Demand for CNG vehicles unaffected by rise of gas prices: CARE Ratings

Demand for Compressed Natural Gas (CNG) operated vehicles remained stable despite a surge in gas prices, according to a latest report. The CNG prices have increased significantly, and average prices during FY23 were 49% higher than that of the previous year, CARE Ratings said in a report.

As per the report, CNG car sales volumes were up by 40.7% in FY23 as compared to the previous year. “CNG vehicle owners benefited from consistent lower operating costs due to a notable difference in prices compared to petrol. In FY23, gas prices experienced a significant 49% increase due to global supply disruptions caused by the Russia-Ukraine conflict,” it noted.

CARE in its report said that a sharp increase in CNG prices was initially expected to dampen the demand for CNG vehicles in FY23. On the contrary, retail sales of CNG passenger vehicles jumped by 40.7% in the year, with most other categories of CNG vehicles also displaying a large jump in demand.

Going forward, lower volatility is expected in CNG prices as natural gas produced from nomination fields of ONGC and OIL, New Exploration Licensing Policy (NELP) blocks, and pre-NELP blocks will now be indexed to crude oil prices and be subject to a floor and a ceiling. However, gas produced from new wells or well interventions in the nomination fields of ONGC and OIL would be allowed a premium of 20% over the APM price, the report highlighted.

Adding to it, the revision in the pricing formula of CNG by the government in April this year also resulted in a lowering of CNG prices compared with petrol. This measure improved cost savings over the January 2023 levels, therefore attracting more attention towards CNG vehicles for long-distance commuters and taxi drivers.

“We believe that in the medium term, CNG vehicles will continue to see sustained strong demand growth, notwithstanding the steep price rise witnessed in FY23. Now with the reduction in CNG prices and its volatility under the newly administered Price Mechanism, the attractiveness of CNG as a fuel has further extended which will boost CNG vehicle sales for FY24,” said Yogesh Shah, Senior Director, CareEdge Ratings.

The agency expects a shift from internal combustion engine vehicles to electric vehicles in the future. This transition is likely to occur as electric vehicle prices decrease due to advancements in battery technology, coupled with the expansion of charging infrastructure.