CNG penetration to rise to 18% by 2027 from 11% in 2022: ICRA report

Corporate rating firm ICRA in a report on Tuesday said that the lower prices of compressed natural gas (CNG) will reignite its adoption in passenger vehicles in next few years.

The firm estimated that the new pricing norms are most likely to increase CNG penetration to nearly 18 per cent by the year 2027.

The Cabinet Committee on Economic Affairs (CCEA) gave the go-ahead to a new domestic natural gas pricing plan on April 6, 2023, with domestic gas price at 10 per cent of the monthly average of Indian Crude Basket and notified monthly.

The revised pricing structure benefitted millions of Indians across the country and led to a reduction in price of CNG by up to 10 per cent across cities.

The new structure would limit material increases in prices, with the Cabinet setting a ceiling price for gas produced from ONGC and OIL nomination blocks.

Over the past one year, there has been a spurt in the price of CNG, led primarily by the hike in the prevalent natural gas price.

Factors such as increases in blending cost and depreciation of the Indian Rupee also contributed to multiple price hikes.

ICRA said that the new gas pricing policy led to CNG prices declining to levels seen nearly a year ago, thereby providing relief to the consumers.

Shamsher Dewan, Senior Vice-President and Group Head -- Corporate Ratings, ICRA, said, "The new gas pricing policy has led to CNG prices declining to levels seen nearly a year ago, thereby providing relief to the consumers.

"Rising gas prices slowed down the adoption of CNG powertrains in H2 CY2022, led by a decline in the running cost differential between petrol and CNG powertrains, and a consequent increase in the payback period for the latter.

A decline in CNG prices has led to a reduction in the total cost of ownership (10-15 per cent lower than petrol powertrain) for the powertrain and is likely to aid adoption for it going forward; ICRA estimates CNG powertrain penetration to increase to levels of 18 per cent by CY2027, from 11 per cent in CY2022," Dewan added.

CNG fueling infrastructure has been improving at a healthy pace across the country, with the fuel availability in tier-2 cities also improving.

The government set an aggressive target to ramp up the number of CNG fueling stations across the country.

Given the increasing popularity of CNG variants, leading OEMs have been increasing coverage of CNG across their product portfolio.

The proportion of CNG, EVs and hybrids is likely to materially increase as a proportion of new vehicle sales over the next three to four years, with CNG expected to emerge as the second-most popular powertrain.

The growth in penetration for these powertrains would also help the OEMs meet the Corporate Average Fuel Economy norms, said the ICRA report.