LPG price doubled in 7 years

  • The price of liquefied petroleum gas (LPG) for domestic consumption has increased by 41% or Rs 237.5 per cylinder in the last ten months. 
LPG
  • Liquefied petroleum gas (LPG) is a term widely used to describe a family of light hydrocarbon gases. 
  • The two most well known gases in this family are propane and butane. 
  • India’s LPG mix has a 60% share of butane and 40% share of propane.
  • Propane, which comes from natural gas processing and oil refining, is a flammable hydrocarbon gas that is liquefied through pressurization. 
  • It is commonly used for heating and cooking. 
  • Butane is also a flammable hydrocarbon gas that comes from natural gas processing and oil refining. 
  • It is more commonly used as a fuel, propellant and refrigerant.
  • Propane has a boiling temperature of -42°C, whilst butane has a higher boiling point at -2°C.

CALCULATION OF PRICE

  • The price of LPG is decided based on an import parity price (IPP) formula, which is based on international product prices. 
  • Saudi Aramco’s contract prices are considered a benchmark for this calculation. 
  • The IPP formula includes Saudi Aramco’s LPG prices, free-onboard price, ocean freight charges, customs duties and port dues.
  • Local freight charges, bottling charges, marketing costs, margins for OMCs, dealer commissions and Goods and Services Tax are also factored in before determining the final LPG retail price in India. 
  • In addition, currency fluctuations also affect prices. 
  • It is because of this weightage of international prices that the government points to the rise in global prices as the major reason for the spike in Indian rates.
WHY RICE IN PRICES?
  • There was a 171% increase in propane and a 148% increase in butane prices since May 2020.
  • This led to increase in prices of LPG.
  • Also, the government had eliminated the subsidy on LPG when international prices dipped owing to the COVID-19 pandemic

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