After 8 hikes in CY2022, CNG price reduced by Rs 2.50 to Rs 87 per kg

After seeing all of eight hikes in CY2022, which took the price of compressed natural gas to an all-time high of Rs 89.50 per kg in November last year, the price of CNG stands reduced by Rs 2.50 per kilogram to Rs 87 per kg from February 1, 2023 (in Mumbai). CY2022 had also seen two price cuts – on August 17 – by Rs 6 per kg – and on April 1 – also by Rs 6 a kg.

In a statement, Mahanagar Gas Ltd (MGL) said: “In anticipation of increased allocation of domestically produced natural gas from High Pressure-High Temperature areas (HPHT) to CGD entities by the Ministry of Petroleum and Natural Gas which reduces MGL’s input gas cost, MGL is pleased to reduce its CNG price by Rs 2.50/kg in and around Mumbai effective midnight of January 31, 2023 / morning of February 1, 2023. Accordingly, the revised MRP inclusive of all taxes of CNG will be Rs.87.00/kg in and around Mumbai.”

As reported earlier, in a span of 21 months – from February 8, 2021 through to November 4, 2022 – CNG prices (in Mumbai) had risen by 81%: from Rs 49.40 per kg to Rs 89.50. That’s marked a sharp increase of Rs 40 per kg of CNG, which seriously impacts the low-cost-of-ownership mantra that CNG vehicles offer and their manufacturers bank on.

CNG’s reducing price arbitrage vs petrol and diesel
One of the compelling reasons for personal passenger vehicle users as well as owners of CNG-powered commercial vehicles has been the substantial price differential versus petrol and diesel albeit that has now reduced sharply. On February 1, 2023, the price of petrol in Mumbai is Rs 106.29 a litre and diesel is Rs 94.25 a litre – fossil fuel prices have remained unchanged since May 21, 2022, which makes today the 256th day since prices have remained stable. That when the Centre had cut excise duty by Rs 8 a litre on petrol and Rs 6 on diesel to tame inflation. 

Over the past two-odd years, the price arbitrage that benefits CNG vehicle users and CNG vehicle manufacturers has sharply reduced. At Rs 87 per kg, the price differential versus petrol is now Rs 19.29 and Rs 7.25 for diesel.

Twenty-one months ago, on February 8, 2021, the price differential between CNG and petrol was Rs 44.09, given the prevailing CNG price of Rs 49.40 per kg and Rs 93.49 for a litre of petrol in Mumbai. That price differential has now halved. 

Nonetheless, if one factors in CNG’s inherently higher fuel efficiency being 1.5 times that of petrol, it still offers increased savings with CNG. Now with the price differential coming down fast, the lower cost of ownership with CNG vehicles is coming under a scanner.

Carmakers expand CNG portfolios
Given the high prices of petrol and diesel, sales of CNG-powered cars have been growing over the past few years and major PV OEMs like Maruti Suzuki, Hyundai Motor India and Tata Motors have expanded their CNG portfolios.  

In FY2022, the passenger vehicle segment saw CNG-powered sales clock near-55% YoY growth with sales of 265,383 units, accounting for 8.64% of total PV sales of 3,069,499 units compared to 6.30% CNG PV share in FY2021.

On October 31, 2022, Maruti Suzuki India expanded its factory-fitted CNG model range to 12 models with the inclusion of the Baleno and XL6, the first of premium Nexa models to get the CNG range. India’s passenger vehicle market leader remains bullish on CNG demand and has ramped up CNG vehicle manufacturing capacity to 35,000 units a month since August 2022. On November 19, 2022, the carmaker launched the Alto K10 CNG at Rs 595,000, aiming to make inroads into the Tier 2 and 3 markets across India. 

November also saw Toyota Kirloskar enter the CNG market with its premium Glanza hatchback and the Urban Cruiser Hyryder, which became India’s first CNG-SUV.

Growing shift towards EVs
While it is difficult to say whether CNG prices will be further reduced, the fact remains that CNG vehicle running costs are significantly lower compared to petrol or diesel as a CNG vehicle inherently delivers better fuel economy.

A few challenges remain though. Refuelling takes longer due to a fewer number of CNG stations and highway driving requires additional planning in terms of trying to take a route with a CNG station. At present, there are an estimated 1,332 CNG stations and plans are to substantially increase the existing parc of 4,500 CNG stations to 8,000 in the next two years.  Also, servicing costs of CNG-powered cars are higher compared to petrol siblings with the CNG filter requiring scheduled replacement in factory-fitted CNG kits.

Passenger vehicle and three-wheeler buyers now have another option – electric vehicles. While the initial cost of an EV is higher than a CNG or petrol/diesel model, the much lower cost of EV ownership in the long run is very attractive. With the Central and state governments offering a host of subsidies, the fast-expanding EV charging infrastructure and also banks and financing institutions plugging into the EV growth story, it is likely the CNG sector's loss could be the EV segment's gain.

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