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GAIL (India) Ltd, the country's top gas supplier, plans to build a 400-billion rupee ($4.89 billion) ethane cracker near its liquefied natural gas (LNG) import plant in Western India, two sources with direct knowledge of the matter said, as it seeks to meet an expected surge in demand.

Indian companies are boosting their petrochemical production capacity as the expanding economy boosts the need for goods ranging from plastics to paints and adhesives. A cracker produces ethylene, required for products such as plastics.

Demand for petrochemicals could nearly triple by 2040, according to estimates by top refiner Indian Oil, forcing companies to make big investments to set up new facilities across the country.

GAIL is looking for land in the coastal region of Dabhol in Maharashtra state for the 1.5 million tonnes a year (mtpa) cracker project, one of the sources told Reuters. GAIL operates a 5 mtpa LNG plant at Dabhol.

The company plans to import ethane from the United States for the project, the source said.

GAIL's communications office did not immediately respond to a request for comment.

"We are trying to sort out challenges around acquiring land, most likely, in or around Dabhol ... we are hoping to receive financial support from the state government," the source said.

GAIL is also exploring the possibility to acquire land in Madhya Pradesh, which neighbours Maharashtra, if a deal in Dabhol doesn't materialise, the person said.

The proposed dual-feed cracker will also have capability to crack up to 40% liquefied petroleum gas (LPG), enabling the option to switch to less expensive feedstock to maximise margins.

India's per capita petrochemical consumption is about one-third of the global average. Asia's third-largest economy annually consumes 25 million to 30 million tonnes of petrochemicals.

($1 = 81.7800 Indian rupees)