Diesel vs CNG: how the price gap can incentivise use of CNG

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India is considered as a price and value conscious market where price plays a big role in decision making and it's applicable to almost all consumables, especially fuel or energy. Shenu Agarwal, the Managing Director and CEO of Ashok Leyland, believes that a price differential of approximately Rs 20–22 per litre between diesel and compressed natural gas (CNG) will incentivise transporters to transition to CNG as their preferred fuel. Agarwal further asserts that any additional increase in this price gap would accelerate demand, positioning CNG as a prominent automotive fuel.

Speaking on the sidelines of an industry event, Agarwal said, "The CNG equation is very simple. The consumer understands it very, very squarely and fairly. There has to be a differential in the cost of diesel and CNG for the customer to switch; it's just a switching cost, and it is very clear to the customers. The preferred differential should roughly be about Rs 20–22, which is the switching point. If it goes beyond that, then CNG can flourish quite a lot," he said.

The current price differential for CNG is around 29 percent cheaper compared to diesel, industry data suggests. Another factor Agarwal pointed out is that the earlier CNG distribution itself was very weak. "The government is taking care of that. Though it is still not there, the plan is there," he added, referring to the increasing number of CNG retail stations coming up around the country. "So, I think it is just a matter of time before CNG becomes a major fuel," he continued.

Nuvama Research, an analytical firm, provides a helpful analysis of the costs involved in electric and CNG buses. They looked at the total cost of ownership (TCO) and found that in the base-case scenario, the CNG variant of a bus is 26 percent cheaper than the electric vehicle (EV) variant. Even in the worst-case scenario, the CNG bus is still 10 percent cheaper. Although, the operating expenses of an EV bus is lower, the initial cost of buying one is much higher. This is why EV buses haven't gained much popularity in states like Maharashtra and Gujarat, and they are not likely to affect the demand for CNG buses. The report also mentions that in the capital city, Delhi, the adoption of EV buses is expected to be limited to public buses. The government aims to have 80 percent of buses electrified by 2025, but CNG buses will continue to dominate the private bus segment.

Commenting on CNG as a viable choice for today’s CV buyer, Vinod Aggarwal, MD and CEO, VE Commercial Vehicles said, “CNG distribution and availability have grown considerably over the past two decades, keeping pace with growth in the CNG vehicle park. The tried-and-tested nature of our CNG vehicles means that they are a dependable choice for owners. As CNG is priced lower than equivalent diesel, this results in lower operating costs for owners while reducing particulate matter emissions, which is a major concern for our cities.”

Girish Wagh, Executive Director, President and Head of CV Business Unit, Tata Motors, said during a Q1 FY24 post-result call, "On the CNG price correction, with the implementation of the Kirit Parikh Committee (recommendations), we have seen some improvement in retail sales in small commercial vehicles. But we believe that as the message goes into the market and customers understand that there's going to be more dependability on the rates and the differential between diesel and CNG, I think gradually, CNG should pick up."

This feature was first published in Autocar Professional's November 1, 2023 issue.