In a move hailed as a "historic first," Indian public sector oil companies have finalized a structured contract to source Liquefied Petroleum Gas (LPG) from the United States. This landmark agreement marks a significant step in diversifying India's energy sources and strengthening its trade relationship with the US.

The deal, announced on Monday by Union Minister for Petroleum and Natural Gas Hardeep Singh Puri, involves a one-year contract for the import of approximately 2.2 million tonnes per annum (MTPA) of LPG from the US, commencing in 2026. This volume is projected to constitute roughly 10% of India's total annual LPG imports. The state-run oil marketing companies (OMCs) involved in the agreement include Indian Oil Corporation, Bharat Petroleum Corporation Ltd, and Hindustan Petroleum Corporation Ltd.

"A historic first! One of the largest and the world's fastest-growing LPG market opens up to the United States," Puri stated in a post on X. He further emphasized the government's commitment to providing secure and affordable LPG supplies to the people of India through diversified sourcing strategies.

India's reliance on LPG imports has been steadily increasing to meet the growing domestic demand for cooking gas. Over 90% of India's 20.5 million metric tons of LPG imports in 2024 originated from the Middle East. The new agreement with the US aims to reduce this dependence and enhance India's energy security.

The decision to source LPG from the US is driven by several factors, including the strategic alignment between the two countries, the desire to reduce the trade imbalance with the US, and favorable market dynamics. The two countries have set a target of $500 billion in bilateral trade by 2030. India has also committed to increasing energy purchases from the US.

The pricing for the LPG purchases will be based on the Mount Belvieu benchmark. A team of officials from Indian Oil, BPCL, and HPCL visited the US for discussions with major US producers, which led to the finalization of the agreement.

This agreement could have significant implications for global LPG trade. India's shift towards US LPG imports is expected to boost US exports, potentially moderate domestic prices in the US, and reshape shipping routes. It may also lead to changes in pricing and contract terms from traditional suppliers in the Middle East.

The move is seen as a strategic bet on energy diversification for India. For investors, the sector offers opportunities in US LPG export infrastructure, shipping firms, and infrastructure development in India's port modernization and terminal expansion.

While diversifying its LPG import sources, India continues to rely on Russia as a major crude oil supplier. However, the long-term LPG deal with the U.S. signals a commitment to strengthening energy ties with the United States.