire value chain," Vaidya added.

According to a recent S&P Global Energy research report Indian government's recent approval to grant an additional 2.5 million LPG connections to eligible adult women from low-income households under the Pradhan Mantri Ujjwala Yojana scheme is expected to modestly increase the country's overall demand for the fuel. It strengthens the structural demand for imports, reinforces the need for supply-chain preparedness, and will be relevant to short-term dispatch and storage planning, rather than being a game-changer for global LPG balances by itself.

In fiscal year 2024-25 (April-March), India imported 20.67 million mt of LPG, accounting for 40.6% of the country's overall refined product imports, government data showed.

Shipment challenges

Anmol Bhushan, associate director for NGLs at S&P Global Energy, said once the US cargoes start to flow in 2026, there will be some substitution of LPG cargoes from traditional suppliers. While US LPG might be cheaper, there's a trade-off in freight costs. However, Indian state refiners would be trying to import on a delivered basis -- not just FOB -- to mitigate shipping risk.

"Further, composition of the cargoes would play a key role in future imports. Butane and propane mix of US cargoes could differ. India, with its large household LPG requirements, may demand a certain blend, which could limit how much US LPG displaces its entire import basket. If US deliveries prove reliable, India may view this arrangement as a scalable long-term option," he added.

"Benchmark Mont Belvieu prices could act as a cap on what India is willing to pay for cargoes from traditional suppliers. If US offers remain competitive, India's refiners may push for lower contract prices or seek swaps," Bhushan said.

US Gulf Coast butane prices fell more than 2 cents on Nov. 21, erasing all upward price movements seen earlier in the week as crude futures fell to a one-month low. Platts assessed butane at the Enterprise terminal in Mont Belvieu, Texas, down 2.375 cents to 84.625 cents/gal, the lowest price in two weeks. Previously, the butane price had reached 86.625 on Nov. 17, then rose to 88.125 cents/gal on Nov. 18. The butane price reflected the sliding front-month NYMEX WTI futures contract, which fell $1.08/b to $58.06/b, the lowest price since Oct. 21.