In the past five years, the compressed natural gas (CNG) market in the country has grown at a CAGR of approximately 5.3 per cent. In 2021-22, the sale of CNG-powered passenger vehicles reached close to 0.26 million, a 52 per cent increase from 0.11 million vehicle sales in 2019-20. Delhi (30 per cent), Uttar Pradesh (13 per cent), Gujarat (29 per cent), Maharashtra (19 per cent) and Haryana (7 per cent) accounted for around 98 per cent of the vehicle sales in 2021-22.
During the same period, the fuel infrastructure has grown at a staggering rate of around 32 per cent. Despite the increase in natural gas prices, many original equipment manufacturers (OEMs) have continued to introduce more CNG gas models across passenger and commercial vehicle segments. Alternate sources of CNG in the form of bio-CNG are also gaining popularity. In addition, there is an overall supportive regulatory environment with favourable regulations and policies to accommodate the growth of the natural gas vehicle (NGV) segment.
Increasing NGV penetration
Natural gas consumption in India has been increasing steadily. Along with China, India is at the top in terms of share of transport in natural gas. The city gas distribution (CGD) network is expanding and so are the number of CNG stations. The 11th CGD round covered 208 districts, accounting for 26 per cent of the country’s population and 33 per cent of its area. As per the current approved plan, 96 per cent of the population and 86 per cent of the land area will be covered by the CGD networks. As per the minimum work programme that has been assigned by the Petroleum and Natural Gas Regulatory Board, 8,200 stations will come up in 8-10 years, which is around double the current 4,000 work stations. The expansion of the CGD network and increasing number of CNG stations is expected to encourage the proliferation of NGVs.
Upgrading the fuel infrastructure
In addition to CNG, liquefied natural gas (LNG) has a number of demand drivers. LNG is safer than CNG and diesel with a flammable tethering of 5-15 per cent. Upon leakage, LNG dissipates in the atmosphere, thereby reducing the fire risk. The emission factor of LNG is 25 per cent less than that of diesel. Moreover, the engines are quieter. Further, India has sufficient natural gas reserves to cater to the increased use of NGV vehicles. LNG has higher calorific value (12,950 kCal per kg) than diesel (10,900 kCal per kg) and is also 30-40 per cent cheaper. Being a cryogenic liquid, it has a temperature of -162°C, and can be considered theft-proof.
Petronet has announced plans to invest around Rs 187 billion in the next five years and set up around 1,000 LNG stations. Currently, it has two stations in the works and 20-25 stations in the pipeline over the next two years. It plans to rapidly scale to 1,000 stations at 3.5 million tonne per annum volume. Other PSUs such as Indian Oil Corporation Limited, Hindustan Petroleum Corporation Limited, Bharat Petroleum Corporation Limited and private players such as Shell also plan to set up LNG stations across India.
Enhanced consumer preference
With increased differential total cost of ownership (TCO) benefits compared to other fuels, CNG is gaining consumer preference post Bharat Stage Emission Standards 6 (BS-VI). The cost of acquisition is the most important factor determining the purchase decision. Petrol vehicles have the lowest cost of acquisition among all variants, and are considered the best in class. Acquiring diesel variants is 15-20 per cent more expensive than petrol vehicles, whereas the cost of acquisition of CNG vehicles is higher than that of petrol vehicles by 12-18 per cent. Moreover, the increased cost of diesel and petrol vehicles post BS-VI has resulted in better TCO for CNG vehicles. Lower fuel prices for natural gas in the short-to-mid term will also increase demand for CNG with improvement in fuel infrastructure.
Upcoming alternative sources of CNG
North Indian cities have the worst air quality compared to other cities, with annual stubble burning being one of the major contributors. During the peak stubble burning phase, crop burning accounts for over 48 per cent of Delhi’s air pollution. Punjab’s first stubble-based bio-CNG plant has collected 10,000 mt of stubble from neighbouring villages and will generate 33 mt of compressed bio-gas (CBG) per day. Bio-CNG provides an effective solution to environmental issues such as stubble burning. However, the uncertainty of biomass availability poses a challenge as it is not available throughout the year. Other challenges include the need to store agriculture residue for use outside of the harvesting period, delays in collection due to the lack of mechanisation in the Indian agriculture sector and fragmented land holdings. Further, the set-up involves multiple regulatory approvals, and the cost of setting up of one bio-CNG station with 10 tonne production capacity is more than Rs 300 million.
Biomethane helps curb the menace of stubble burning, along with reducing carbon emissions by 70 per cent as compared to CNG (29 per cent) and LNG (17 per cent). It helps in the reduction of import bills and provides nationwide availability of CNG. In addition, it produces organic manure as a by-product and creates additional income for farmers.
India’s bio-CNG generation potential, once fully realised, can meet the current natural gas demand of the country and can power 5.4 million additional vehicles. The government has launched various schemes in the past few years to promote biogas generation projects throughout the country. For instance, the sustainable alternative to the affordable transportation scheme encourages entrepreneurs to set up CBG plants, and produce and supply CBG to oil marketing companies for sale as automotive and industrial fuel, while the Gobardhan scheme aims to create cleaner villages through solid waste management and reduced environmental impact.
Supportive regulatory environment
The government is pushing for the adoption of natural gas and NGVs with major policy interventions. The centre has approved oil and gas projects worth Rs 1 trillion for the Northeast along with a 60 per cent capital grant (Rs 50 billion) for the Northeast Gas grid. CNG and LNG fuel systems are now a part of the 100 advanced technologies that will be covered under the production-linked incentives scheme. Incentives in the range of 8-13 per cent will be given to companies making CNG- or LNG-related auto components. NITI Aayog’s proposal to the government to end price curbs on natural gas will give complete freedom to producers to set up natural gas prices, boost natural gas production and attract new players in the market. However, this may also cause a surge in prices for CGD, power and fertiliser companies as the prices are market driven.
The government has introduced the draft LNG policy, which seeks to incentivise the truck fleet in the country to switch to LNG. It aims to raise the LNG regasification terminal capacity to 70 mt per year by 2030 from 40 mt at present. In addition, OEMs will be incentivised to manufacture LNG-based heavy vehicles and create ancillary manufacturing units through tax exemptions and green certifications.
Market opportunities
High volumes and favourable conditions in the Indian automotive market present an opportunity to promote the widespread adoption of NGVs in India. Growth drivers for the segment include established technology, large reserves of natural gas, high customer acceptance, and the possibility of easy mass adoption with retrofitment. With the growth of the supporting infrastructure, the NGV market has the potential to create new job opportunities, help small businesses and individuals as well as aid in forex savings.
Based on a presentation by Ashim Sharma, Partner and Group Head, Nomura Research Institute Consulting & Solutions India at a recent India Infrastructure conference