In a strategic move driven by evolving global trade dynamics, the Abu Dhabi National Oil Company (ADNOC) is set to begin replacing part of its liquefied petroleum gas (LPG) supplies to India with cheaper cargoes sourced from the United States, starting June 2025, according to industry sources. This shift comes in response to increased LPG prices in China after steep tariffs were imposed on U.S. imports by Beijing, leading to a re-routing of global supply chains.

India’s Heavy Reliance on Middle Eastern LPG Imports

India stands as the second-largest importer of LPG globally, relying on over 80% of its LPG demand from Middle Eastern nations including Saudi Arabia, the UAE, Qatar, and Kuwait under long-term annual supply contracts. The move by ADNOC is expected to ease India’s import costs and offer better pricing advantages, especially at a time when LPG demand remains robust due to its critical role in domestic household consumption.

Why the Shift? China’s Tariffs on U.S. LPG Spark Trade Rerouting

The U.S.-China trade conflict, which has seen China levy high tariffs on American goods, has created a significant price gap between U.S. and Middle Eastern LPG supplies. As a result, Chinese buyers have started paying premiums for non-U.S. cargoes, pushing Middle Eastern producers like ADNOC to redirect more of their premium-priced LPG to China. This frees up cheaper U.S. cargoes for customers like India, creating a mutually beneficial adjustment in trade routes.

Indian Refiners Request U.S. LPG Swap

Earlier in April 2025, Indian refiners — including Indian Oil Corporation (IOC), Bharat Petroleum Corporation Ltd (BPCL), and Hindustan Petroleum Corporation Ltd (HPCL) — made a rare and strategic request to their Middle Eastern suppliers, asking for a portion of their term LPG supplies to be replaced with U.S. cargoes. Importantly, these refiners requested that U.S. supplies be delivered at a discount to the Saudi Contract Price (CP), which is considered the benchmark for Middle Eastern LPG pricing.

In response, ADNOC, through its trading arms, has agreed to supply some U.S. LPG shipments to Indian refiners under their existing annual supply contracts, starting in June and July 2025.

Butane vs Propane: India’s Unique LPG Blend Requirements

Analysts highlight a critical point: India’s LPG usage pattern is heavily domestic, with cooking fuel being the primary use case. This means that the country requires LPG with a higher butane content, as butane is better suited for domestic cylinder usage due to its higher energy density and safety profile.

As June Goh, analyst at Sparta Commodities, explained, “Unlike China, India's consumption of LPG is mainly for domestic use and requires a higher percentage of butane in the blend.” Therefore, India stands to benefit only partially from U.S. cargo diversions, as many U.S. LPG shipments are rich in propane. Consequently, not all of India’s import needs can be met with U.S. LPG, as complete substitution is not feasible.

Implications for ADNOC and India

This shift is a win-win strategy for both parties. For ADNOC, it opens up more high-margin opportunities in China, while for India, it reduces the LPG cost burden, especially important given the country’s increasing LPG consumption. According to government data, India imported nearly 60% of its total LPG consumption in the financial year 2023-24, totaling 29.66 million metric tons.

Moreover, this move reflects the flexibility ADNOC brings into its long-term supply contracts, demonstrating adaptability to global market conditions and buyer needs.

The Bigger Picture: LPG Trade Realignment

The agreement also underscores a larger realignment of LPG trade across the globe:

• China, which was previously a major recipient of U.S. LPG, has significantly reduced such imports due to tariff barriers, creating an opportunity for Middle Eastern producers.

• India, on the other hand, has seized the opportunity by negotiating U.S. cargoes at lower rates, ensuring a reduction in import bills while maintaining household energy security.

• LPG price gaps between U.S. supplies and Saudi CP benchmarks are now large enough to justify swaps, even after considering longer shipping routes and transportation costs.

Industry Responses and Next Steps

Although official statements from ADNOC or Indian refiners like IOC, BPCL, and HPCL have not been issued in response to media queries, the market expectation is that this practice could become a recurring strategy in response to global price disparities.

Meanwhile, industry players are watching closely to see how this move affects pricing benchmarks, particularly Saudi CP, and whether other Middle Eastern suppliers like Saudi Aramco or QP will follow suit in offering more flexible supply arrangements.

Challenges Ahead

While the current strategy is beneficial, there are challenges:

• Logistical bottlenecks associated with longer delivery times from the U.S.

• Storage and blending capabilities in India need to accommodate varied LPG compositions.

• Currency volatility and shipping insurance premiums may impact the cost advantages of these swaps.

However, given the global LPG oversupply and intensified competition, such trade flexibility is likely to become the new norm, especially in emerging markets like India, where energy security and affordability are top priorities.

Conclusion

The decision by ADNOC to supply U.S. LPG cargoes to India from June 2025 marks a major milestone in the global LPG trade. It highlights how geopolitical factors like tariffs can lead to supply chain restructuring that benefits price-sensitive economies like India. While technical limitations around LPG composition may prevent full substitution, the move opens up new avenues for trade innovation, cost savings, and greater energy security for one of the world’s largest LPG consumers.

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