Flaming petrol prices to fuel CNG vehicles adoption – CRISIL report – Jan 2021

Flaming petrol prices to fuel CNG vehicles adoption – CRISIL report – Jan 2021

Elevated prices of petrol due to a steep increase in taxes in the recent past is set to increase the adoption of compressed natural gas (CNG)-driven vehicles. The last time petrol prices had crossed the Rs 80 per litre mark was in October 2018  when Brent crude had surged to $80.5 per barrel.

Hetal Gandhi, Director, CRISIL Research,  says “Tax now accounts for over 60% of the retail selling price of petrol, compared with 47% in 2019. Given that the government has to find the money to ramp up public spending – and is also promoting usage of cleaner fuels – it is unlikely that the tax on petrol will come down to previous levels anytime soon.”

In calendar 2021, CRISIL Research expects Brent crude to rise ~23% on-year to an average $50-55 per barrel from $42.3 per barrel in 2020, riding on a gradual recovery in economic activity globally. That would mean a ~4% increase over the average closing price of December 2020.

In comparison, domestic gas prices are expected to rise over 20% to $2.5-3.5 per million British thermal unit (mBbtu) in calendar 2021 from $2.45 in 2020. While the percentage increase in domestic gas prices is similar, the differential between petrol and CNG retail prices will remain wide because of higher taxes on the former. Parallelly, the government is ramping up city gas distribution (CGD) networks, which would also drive up CNG consumption. Within CGD, the CNG segment – accounting for ~40% of CGD demand – is expected to log a compound annual growth rate of ~25% between fiscals 2021 and 2023.

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