Oil price hike driving demand for CNG/LPG cars in India

The surge in demand for compressed natural gas (CNG) and liquid petroleum gas (LPG) vehicles in India is being driven by the increasing price of petrol and diesel, as well as by the fact that CNG prices, which are relatively low compared to prices for more traditional fuels, were reduced in May. In addition, the cost of running CNG fitted cars is substantially lower than the cost of running gasoline fitted vehicles. As well as cost issues, demand is being driven by growing environmental concern and the Indian government's proactive measures to implement Euro-II emission norms. There are over 354,000 CNG vehicles in India, most of which are located in Mumbai and Delhi. However, demand for these vehicles has been growing in tier II cities like Vijayawada, Vadodara, Agartala, Kanpur, Bareli and Lucknow. While in New Delhi demand for CNG vehicles is mostly limited to government mandated taxis and other public transport means, elsewhere, an increasing number of private buyers are also opting for this alternative. Leading car manufacturers such as Maruti Suzuki and Hyundai are providing CNG variants of their most preferred car brands. Indeed, Hyundai has recently introduced a CNG variant of its mid-size Sedan 'Accent' in order to cater for the increasing demand for CNG/LPG fitted vehicles, and more manufactures are looking to follow suit. Nevertheless, the uptake of such vehicles will be limited by the fact that the support infrastructure is relatively weak, with only a limited number of gas filling stations in India. However, eyeing the prospective demand for CNG stations, the state-run gas transporter Gas Authority of India Ltd (GAIL) is planning to invest $8 million in setting up CNG stations along highways and has also identified 230 cities for the city gas distribution project. The relatively nascent CNG vehicle market will also create numerous opportunities for conversion kit manufacturers and fitters in India. Indeed, the sales of LPG/CNG kits to original equipment manufacturers grew by nearly 50% in 2007, and the much larger after-sales retrofitting market is also growing at over 10% every year. Although until recently most of the fitting were made in small cars, there has been an increase in number required in luxury or sedan vehicles. In the long term, the demand for CNG fitted vehicles in India will increase due to the ongoing surge in international oil prices. This is likely to have a favorable impact on the growth of CNG/LPG fitted vehicles in India, and with companies like GAIL and Reliance making huge investments, the infrastructural obstacles should be removed in the near future.