Automakers seek government help as high CNG rates bite

Automakers seek government help as high CNG rates bite

In the wake of the 50-60 per cent increase in gas prices over the past 12 months, CNG car sales bookings were declining 10-15 per cent. Hence, the Society of Indian Automobile Manufacturers’ Association wrote to the ministry earlier in the month, seeking its intervention.

India’s automotive industry has urged the Ministry of Petroleum and Natural Gas to lean on gas companies to reduce prices after the Centre had stepped in to boost domestic supplies of the fuel.In the wake of the 50-60 per cent increase in gas prices over the past 12 months, CNG car sales bookings were declining 10-15 per cent. Hence, the Society of Indian Automobile Manufacturers’ Association wrote to the ministry earlier in the month, seeking its intervention. ETIG analysis showed that from peak monthly sales of 29,535 units in March 2022, volumes dropped to 25,480 units in July.

CNG-powered vehicle sales have been consistently dropping since April, Vahan data showed.In June, the Centre increased domestic gas allocation to city gas distribution companies that may help curb rising CNG prices in the past few months.Domestic allocation has increased to 94 per cent compared with 85 per cent in the last quarter that would increase gas volume of CGD companies to 20.8 mmscmd from 17.5 mmscmd earlier.This would mean blended gas cost of CGD companies will come down by around $2/mmbtu to around $8/mmbtu. Every $1/mmbtu decrease in gas prices would translate into lower pump prices of Rs 5-6 per kg.Further lowering of retail prices should boost the cost competitiveness of CNG to 30-40 per cent based on calorific value compared with petrol and diesel.City Gas Distribution companies have increased prices significantly in the past few months as gas cost perked up on higher prices of the spot LNG which flared up due to geopolitical tensions.The prices of CNG increased to Rs 75-86 per kg in metro cities at the beginning of August 2022, compared with below Rs 50/kg a year ago.In the past two months, Mahanagar Gas had taken one of the highest CNG price hikes of more than Rs 10 per kg, while IGL and Gujarat Gas did not take price hikes in the same period. MGL cut CNG prices by Rs 6 per kg after the government increased domestic gas allocation.

Auto industry sources said that demand and enquiries of CNG vehicles have tapered in the past few months owing to higher payback period of CNG vehicles considering the pricing discount on conventionally powered cars and the upfront additional cost of Rs 80,000-90,000 for a CNG variant.CNG passenger vehicles accounted for 12 per cent of the total industry sales in July 2022, a growth of nearly 200 basis points over the year, Vahan data showed.Maharashtra, Gujarat, Uttar Pradesh, Haryana and Delhi account for nearly 85 per cent of CNG PVs sold in India. Maruti Suzuki is the largest player in the CNG space, with market share of more than 70 per cent. Cars powered by this fuel type account for nearly 20 per cent of its total volumes.On the potential impact of increased gas prices on sales, Shashank Srivastava, Sr ED, sales and marketing, Maruti Suzuki, said the running cost of vehicles is a very important criteria for consumers in deciding the purchase.“If the CNG prices increase at a faster pace than gasoline/diesel prices, the running cost advantage will come down and hence logically there should be a negative impact on CNG vehicle demand,” added Srivastava.

“There seems to be some adverse impact on the booking trend but the quantum is difficult to quantify as different models are impacted differently. Moreover, some new models have also been introduced in the last few months.”CNG has largely substituted diesel in the compact car space and has turned into not only a cost-effective alternative, but also a cleaner option for the environment as well.Parts shortage for CNG-powered vehicles, higher fuel prices, and delays in introduction of CNG variants for some models might cause Maruti Suzuki to miss its annual sales target of 600,000 units for this variant, say people in the know.Rajesh Patel, Chief Financial Officer at Mahanagar Gas, told analysts recently in a call that while the price gap between CNG and liquid fuels narrowed, CNG-powered cars are still better off on the efficiency touchstone.”These are unprecedented times where all commodity prices have seen a significant increase; this is one such instance,” Patel said. “But in the long run, the price gap between liquid fuels and CNG will remain.”

https://energy.economictimes.indiatimes.com/news/oil-and-gas/automakers-seek-government-help-as-high-cng-rates-bite/93698652

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