Fall in price of natural gas makes CNG vehicles more attractive
After an almost 18% cut in prices, cost competitiveness of CNG vis-à-vis petrol and diesel has increased by 5-10% from what it was around six months ago
Owning a CNG-powered car just became more attractive.
With the government announcing an almost 18% cut in the price of domestic natural gas from 1 October, the cost competitiveness of compressed natural gas (CNG) vis-à-vis petrol and diesel has increased by 5-10% from what it was around six months ago.
The savings are based on the average cut passed on by various city gas distribution (CGD) companies to consumers.
Two of India’s biggest CGD firms, Indraprastha Gas Ltd (IGL) and Mahanagar Gas Ltd (MGL), on Thursday announced their decision to pass on the price cut to consumers.
“With this reduction in prices, CNG continues to be a very attractive proposition for consumers and offers savings of about 58% and 20% as compared to petrol and diesel, respectively, at current prices in Mumbai,” said a note issued by MGL on Thursday.
The company slashed the price of CNG sold in Mumbai from Rs.42.95 per kg to Rs.41.90 per kg. IGL, which serves the national capital region (NCR), slashed the price of CNG byRs.0.80 to Rs.37.30 per kg.
This means that for a 25km daily commute, a car running on CNG will cost Rs.12,000 per year less than diesel (as against Rs.10,000 per year before the price cut). Similarly, compared with a car running on petrol, a consumer will shell out Rs.28,000 less, as against Rs.26,000 earlier.
The calculations are based on the assumption that the average mileage of a car running on petrol is 11-13 km per litre; diesel is 12-15 km per litre and a CNG-powered car is 17-19km per kg, as suggested by various analysts and car dealers.
An email sent to IGL on Thursday went unanswered.
According to analysts, the move not only benefits consumers by giving them a much cheaper alternative fuel to run their vehicles, it works for companies too, translating into a jump in sales volumes and margins in the coming quarters.
It also gives a fillip to the Narendra Modi government’s initiative to push consumption of CNG by setting up green corridors across major highways in the next two years.
In July, oil minister Dharmendra Pradhan had said the government is planning to set up green corridors across the country to promote the consumption of CNG. “The petroleum ministry is contemplating developing green energy corridors across the country. The corridors in the northern region will be between Delhi-Jaipur, Delhi-Chandigarh, Delhi-Haridwar and Delhi-Agra and similar green corridors are being proposed for Allahabad-Kanpur-Varanasi-Lucknow, Bengaluru-Mumbai-Pune and across a few cities of Andhra Pradesh,” Pradhan had said.
“Over April-September 2015, the price of diesel declined by 8% while that of CNG remained unchanged, thus lowering the fuel competitiveness of CNG. Ind-Ra expects the benefits of lower gas prices to continue to be passed on to the consumers… This would make CNG 44%-45% more competitive than diesel, compared with 39% currently,” said a 30 September report by rating agency India Ratings, a Fitch group company.
The report said besides the benefit to consumers, even CGD players will see a jump in volumes, as low prices will attract more customers.
Analysts agree. “Volumes will be driven by competitiveness of CNG versus petrol/diesel,” Jal Irani, analyst with brokerage Edelweiss Securities Ltd, said in a report on 30 September.
CGD players will also gain the most from the price cut, as the segment gets 100% allocation of cheap domestic gas, which will enhance margins, he wrote.
Private companies such as Adani Gas Ltd, a Gujarat-based CGD company, are betting on a major expansion in volume from people switching from petrol to CNG. “Diesel was never meant to compete with CNG, as diesel is an inter-city transport product. CNG competes directly with petrol and the current price cut makes the price difference between the two products even more stark,” said an executive from Adani Gas who did not want to be identified.
The company operates in the cities of Ahmedabad and Vadodara in Gujarat, Faridabad in Haryana and Khurja in Uttar Pradesh.