Aug. 8 (Bloomberg) -- India will need to double imports of liquefied petroleum gas in the year starting April 2009 after Reliance Industries Ltd., operator of the world's third-biggest refinery, reduces domestic sales of the fuel.

Reliance plans to cut annual supplies by more than half to 1 million tons from March, said Gyan Chand Daga, director of marketing at Indian Oil Corp., which negotiates fuel purchases on behalf of state-run refiners. Reliance plans to produce alkylate, used to make cleaner gasoline, for export to the U.S. and Europe, he said. Reliance's spokesman Paresh Chaudhry declined to comment.

Indian refiners may bear a higher subsidy burden after imports increase because of price caps. Cooking gas is sold at 349.5 rupees a 14.2 kilogram bottle in Mumbai, or about $825 a metric ton. Saudi Aramco, the largest supplier of LPG to Asia, charges $860 a ton for propane and $890 a ton for butane, the two varieties of LPG.

``More LPG imports will obviously mean higher costs for government-owned refiners who are already earning lower than market rates for most fuels they sell,'' said Niraj Mansingka, an analyst with Edelweiss Capital Ltd. in Mumbai. ``This will certainly hurt their profits.''

Higher imports from Asia's third-biggest energy consumer may also push up global LPG prices. India, the world's second-fastest growing major economy, imports about 23 percent of the 12 million tons of LPG it needs, mainly from Saudi Arabia, Kuwait, the United Arab Emirates and Malaysia. Indian demand for the fuel is growing at about 7 percent annually.

Imports, Profit

``We'll need to increase LPG imports to meet demand in the country after availability from Reliance comes down,'' Daga said in a telephone interview today. ``We will have to increase our current imports of between 2.5 to 3 million tons.''

Indian Oil said profit fell 72 percent in the three months ended June after higher costs of crude oil couldn't be passed on to customers. Bharat Petroleum Corp., the nation's second-biggest refiner and Hindustan Petroleum Corp., the third-largest, both reported losses in the quarter.

Billionaire Mukesh Ambani's Reliance, which plans to start operating the world's biggest refinery complex this year, exports gasoline and diesel and sells LPG to domestic state-run refiners. Reliance may prefer to sell all its petroleum products overseas because of export incentives and the cap on domestic prices.

Mumbai-based Reliance group's petroleum unit expects to commission the new refinery at its Jamnagar complex by December. Completion of the refinery, in which Chevron Corp. owns 5 percent, will increase Reliance's ability to process crude oil to 1.24 million barrels per day, equivalent to about 2 percent of global capacity.

Complexity, Flexibility

The refinery has the scale, complexity and flexibility to supply any market that offers the highest price. It can process lower-cost, high-sulfur and heavy-crude grades into premium, low- sulfur fuels and ship them at lower transport costs because of its location close to the Arabian Peninsula, Bernstein Research said in a report in June.

Reliance may export gasoline and alkylate to the U.S. West Coast in summer and to Asia in the winter, while supplying low- sulfur, less-polluting diesel to Europe, the report said.

Alkylate is a gasoline-blending component that improves fuel quality and cuts emissions of carcinogenic hydrocarbons.

Some Indian states faced a shortage of LPG in January after transportation delays from Reliance's refinery in Jamnagar, junior oil minister Dinsha Patel said in parliament. The shortage was also caused by increased demand due to cold weather and panic buying amid concern that prices will rise, the minister said.

The cut in Reliance's LPG production comes after it shut down fuel stations that sold gasoline and diesel processed at the Jamnagar refinery. The government's decision to restrict fuel subsidy to state-run refiners was partly responsible for the closures, Ambani said in June.

The company sells ``small quantities'' of LPG directly to retail and commercial customers in western India, spokesman Chaudhry said. He didn't give details.

The Indian government caps fuel prices to control inflation that's at a 13-year high. State refiners are partially compensated for selling fuels below cost through government bonds and subsidy from government-owned oil explorers.

To contact the reporter on this story: Archana Chaudhary in Mumbai at achaudhary2@bloomberg.net.

Last Updated: August 8, 2008 03:27 EDT