India's Kharif Fertilizer Stock Secured, But LNG Costs Drive Up Subsidy Bill

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AuthorAarav Shah|Published at:
India's Kharif Fertilizer Stock Secured, But LNG Costs Drive Up Subsidy Bill
Overview

India has secured ample fertilizer stocks for the upcoming Kharif season, surpassing last year's levels. But high prices for spot-market LNG, used to keep supplies flowing amid global surges, are expected to significantly inflate the government's fertilizer subsidy bill. This puts pressure on budget projections, even as India diversifies sourcing to maintain farmer prices.

Plenty of Fertilizer for Kharif Season

India needs an estimated 390 lakh tonnes of fertilizer for the upcoming Kharif season, up from the 361 lakh tonnes used last year. Proactive efforts have built up current reserves to 180 lakh tonnes, well above the 147 lakh tonnes available at this time last year.

Soaring LNG Prices Drive Subsidy Bill Fears

Natural gas supply to fertilizer plants has risen to 75-80%, recovering from a 60% dip during the West Asia conflict. This recovery relies on additional Liquefied Natural Gas (LNG) procured from the spot market at significantly higher prices. Recent LNG was acquired at around $19.5 per million British thermal units (mBtu) – up nearly 70% from the $11-12 mBtu seen before the conflict. This strategy risks significantly inflating the government's fertilizer subsidy bill.

Higher Subsidy Costs Strain Government Budget

Revised estimates for 2025-26 peg the fertilizer subsidy at ₹1.86 lakh crore, up from the initial budget forecast of ₹1.68 lakh crore. The government recently sought parliamentary approval for an extra ₹19,230 crore in fertilizer subsidy for the current fiscal year. The total payout could climb higher in the coming years, affected by the geopolitical situation and rising input costs like LNG, ammonia, and sulphur.

Domestic Production Rebounds

Domestic urea production initially dipped by 30,000 to 35,000 tonnes per day due to shifts in gas allocation priorities. However, recovery efforts are now underway. With more LNG sourced from the spot market, urea production has increased by 12,000–15,000 tonnes per day. Currently, 27 plants are receiving natural gas, and others are resuming operations after maintenance.

India Seeks New Fertilizer Suppliers

The government is actively diversifying its fertilizer sources beyond traditional West Asian suppliers, who provide 20-30% of urea and DAP imports. A global tender for 13.07 lakh tonnes of urea has been issued, and long-term supply agreements are being secured with countries like Saudi Arabia and Oman. Sourcing efforts are also extending to Russia, Morocco, Australia, and other nations.

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