Indian Oil Corporation (IOC), India's largest refiner, is reportedly close to signing a significant long-term agreement with Algeria's state-owned energy company, Sonatrach, for the import of liquefied petroleum gas (LPG) beginning in 2027. This deal marks a pivotal step in India's broader strategy to enhance its energy security and diversify its global LPG supply base.
Diversifying India's Energy Supply
The proposed agreement is a direct response to India's efforts to reduce its heavy dependence on Middle Eastern suppliers for LPG. Recent disruptions around the Strait of Hormuz have highlighted the vulnerabilities of relying on a concentrated source, prompting concerns about the consistent availability of domestic LPG, a critical cooking fuel for millions of Indian households.
Under the terms of the new arrangement, Indian Oil is expected to procure one very large gas carrier (VLGC) of LPG each month from Sonatrach. This translates to an estimated 45,000 to 55,000 metric tonnes of LPG, comprising a mix of propane and butane, on a Free-On-Board (FOB) basis.
Renewed Partnership and Strategic Advantages
This upcoming deal signifies a renewed partnership between IOC and Sonatrach. While Indian Oil previously held a term agreement with the Algerian firm, it had shifted its focus to Middle Eastern suppliers in subsequent years. The re-engagement underscores India's proactive approach to widening its network of energy providers.
Sources indicate that Algerian LPG offers a competitive advantage, being priced below the Saudi Aramco Contract Price. This economic benefit, combined with the strategic imperative of diversification, makes the Sonatrach deal particularly attractive for India.
Broader Import Diversification Efforts
India has already begun to pivot its sourcing. The country commenced importing LPG from Algeria in June, with trade-flow data suggesting approximately 110,000 tonnes are expected in August alone. Beyond Algeria, India is also significantly increasing its purchases of US LPG, with plans to source as much as 25% of its total LPG imports from the United States by 2027.
Furthermore, India's three major state-owned fuel retailers—Indian Oil Corporation, Hindustan Petroleum Corporation, and Bharat Petroleum Corporation—are reportedly considering a joint tender to purchase LPG from the United States, further solidifying the country's diversified import strategy.
Ensuring Domestic LPG Availability
The diversification of LPG imports is crucial for India, as the fuel is widely used by households nationwide. Any disruption in imports can directly impact domestic supply and, consequently, millions of consumers. While strengthening its import resilience, India is also encouraging a gradual shift towards piped natural gas as a long-term measure to alleviate pressure on imported LPG supplies.
This strategic move gives Indian Oil another reliable source of seaborne LPG, strengthening the resilience of India's vital energy supply chain.