India’s NGVs gather pace [NGW Magazine]
On March 25, India imposed a near complete lockdown to stop the spread of coronavirus (Covid-19) which halted almost all non-essential transport and economic activity. This also hit the country’s city gas distribution (CGD) industry and natural gas vehicles (NGVs).
This in turn hit demand for compressed natural gas (CNG) and the month of April saw zero vehicle sales in India -- a record, of sorts. The past few weeks have seen some easing of the lockdown, but even if the restriction on movement is fully lifted, the NGV sector may take some time to get under way once more. However the omens are good in the longer term.
India’s commercial passenger transportation business -- comprising mainly taxis, buses and rickshaws – is the country’s biggest user of CNG. With social distancing norms in place, and general fear among people about the infection, demand for shared mobility is expected to remain subdued. The lockdown has also seen a mass movement of migrants -- which include bus, taxi and rickshaw drivers – from cities to the countryside. And they are not expected to return until normality is restored.
“Taxis, both regular and application-based, are big users of CNG. But people may not be so enthusiastic to start using taxis yet because of the fear of contracting Covid-19. Also, there will not be many drivers available for a while. I expect the shared mobility sector to contract, at least in the near future,” the executive director (technical) at the Society of Indian Automobiles Manufacturers PK Banerjee told a webinar organised by Messe Frankfurt.
The demand for NGVs for personal transport is also likely to fall. The buying power of a large section of the population will decline this year with India’s gross domestic product growth rate. Analysts are expecting India’s economy even to shrink during the year to March 31, 2021, for the first time since the late 1970s.
“Reduced mobility and lower disposable income will cut current as well as near-term demand for CNG vehicles,” Indian Oil-Adani Gas COO Bhashit Dholakia told the same webinar.
Hit on gas sales volumes
When India announced the lockdown in late March, analysts, while projecting gas sales volume drop, were factoring in a one-month lockdown. However, with Covid-19 positive cases on an upswing, and lockdown extended, they had to cut sales volume projections again.
Mumbai-based brokerage Motilal Oswal in a recent report cut its April ‘20-March ‘21 gas sales forecast of two of India’s biggest city gas companies: Delhi-focused Indraprastha Gas (IGL) and Mumbai-focused Mahanagar Gas (MGL). Delhi and Mumbai are severely affected by the Covid-19 outbreak and categorised by the government of India as ‘red’ zones. CNG accounts for more than three quarters of the sales volume of both IGL and MGL.
“Owing to the extension of the lockdown, we have revised our model for CNG volume destruction for the two months of April and May (versus only April earlier). Mumbai and Delhi are the prime ‘red’ zones, and thus, we believe that revival in the core segment (CNG) for respective CGDs would be slower than expected,” Motilal said.
With a two-month lockdown, the brokerage expects IGL’s gas sales volume to be 6.4mn m3/day as against one-month lockdown forecast of 6.9mn m3/day. MGL’s sales volume is likely to be 2.7mn m3/day versus 3mn m3/day, Motilal said.
Long-term outlook still remains robust
Although Covid-19 has created uncertainties for the Indian NGV industry, stakeholders believe the longer-term outlook remains robust. India’s largest automobile maker Maruti Suzuki continues to see a huge potential in the sector and plans to expand its portfolio of CNG models.
“Many original equipment manufacturers have started to launch lots of CNG variants. Also, CNG prices vis-a-vis other liquid fuels are very attractive. Covid-19 has impacted the industry severely but CNG sector has very promising future,” Anmol Mathur, project lead, powertrain technologies at Maruti Suzuki told the Messe Frankfurt webinar.
Mathur said that one of Maruti Suzuki’s best-selling CNG passenger cars, Wagon R, has a 50% better fuel efficiency than those running on liquid fuel. Calculations done by Motilal confirms Mathur’s claims that CNG vehicles have far lower running costs. According to the brokerage, in India, CNG offers 168% savings when compared with diesel; 104% versus petrol; and 11% vis-a-vis auto liquid petroleum gas.
Recent policy change too will have a positive impact on the sector. The Bharat stage-6 (BS-6) emission norms took effect April 1, 2020. According to Mathur, this development may cut the share of diesel passenger vehicles in the overall market to the benefit of CNG vehicles. “There is a very compelling case for CNG in India. Maruti Suzuki now sees CNG as a mainstream fuel,” Mathur said.
Bharat stage emission standards (BSES) are state-set emission standards to regulate the output of air pollutants from compression ignition engines and spark-ignition engines. These standards draw on European regulations and run from BS3 to BS6 in ascending order of severity.
Under BS6 rules, nitrogen oxide emissions are a quarter lower in petrol engines and 68% lower in diesel engines. Similarly, particulate matter emissions drop by 80% in diesel engines.
Investment in gas infrastructure is another long-term positive result for the sector. Mathur said the rising number of CNG stations in the country augured well. Last year, Indian petroleum and natural gas minister Dharmendra Pradhan said India would spend $60bn on gas infrastructure over the next few years and there will be 10,000 CNG stations in the next five years, five times today’s total.
Another factor acting as a tailwind for the sector is the low gas price. The recent demand destruction has led to a huge build-up of inventory and spot LNG prices have dropped sharply. Rising gas availability has led to increased flexibility in global LNG markets.
LNG as long-distance truck fuel
Although India’s NGV sector is dominated by CNG, there is a growing chorus about promoting LNG as transport fuel, especially for trucks on long-distance routes. During the Messe Frankfurt webinar, Banerjee said that LNG trucking needed a stimulus. “LNG makes a lot of sense for long-haul operations; for example, on the Mumbai-Delhi corridor,” he said.
Early in June, India’s downstream regulator Petroleum Natural Gas Regulatory Board (PNGRB) said that any entity could set up an LNG filling station in any geographical area. PNGRB issued this clarification as there was a regulatory confusion over this issue. This development could potentially provide a big boost to the sector.
The regulator said companies had asked it whether they could establish LNG filling stations and market the commodity or whether it was a monopoly right owned by the company authorised to develop a particular city or local gas distribution network. PNGRB said it had no powers to regulate the setting up of LNG filling stations.
The regulator said that PNGRB Act "has extensively covered CNG stations and even the mode of granting authorisation to an entity that is desirous of establishing or operating a city gas distribution network which is essential for establishing or setting up a CNG station. The act has therefore laid down a regulatory framework for CNG stations. However, the same is not provided for LNG stations.”
This clarification has been welcomed by companies in the gas business. India’s biggest LNG importer, Petronet LNG, said it opened up the way for the creation of robust LNG infrastructure. “Petronet stands with all stakeholders who are willing to establish the LNG dispensing stations,” it said on Twitter.
Earlier this year, Petronet invited companies to bid for turnkey contracts to design, build and commission LNG/LCNG filling stations. Petronet wants to construct five stations on the major highways. The company has already launched its first commercially registered LNG buses and LNG filling stations at its Dahej and Kochi LNG import terminals.
Mumbai-based H-Energy agreed, saying the clarification was a boon for its LNG retailing business and would trigger the construction of LNG filling stations. This would promote the substitution of diesel with LNG in the commercial vehicle sector, cutting pollution and the cost of road transportation in the country significantly.
The big companies pile in
H-Energy is developing a floating LNG import terminal at Jaigarh in the state of Maharashtra. It is also planning an onshore receiving terminal in the east Indian state of West Bengal.
“Switching heavy-duty vehicles to LNG can help reduce emissions from the transport sector. This step by PNGRB is in line with the government’s policy to promote green fuels like LNG, and will promote the participation of more players across the value chain starting from OEMs and the fleet operators to the LNG dispensing infrastructure,” Shell Energy India’s country head, Ashwani Dudeja, told NGW.
Earlier this year, Indian cryogenic liquid storage, distribution, and regasification solutions provider Inox India signed a memorandum of understanding with the Anglo-Dutch major to develop a market for LNG supply by road from the Shell-operated Hazira terminal in the state of Gujarat.
State-owned Gail, India biggest gas marketing and transportation company, is also in talks with all stakeholders – city gas distributors, gas suppliers, financiers, fleet owners and truck manufacturers – to get them on board and help build an ecosystem for LNG-fuelled vehicles in the country.
About 350 LNG filling stations will be needed to cover the full length of the golden quadrilateral highway, as per the initial plan, Economic Times reported earlier this year. About a fifth of the golden quadrilateral’s length falls in areas for which Gail and its joint venture units have licences. Gail is planning to build about 90 LNG stations, the newspaper reported.
Gail is also in talks with ExxonMobil and Mitsui, which can potentially partner as LNG suppliers as well as financiers for the initial lot of LNG trucks planned to hit Indian roads. The plan is to start off with at least 10,000 LNG trucks, most of which would be initially imported. At present, Indian cities have about 3.5mn CNG vehicles, but barely any run on LNG.