Demand for CNG vehicles remains stable despite surge in gas prices: CARE Ratings

CARE Ratings has released a report on the rising trend of increased demand in Compressed Natural Gas (CNG) operated vehicles, which are unaffected by the rise of gas prices. The report states that the CNG prices have increased significantly, with average prices during FY23 being 49% higher than that of the previous year.

Sharp Increase in CNG Prices in FY23

CNG car sales volumes were up by 40.7% in FY23 over the previous year’s levels. CNG vehicle owners benefited from consistently 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.

Sustained strong demand for CNG vehicles

The 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 increased by 40.7% in the year, with most other categories of CNG vehicles also displaying a large jump in demand.

Lower volatility expected in CNG prices going forward

Natural gas produced from nomination fields of ONGC/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 percent over the APM price.

With the revision in the pricing formula of CNG by the government in April this year which resulted in a lowering of CNG prices compared with petrol, the cost savings have improved 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. 

CARE Ratings 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.