Plenty of fuel options exist for heavy-duty vehicles, and one of the most promising of these is liquefied natural gas. In India, where heavy-duty transport vehicles play a critical role in the country’s economic success, this fuel option could help maintain reduced air pollution levels brought on by the COVID-19 lockdown. A review of what liquefied natural gas could mean for India’s energy landscape.
On the other hand, despite the link between LNG price and crude price, the value of LNG can be much lower in comparison to the diesel price, depending upon the distance of the LNG retail outlet from the LNG terminal. Therefore, imported LNG could be available at a considerable discount (a range of 30% to 35%) when compared to diesel. With this LNG discount, fleet operators could save on running costs and potentially save on higher capital costs incurred towards the purchase of an LNG-based truck.
Aside from the savings on the cost of fuel, the inability to steal LNG fuel could be an operational incentive for fleet operators. Additional incentives, such as add-on perks or a pay-grade increase, could lead to the sustainable development of truck drivers.
Recent developments in the LNG retail market
In the past, regulations in India were not clear with respect to which entities could set up LNG retail stations. The Petroleum and Natural Gas Regulatory Board (PNGRB) covers CNG stations and grants authorization to entities looking to establish a CGD network (essential for establishing a CNG station). Since LNG is also a form of natural gas, it was understood that setting up LNG retail stations could also fall under the purview of a CGD entity operating in that area.
However, under PNGRB’s recent notification, any entity can set up an LNG station in any geographical area (GA), even if it is not the authorized entity for that GA. This provision opens avenues for many domestic and international gas companies to independently set up LNG retail stations. Petronet LNG Limited wrote a media release asking interested entities to partner with them in developing an LNG retail outlet. This is a positive step toward setting up an LNG retail infrastructure.
In the fiscal year 2019, total retail sales of diesel in India were close to 71 Million Tonnes Per Annum (MTPA), with an estimated 27 MTPA consumed by large- or medium-sized trucks and buses, and close to 9 MTPA consumed by trucks and buses on the golden quadrilateral alone. Retail diesel sales are growing at an annual rate of 4.3%. Considering the total potential of diesel in India and the historical growth rate, there is a huge potential for LNG replacement in the heavy-duty vehicle segment—with the right planning.
The way forward
Given the high price differential between diesel and LNG, entities have free reign to set up retail stations and offer low-priced LNG to end-users. Now is the time for both domestic and international gas companies to map out the market they would like to target, and to develop a business model and implementation scheme.
So, what’s stopping us? There are still two components of the value chain that need to step up: fleet operators and OEMs. Fleet operators are interested in adopting LNG if they can foresee a consistent discount level when compared to diesel, which will help them save on operational costs. Developing indigenous LNG trucks is the last gap to be plugged, which will enable LNG growth in the transportation fuel segment. All stakeholders (i.e., OEMs, financiers, fleet operators, and end-users) need to engage in discussions to make this a successful business model.
Some of the measures to support this fuel can include:
- Incentives to OEMs for taking the lead in development of LNG-fueled trucks.
- Priorities given to operators offering LNG trucks for providing transportation services.
- Fixed route transport demands to ensure the success of LNG as a transport fuel.
- Toll charge reductions for vehicles running on clean fuels.
One of the few upsides of the COVID-19 pandemic is that it has served as a reminder of the importance of clear air to our environment. And countries are taking action. In May 2020, the European Union (EU) unveiled an $826 billion recovery proposal as a centerpiece of its economic response to the COVID-19 crisis—25% of which will be set aside for climate-friendly measures like building renovation, clean energy technologies, low-carbon vehicles, and sustainable land use.
India should also think along similar lines. Now is the right time to build on what the COVID-19 pandemic inadvertently achieved.