Rising Gas Prices Constrain CNG Penetration In Commercial Vehicles: ICRA

Rising gas prices have constrained CNG penetration in commercial vehicles to 9-10 per cent in the current fiscal from peaks of 16 per cent, ICRA Ratings said on Friday.
     
A spurt in global energy prices has led to a 70 per cent jump in the price of CNG in the last one year. This has narrowed the gap between fuel and diesel, blurring the incentive to shift to cleaner fuel.
     
In a statement, the rating agency said CNG penetration in the domestic commercial vehicle (CV) sector has witnessed a decline in the current fiscal, especially in the MCV truck segment.
     
"Rising CNG prices have narrowed the gap with diesel and in turn, diminished the running cost savings from CNG vehicles, which has been the key deterrent," it said.
     
Notwithstanding the recent decline witnessed in CNG penetration, medium-term prospects remain favourable given the improving CNG fuelling infrastructure and push for cleaner vehicles, it added.
     
ICRA said the CV industry has witnessed a contraction in the penetration of compressed natural gas (CNG) driven vehicles in the current fiscal year, which comes after witnessing a spike in the previous 2021-22 fiscal year.
     
The fall has been particularly noticeable in the medium commercial vehicles (MCVs) (12-16 ton) in the goods carrier class.
     
"The percentage of vehicles powered by CNG has dropped from 38 per cent in FY2022 to 27 per cent in first eight months of FY2023," it said.
     
However, the market for passenger carriers and buses continued to show a gradual acceptance of vehicles powered by CNG, which has been supported to some extent by the government's push for greener vehicles.
     
"This, along with electric vehicle adoption, is expected to continue going forward as well," ICRA said.
     
Commenting on the trends, Sruthi Thomas, Assistant Vice President & Sector Head - Corporate Ratings, ICRA Ltd, said, "The contraction in CNG vehicle sales in the domestic CV sector in the current fiscal has largely been on account of the narrowing gap between CNG and diesel prices, which has diminished the running cost savings from CNG vehicles."
     
The operating costs for CNG vehicles increased by about 20 per cent over the past year and are even higher vis-à-vis comparable diesel variants in certain cities like Delhi and Mumbai, by 5-20 per cent now.
     
"Coupled with the higher cost of the vehicle and lower load-carrying capabilities of CNG trucks, the economic case for its adoption has become far less compelling," she said.
     
Accordingly, monthly CNG sales of CV, which had peaked at 11,000-12,000 units, are trending at 6,000-7,000 units now.
     
"This will likely continue over the near-to-medium term given the ongoing geopolitical challenges, especially the Ukraine-Russia war, and its impact on global gas prices," she said.
     
ICRA said the increase in gas prices has not been secular, and certain cities continue to maintain a marked price differential between diesel and CNG.
     
This has resulted in varied trends in CNG penetration across regions in the current fiscal.
     
The high variability in CNG prices across regions (varying from Rs 59 per kg in some cities to Rs 90 a kg in others) has also impacted the penetration.
     
"Given the trends visible in the sector, CV OEMs are increasingly focusing on developing alternate fuel/technology vehicles, including introducing new models in the electric vehicle (EV) space in select segments, and have slowed down the pace of introduction of CNG models," Thomas said.
     
OEMs are also investing in alternate technologies such as hydrogen fuel.
     
"That said, notwithstanding the recent decline witnessed in CNG penetration, medium-term prospects remain favourable given the improving CNG fuelling infrastructure in the country and a general push for cleaner vehicles," she added.