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.
Over the years, countries like China, the United Kingdom, the United States, Spain, France, the Netherlands, Sweden, and Italy have switched to using liquified natural gas (LNG) in heavy-duty vehicles (HDVs) due to common concerns over air quality, climate, energy security, and economics. Historically, the adoption of natural gas as a transport fuel has helped cities like Delhi reduce particulate matter (PM) load; between 2002 and 2007, the annual average PM10 levels dropped by about 16%. After rapid motorization, however, particulate levels increased dramatically by 75%.
Growing concerns about vehicular air pollution
Amid the COVID-19 lockdown, air pollution levels throughout Northern India, including in Delhi, have reduced drastically. However, the resumption of economic activities in India brings with it the risk of losing the environmental benefits of the last few months.
Diesel trucks are one of the major contributors to air pollution. This is why, just a few years earlier, the government of Delhi took the lead by enforcing traffic diversions, regulating vehicle entry based on emissions, and capping the age of vehicles. Some of the provisions included levying environment compensation charges (ECC) on commercial diesel goods vehicles entering the city. In Delhi, the State Transport Department made it mandatory for all trucks weighing up to 7500 kg to run on compressed natural gas (CNG). Despite the various advantages of CNG trucks, the conversion of heavy-duty vehicles (trucks) weighing over 7500 kg is challenging due to the heavy payload and the requirements of long travel times without refueling, as well as the additional weight of multiple CNG tanks.
Globally, there are other alternatives to diesel in freight transportation, such as electric vehicles (EV) and hydrogen-powered vehicles. EVs are gaining in popularity in the passenger vehicle segment. However, it may take time for these technologies to create a mass scale disruption.
According to an analysis of the cost and weight estimation of a battery for an electric truck, a vehicle with a range of 965 km would require a 31,000-pound battery costing $300,000. That is 50 times heavier than a battery for an average passenger car. Even if battery prices came down by half, that truck battery would still cost $150,000— a considerable price tag. Further, the range of EVs is limited by weight, design, and battery type, and is well suited for short distances. In India, EVs face various other challenges in terms of inadequate charging infrastructure, high prices, and reliance on imported batteries and parts.
Hydrogen, in the long run, could be a competitive fuel in the case of HDVs, but it still faces challenges due to the high cost involved in the production of hydrogen fuel-cell stacks, and hydrogen fuel stations. The costs involved in the hydrogen value chain can only go down with help from more technological development and wider adoption.
Price competitiveness of LNG over diesel
In India, the retail price of diesel depends on factors such as international product prices, excise duty, value-added tax (VAT), and margins. At present, the excise duty charged on diesel is INR 31.83 per liter. Levied duties are leading to a price upwards of INR 70 per liter.
Despite the recent drop in crude price due to COVID-19, there was no significant decrease in the retail price of diesel in India (as the commodity is heavily taxed). Over the years, there has been a consistent increase in the excise duty on diesel irrespective of the movement of crude prices.
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.