Economics and chemistry of India's fuel shock | Number Theory

The real impact of the shock will be determined by the economic chemistry of hydrocarbons and second order economic effects of the disruption because of the war

Economists are busy calculating the terms of trade shock of the ongoing war in West Asia on India. The non-economists are worried about restaurants and houses running out cooking gas. The real impact of the shock will be determined by the economic chemistry of hydrocarbons and second order economic effects of the disruption because of the war. Here are some data points which put things in perspective.

ANI photo

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  Methane powered kitchens might be more immune to a supply shock than propane-butane kitchens

  Petroleum ministry data shows that there were 329.7 million active domestic Liquefied Petroleum Gas (LPG) connections in India as on 1 April 2025. The number of domestic Piped Natural Gas (PNG) connections was just about 16 million at the end of 2025. While both PNG and LPG are used for cooking, the former is primarily methane while the latter is liquefied mixture of propane and butane. What makes LPG more useful compared to PNG is that it can be liquefied in high pressure cylinders and therefore supplied to kitchens without gas pipelines (liquefying natural gas requires sub-zero temperatures irrespective of pressure). Import and consumption data from the Petroleum Planning and Analysis Cell (PPAC) of the Ministry of Petroleum and Natural Gas shows that over 60% of LPG in India is imported compared to around 50% of natural gas, making the latter somewhat more immune to war-driven supply shock. To be sure, part of the panic might have been created by the government deciding to ration commercial LPG which might have had a very small share in total consumption. A basic simulation of average consumption and production of LPG data for 2023-24 (latest data for which both numbers are available) shows that domestic production can meet 43% of demand if there are no LPG exports. This means that an increase in current orders to 1.43 times their usual levels can decrease stock to zero. Even this, however, must be read with the fact that even domestic LPG production requires either crude oil or natural gas. Almost 90% of the former and around half of the latter is imported by India.
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  The supply shock is more serious beyond the cabinet’s kitchen concerns

  The union government on Tuesday issued an order invoking the Essential Commodities Act prioritizing gas supplies for domestic use and transport even as it said industrial use supplies including those for fertilizers will be rationed subject to operational availability. Petroleum ministry’s own data shows that this basically means natural gas supplies are being curtailed for majority of the users in the country as City Gas Distribution (CGD) – serving kitchens or CNG pumps – is just about a quarter of the total natural gas consumption in the Indian economy. Fertilizers alone consume more natural gas than CGD in the country. And this should be a cause for concern because imports are a relatively smaller share of fertilizer consumption in India. If the supply of a critical input such as natural gas is withheld, domestic production might see a big decline and have an adverse impact on agricultural production.
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  Had it not been for coal, India would be in more trouble

  What makes India relatively more immune to an oil and gas supply disruption is the fact that it does not use oil and gas for heating houses (such as in most OECD countries) and even generating power. This is what makes countries in Europe and North America much more vulnerable to economic shocks due to supply shocks in natural gas and oil, with more than half of their primary energy supply met through these sources. For India, this proportion is less than one-third. Coal, a dirtier hydrocarbon than oil and gas, continues to be the most important source of both energy supply and power generation. For example, as of January 2026, gas and diesel accounted for only 4% of installed capacity, while coal and non-fossil sources accounted for 44% and 52%. While there are valid concerns about coal being a dirty fuel and contributing to global warming and the climate crisis, the choice between a coal powered economy and no-power economy ought to be a non-brainer.