Home/ Industry / Energy/  Will CNG upstage diesel as fuel of choice?

The share of diesel in passenger vehicle sales in India is falling, and CNG seems to be the fuel that is gaining at its cost. What is behind the shift to CNG automobiles, and is this change sustainable? Mint explores:

What is the trend in CNG vehicle sales?

Sale of automobiles using compressed natural gas (CNG) has surged in the last two years since the onset of stricter BS VI emission norms that made cars in general and diesel vehicles in particular more expensive. In 2019, CNG accounted for less than 2% of overall passenger vehicle sales in the country, but it shot up to 6% the very next year and is nearing 12% this year. In contrast, the share of diesel vehicles has fallen from over 30% in 2019 to less than 18% this year. In the first nine months of 2022, 1.97 lakh CNG vehicles were sold in India as against 1.65 lakh in all of 2021.

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What is fuelling the growth of CNG?

Factors like more choices for consumers, favourable economics and greater fuel availability have helped. There are nearly two dozen CNG models available now compared to just eight in 2015. For example, Maruti has expanded its portfolio from just six models in 2015 to 13 today. CNG was always a more economical and cleaner fuel but the rising cost of petrol and diesel in the last few years has made it more attractive. On a per kilometre basis, the cost competitiveness of CNG went up from 51% to 65% and 37% to 54% vis a vis petrol and diesel respectively between fiscal 2020 and first half of fiscal 2022.

The price edge
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The price edge

Haven’t prices of CNG gone up as well?

There has been a spurt in global gas prices, worsened by the war in Ukraine. India raised natural gas price by 40% in September, and 110% in the first half of the fiscal. This has raised price of domestic CNG for vehicles by over 80% since April 2021. Hence, its cost competitiveness is expected to fall to just 32% over petrol and 14% over diesel in the second half of FY23.

Is CNG availability getting any better?

Yes; as of July 2022, there were 4,664 CNG stations in India against 3,095 on March 2021 and only 995 in 2015. These are still small numbers when compared to petrol or diesel—over 80,000 pumps, indicating ample headroom for growth. The government is planning to increase the number of CNG stations to 8,000 by 2024. Indraprastha Gas Ltd, the largest CNG retailer, has plans to invest 8,000 crore in the next five years to expand its city gas network. This alone would translate into more than 400 new stations.

What is the outlook for the future?

The gas price rise may temper demand for CNG vehicles. The Kirit Parikh panel recently recommended cutting excise duty on CNG and bringing it under GST. If accepted, this could provide a boost. Still, it is unlikely that diesel would benefit from a potential slowdown in demand for CNG. The next phase of BS VI norms would make diesel vehicles costlier. Meanwhile, the number of CNG models would only go up. While petrol will remain the fuel of choice, CNG may upstage diesel as the next in line as early as FY24.

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Updated: 13 Dec 2022, 11:32 AM IST
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