Over the last five years, India’s city gas distribution (CGD) infrastructure has invested 1.5 trillion. Besides supplying piped natural gas (PNG) for domestic and industrial purposes, the CGD network significantly distributes compressed natural gas (CNG vehicle) for transportation.
However, the CNG sector has experienced a topsy-turvy ride in recent years. Factors such as the pandemic, price rises triggered by geopolitical tensions like the Russia-Ukraine War, and a subsequent dip in demand contribute to the instability.
Furthermore, the European Union’s increased reliance on India’s traditional Gulf suppliers has further contributed to the fluctuating nature of the CNG market.
Despite these challenges, many stakeholders view CNG as an intermediate fuel to bridge the gap until the electric vehicle boom takes off.
CNG suppliers, OEMs, and consumers believe CNG will remain a long-term fuel of choice. The industry was boosted when the Cabinet Committee approved a new domestic gas pricing plan on April 6.
The domestic gas price is 10% of the average India basket crude price under this plan. The gas price must remain within a Cabinet-determined band of $4-6.5, applicable to gas produced by Oil and Natural Gas Corporation and Oil India.
This new policy has already yielded positive results, leading to a reduction of up to 10% in CNG prices across various cities. The decision made by the Cabinet Committee on Economic Affairs has given the CNG industry a fresh lease of life.
Consequently, CNG prices have become more affordable, benefitting suppliers and consumers. With this pricing shift, India’s CNG sector is poised for growth and stability. The substantial investment in CGD infrastructure and focus on CNG as a cleaner fuel promise a bright industry future.
Despite the challenges faced in recent years, the new pricing plan brings renewed optimism and stability to the CNG market. As a result, CNG continues to be a preferred choice for transportation, especially as a transitional fuel, before the widespread adoption of electric vehicles.
Despite Gas Prices Rise, CNG Vehicle Demand is Growing
According to a CARE Ratings report, India’s CNG vehicle industry has displayed remarkable resilience. This is even in the face of a substantial increase in global gas prices. Despite the rising gas prices, the industry has managed to withstand the challenges.
During the financial year 2023, sales volumes of CNG vehicles witnessed a significant surge of 40.7% compared to the previous year. This growth occurred despite a considerable 49% rise in average gas prices. The increase in global gas prices can be attributed to multiple factors.
These factors include the post-COVID-19 economic recovery and the ongoing Russia-Ukraine conflict.
Additionally, production decisions taken by major fuel producers have also contributed to the upward trend in gas prices. Notably, all categories of CNG vehicles, except CNG goods vehicles, experienced significant demand growth.
CNG Goods Vehicle Demand Falls Due to EV Light Vehicle
However, there has been a decline in demand for CNG goods vehicles. This was primarily due to a shift towards electric light commercial vehicles (LCVs) among last-mile delivery operators. The preference for electric LCVs among delivery operators has impacted the demand for CNG goods vehicles. Overall, the report underscores the dynamic nature of the CNG vehicle industry in India and its ability to adapt to changing circumstances.
Cost benefits of CNG
Highlighting the cost benefits, CARE Ratings Senior Director Yogesh Shah emphasized that CNG offers substantial savings. Transitioning to the next sentence, he mentioned the reduction in CNG prices and improved stability.
Shah stated that these factors enhance the attractiveness of CNG as a fuel, driving CNG vehicle sales. According to CARE Ratings, the government has addressed volatility in gas prices through a new pricing mechanism.
The mechanism indexes natural gas prices to crude oil prices, subject to a floor and a ceiling. Additionally, gas produced from new wells or well interventions in the nomination fields of ONGC and OIL will have a 20% premium.
Previously, domestic gas prices were determined based on volume-weighted prices at four gas trading hubs. It is pointed out that the pricing was as per the 2014 domestic gas pricing guidelines.