India may introduce a levy on cooking gas and natural gas users to help finance a proposed $42 billion strategic fuel reserve, according to media reports given by two sources with direct knowledge of the plan, following supply chain disruptions caused by the Iran war that revealed vulnerabilities in the system.
According to the two sources, the proposal would, for the first time, broaden India’s strategic reserves beyond crude oil, creating stockpiles sufficient to meet roughly two months of crude and liquefied natural gas demand, as well as about six weeks of liquefied petroleum gas, or cooking gas, consumption.
According to the two sources, the plan would fund cooking and natural gas storage infrastructure through user levies, which could generate roughly $1.5 billion each year.
India's Ministry of Petroleum and Natural Gas is weighing the introduction of a levy of 1.29 Indian rupees ($0.0136) per kilogram of LPG, which, according to sources, estimated to generate roughly $460 million annually at current usage levels and increase the price of a standard household cooking gas cylinder by about 18 rupees.
For natural gas, the ministry has proposed a levy of 1.43 rupees per standard cubic meter, generating about $1 billion annually at current consumption levels, the sources said.
It remained uncertain at first how the levies would be collected.
According to the sources, the revenue would mainly be used to develop storage facilities for natural gas and cooking gas, while crude reserves and strategic fuel stockpiles would still be funded by the union government.
The sources, who requested to remain anonymous, said the proposal is still under discussion among various ministries and has not yet obtained final approval from Prime Minister Narendra Modi’s cabinet.
The proposed levies would add about 2% to household gas bills, the sources said. This would be a politically sensitive move for Modi's government as it raises the costs for millions of consumers amid elevated fuel prices.
The funding mechanism, including the proposed levies on cooking and natural gas consumption, has not previously been reported.
The Ministry of Petroleum and Ministry of Finance did not respond to requests for comment sent by Reuters on Tuesday.
According to the two sources, the decade-long strategic reserve program will cost around $42 billion, with over half allocated to constructing storage facilities and the rest designated for filling the reserves.
According to the government, India will require an extra 28 million metric tons of crude oil storage capacity, along with 9 million tons of LNG storage and 4 million tons of LPG storage, over the next decade.
According to the sources, the plan was formulated after supply disruptions tied to the Middle East crisis increased import costs and underscored India’s reliance on imported fuel.
India is the world's third-largest oil importer and consumer and buys nearly 90% of its crude from overseas, which heavily exposed it to the turmoil from the U.S.-Israeli war on Iran and subsequent disruptions in the Strait of Hormuz, a key route for oil and gas shipments from Gulf producers to global markets.
