Key facts
- India is considering new levies on liquefied petroleum gas (LPG) and natural gas.
- The proposed levies are intended to fund a $42 billion strategic fuel reserve program.
- The plan aims to raise about $1.5 billion annually through these taxes.
- New storage capacity for crude oil, LNG, and LPG is planned over the next decade.
- The proposal could increase household gas bills by approximately 2%.
India is reportedly exploring a new funding mechanism for its ambitious $42 billion strategic fuel reserve program, which could involve imposing levies on liquefied petroleum gas (LPG) and natural gas consumption. This initiative aims to finance the construction of new storage infrastructure for these fuels, alongside additional crude oil reserves.
According to reports, the proposed levies could generate approximately $1.5 billion annually. Specifically, a 1.29 rupees per kilogram tax on LPG is expected to yield around $460 million per year, while a 1.43 rupees per standard cubic meter tax on natural gas could raise about $1 billion annually. These funds would primarily be allocated to building dedicated storage facilities for LNG and LPG.
The decade-long program envisions creating stockpiles sufficient to cover roughly two months of crude oil and LNG demand, and about six weeks of LPG consumption. This contrasts sharply with India's current emergency fuel reserves, which cover less than 10 days of demand, significantly less than the approximately 100 days maintained by countries like Japan and South Korea.
While the proposed levies could increase household gas bills by about 2%, making the plan politically sensitive for Prime Minister Narendra Modi's government, India has a precedent for implementing significant fuel subsidy and pricing reforms. The government estimates a need for an additional 28 million metric tons of crude oil storage, 9 million metric tons of LNG storage, and 4 million metric tons of LPG storage over the next ten years. A substantial portion of the $42 billion cost is earmarked for building this storage infrastructure, with the remainder for fuel acquisition.