The Centre has announced a major policy shift on LPG supply immediately after the ceasefire between the United States and Iran, amid concerns over tightening availability. The government has introduced a revised allocation formula to manage distribution more efficiently. The move is aimed at balancing demand across sectors while ensuring priority supply where alternatives such as natural gas are not viable, signalling a more controlled and reform-linked approach to fuel distribution.
New LPG Allocation Formula
Under the revised framework, the government has already allocated 70 per cent of packed non-domestic LPG supply to states. An additional 10 per cent quota will be granted to states that implement reforms linked to PNG (piped natural gas) infrastructure expansion. In essence, states that actively scale up gas pipeline networks will receive higher LPG allocations.
For industrial users, the Centre has capped supply at 70 per cent of their consumption levels prior to March 2026. This applies across a wide range of sectors, including pharmaceuticals, food processing, polymers, agriculture, packaging, paints, metals, ceramics, glass and steel. The broader objective is to ensure equitable distribution while nudging industries towards cleaner and more sustainable alternatives like natural gas.
Priority Supply & State Directives
A daily supply cap of 0.2 TMT has been set for the entire industrial sector. Within this limit, priority will be given to units where LPG cannot be substituted with natural gas due to technical constraints. Industries are also required to register with oil marketing companies (OMCs) and apply for PNG connections through city gas distribution (CGD) firms. However, units where LPG is integral to the manufacturing process and cannot be replaced are exempt from the PNG application requirement.
The Centre has also issued three key directives to state governments. First, they must circulate the Natural Gas and Petroleum Products Distribution Order 2026 across all relevant departments. Second, states are urged to quickly leverage the additional 10 per cent reform-linked LPG allocation. Third, they are required to notify policies related to compressed biogas (CBG) at the earliest.
The policy marks a clear push towards optimising LPG usage while accelerating India’s transition to a gas-based economy.
