New Delhi: The drop in compressed natural gas (CNG) prices, following the central government’s approval for a new natural gas pricing mechanism earlier this month, is expected to drive greater adoption of CNG-powered passenger vehicles in India.
According to a report by rating agency ICRA, CNG will emerge as the second most popular powertrain over the near to medium term, with its penetration in the passenger vehicle segment expected to rise to nearly 18 per cent by 2027 from 11 per cent in 2022.
The Cabinet Committee on Economic Affairs approved a new domestic natural gas pricing plan on 6 April. The Union Cabinet, chaired by Prime Minister Narendra Modi, also set a price ceiling for gas produced from ONGC and Oil India Limited’s nomination blocks.
According to ICRA, the revised structure has led to a reduction the in price of compressed natural gas (CNG) by up to 10 per cent across cities. It will also limit price increases going forward.
Following the decision, the price of CNG has declined 9.2 per cent in Mumbai to Rs 79 per kg from Rs 87 per kg. The price in Delhi fell by 7.5 per cent to Rs 73.6 per kg from Rs 79.6 per kg, while in Bengaluru, the price fell by 7.3 per cent to Rs 83.5 per kg from Rs 89.5 per kg.
This came after a series of price hikes in the past year. According to ICRA, for example, CNG prices in Delhi had increased to nearly Rs 80 per kg in April this year from just under Rs 72 per kg in the same month last year.
“Over the past year, there had been a spurt in the price of CNG, led primarily by the hike in prevalent natural gas price; factors such as increase in blending cost and depreciation of the Indian rupee also contributed to multiple price hikes,” ICRA said in a report shared with ThePrint.
Shamsher Dewan, senior vice-president & group head, corporate ratings, ICRA Ltd, said in the report, “The new gas pricing policy has led to CNG prices declining to levels seen nearly a year ago, thereby providing relief to the consumers. Rising gas prices slowed down the adoption of CNG powertrains in H2 CY2022, led by a decline in the running cost differential between petrol and CNG powertrains and a consequent increase in the payback period for the latter.”
The total sales of CNG vehicles in the country grew from about 59,000 units in 2015-16 to 73,000 units in 2016-17. It further grew to 76,000 units in 2017-18 then touched 1,15,000 units in 2018-29, 1,11,000 units in 2019-20, 1,63,000 units in 2020-21 and 2,64,000 units in 2021-22.
For 2022, the sales stood at 4,21,000 units, according to data shared by ICRA with ThePrint.
“A decline in CNG prices has led to a reduction in the total cost of ownership for the powertrain and is likely to aid adoption for the same going forward; ICRA estimates CNG powertrain penetration to increase to levels of ~18 per cent by CY2027, from ~11 per cent in CY2022,” Dewan added.
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Growing demand for CNG vehicles
With the new pricing kicking in, the total cost of ownership for CNG vehicles is expected to be 10-15 per cent lower than for a similar petrol-powered vehicle.
ICRA report said that despite a higher upfront cost of vehicle acquisition — CNG vehicles are estimated to cost about Rs 90,000 more on average than their petrol counterparts — lower running costs, superior mileage and a significantly lower total cost of ownership will drive the demand for these vehicles.
The country’s largest carmaker, Maruti Suzuki, in 2010 was the first player to announce a CNG powertrain with five models, including SX4, Eeco, WagonR, Estilo and Alto, to be available in Delhi-NCR, Mumbai, and Gujarat.
The company sold 3,30,719 CNG vehicles in 2022-23, up from 74,000 such vehicles in 2016-17.
“High prices of gasoline and diesel have led to the growth of CNG. For petrol and diesel, the running cost for a vehicle is about Rs 4.80-Rs 5.20 per kilometre, whereas for CNG, it is Rs 2.8/km. So there is a difference in the running cost,” Shashank Srivastava, senior executive director (marketing and sales), Maruti Suzuki, told ThePrint.
The second big reason for growing demand for CNG vehicles in the country, he said, was the rise in the number of CNG dispensing stations.
While the number of CNG stations in the country in 2016-17 stood at 1,233, it grew to 1,424 in 2017-18. The number further rose to 1,730 stations in 2018-19, 2,207 in 2019-20, 3101 in 2020-2021, 4,433 in 2021-22. In 2022-23 (till February 2023), the number stands at 5,118.
ICRA, too, noted that CNG fuelling infrastructure has been improving apace across the country, with more fuel availability in tier-II cities. The government, it said, has set an aggressive target of setting up 17,700 fuelling stations by 2030, which will also aid the demand for CNG powertrains.
“The consumer earlier was thinking in terms of waiting time at the CNG pump, which is now not an issue. The number of cities covered with CNG has also increased. With the increase in the number of cities, the penetration of CNG has also increased,” Srivastava added.
Maruti currently sells 14 CNG models, including Swift, Dzire, Alto, Ertiga, WagonR, XL6, Baleno and Brezza.
According to ICRA, at the end of 2022, Maruti cornered 74 per cent of the CNG powertrain market, followed by Hyundai (15 per cent) and Tata Motors (11 per cent). Hyundai, it noted, offers CNG in two models — Grand i10 and Aura — while Tata Motors has Tiago and Tigor.
Srivastava said that the cities leading in CNG car sales include Delhi, Mumbai, Pune and Ahmedabad, while state wise, sales in Maharashtra are the highest, followed by Gujarat, Haryana, Delhi, and Karnataka.
Asked about the mileage, he said, if the industry average of a petrol car is 20 km/ltr, a corresponding CNG vehicle will give 28 km/kg.
“For example, Alto K10 petrol gives a mileage of 24.39 km/l, while the CNG variant offers 33.85 km/kg. CNG is also a cleaner fuel. CNG cars emit zero particulate matter and less CO2/km by around 20-25 per cent compared to corresponding petrol vehicles,” he said.
‘More efficient, safer than other fuels’
CNG is natural gas that has been placed under pressure and is clear, odourless, and non-corrosive. The main element of the fuel is methane, which when combined with air in the combustion chamber of the engine produces energy to drive the vehicle.
According Rohan Kanwar Gupta, vice-president & sector head, corporate ratings, ICRA Ltd, “CNG is more efficient, cost-effective, and eco-friendly than conventional fuels like petrol and diesel. This is because CNG burns more cleanly, leaves no residue, and is safer than other fuels.”
According to the ICRA report, the proportion of CNG, EVs and hybrids is likely to materially increase as a proportion of new vehicle sales over the next three-four years.
CNG powertrains accounted for 2.4 per cent of the passenger vehicles market in 2016-17. This grew to 6 per cent in 2020-21 and 8.6 per cent in 2021-22.
According to ICRA, CNG vehicles accounted for 11.1 per cent of the market in the first half of 2022 (January-June), declining slightly in the second half to 10.9 per cent due to increasing CNG prices.
By 2027, the research agency expects the contribution of petrol vehicles to the passenger vehicle market to go down to 58 per cent from 68 per cent in 2022, while diesel vehicles will comprise 9 per cent of the market (down from 19 per cent).
Electric and hybrid vehicles will account for 9 per cent of the segment (up from 2 per cent). The CNG vehicle contribution will increase to 18 per cent in 2027 from 11 per cent in 2022, making it the second most popular powertrain.
“Given the increasing popularity of the CNG variants, the leading OEMs (original equipment manufacturers) have been increasing coverage of CNG across their product portfolio…The growth in penetration for these powertrains would also help the OEMs reduce their carbon footprint with a view to meeting the Corporate Average Fuel Economy (CAFÉ) norms,” ICRA said. CAFE norms are primarily aimed at improving fuel efficiency of vehicles by lowering overall carbon dioxide (CO2) emissions.
(Edited by Richa Mishra)
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