SupplyThursday, 2 April 2026·India
India Mandates LPG Priority, Tightens Feedstock Use; Petrochemical Sector Faces Supply Squeeze
The Government of India has issued a directive requiring all oil refining companies and integrated petrochemical complexes to prioritize the production of Liquefied Petroleum Gas (LPG), in a move aimed at safeguarding domestic fuel supply amid ongoing disruptions.
Issued by the Ministry of Petroleum and Natural Gas under the Essential Commodities Act, 1955, the order mandates that all C3 and C4 streams—including propane, butane, propylene, and butenes—produced, recovered, or available within refinery and petrochemical operations must be fully directed toward LPG production. These volumes are to be supplied exclusively to public sector oil marketing companies—Indian Oil Corporation (IOCL), Bharat Petroleum Corporation Limited (BPCL), and Hindustan Petroleum Corporation Limited (HPCL).
The directive further restricts refiners and petrochemical producers from diverting these streams into downstream chemical production, except for limited quantities allocated to critical sectors as determined by the Centre for High Technology (CHT).
All LPG generated under this mandate must be supplied strictly for domestic household consumption, reinforcing the government’s priority to ensure uninterrupted cooking fuel availability across the country.
Impact on petrochemical sector
The order is expected to have a significant impact on petrochemical producers, as C3 and C4 streams serve as key feedstocks for several downstream products, including polypropylene (PP), polyethylene (PE), and other derivatives.
By mandating the diversion of these streams toward LPG production, the availability of critical petrochemical feedstocks is likely to tighten. This could lead to reduced operating rates at petrochemical units, particularly those dependent on refinery-linked feedstock integration.
Producers may face constraints in maintaining output levels of key polymers and intermediates, potentially resulting in supply tightness across domestic markets. The restriction on feedstock usage could also increase reliance on alternative or imported raw materials, raising production costs.
In addition, the limitation on converting these streams into higher-value derivatives may impact margins for integrated refining and petrochemical players, as they are forced to prioritize regulated LPG output over more profitable chemical production.
Policy linkage with import duty cut
Market participants believe this development may also be linked to the recent government decision to reduce import duty on key polymers from 7.5% to zero for a temporary period. The duty cut could act as a balancing measure to offset the expected domestic supply tightness caused by feedstock diversion toward LPG production, ensuring adequate availability in the market.
Regulatory enforcement and duration
The government has stated that any violation of the order will invite action under the Essential Commodities Act and the Petroleum Products (Maintenance of Production, Storage and Supply) Order, 1999, along with other applicable laws.
This directive supersedes the earlier order dated March 9, 2026, and has come into immediate effect. It will remain in force until further notice.
The move highlights the government’s focus on energy security, while also signaling a structural shift in feedstock allocation that could reshape short-term dynamics across India’s petrochemical value chain.
Stay ahead of market trends with the Credco app. For any queries, please reach out via WhatsApp at +91 8448083211.
Issued by the Ministry of Petroleum and Natural Gas under the Essential Commodities Act, 1955, the order mandates that all C3 and C4 streams—including propane, butane, propylene, and butenes—produced, recovered, or available within refinery and petrochemical operations must be fully directed toward LPG production. These volumes are to be supplied exclusively to public sector oil marketing companies—Indian Oil Corporation (IOCL), Bharat Petroleum Corporation Limited (BPCL), and Hindustan Petroleum Corporation Limited (HPCL).
The directive further restricts refiners and petrochemical producers from diverting these streams into downstream chemical production, except for limited quantities allocated to critical sectors as determined by the Centre for High Technology (CHT).
All LPG generated under this mandate must be supplied strictly for domestic household consumption, reinforcing the government’s priority to ensure uninterrupted cooking fuel availability across the country.
Impact on petrochemical sector
The order is expected to have a significant impact on petrochemical producers, as C3 and C4 streams serve as key feedstocks for several downstream products, including polypropylene (PP), polyethylene (PE), and other derivatives.
By mandating the diversion of these streams toward LPG production, the availability of critical petrochemical feedstocks is likely to tighten. This could lead to reduced operating rates at petrochemical units, particularly those dependent on refinery-linked feedstock integration.
Producers may face constraints in maintaining output levels of key polymers and intermediates, potentially resulting in supply tightness across domestic markets. The restriction on feedstock usage could also increase reliance on alternative or imported raw materials, raising production costs.
In addition, the limitation on converting these streams into higher-value derivatives may impact margins for integrated refining and petrochemical players, as they are forced to prioritize regulated LPG output over more profitable chemical production.
Policy linkage with import duty cut
Market participants believe this development may also be linked to the recent government decision to reduce import duty on key polymers from 7.5% to zero for a temporary period. The duty cut could act as a balancing measure to offset the expected domestic supply tightness caused by feedstock diversion toward LPG production, ensuring adequate availability in the market.
Regulatory enforcement and duration
The government has stated that any violation of the order will invite action under the Essential Commodities Act and the Petroleum Products (Maintenance of Production, Storage and Supply) Order, 1999, along with other applicable laws.
This directive supersedes the earlier order dated March 9, 2026, and has come into immediate effect. It will remain in force until further notice.
The move highlights the government’s focus on energy security, while also signaling a structural shift in feedstock allocation that could reshape short-term dynamics across India’s petrochemical value chain.
Stay ahead of market trends with the Credco app. For any queries, please reach out via WhatsApp at +91 8448083211.